Buzz Article:
Is AIM On The Way Back Up?

by David Smith of Fasken Martineau DuMoulin LLP, 5/11/2010

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Introduction

The release by the London Stock Exchange of the statistics for AIM for 2009 gives an opportunity to reflect on the difficult year it's been for AIM and the companies trading on it, but also shows some of its strengths, and can even, to the optimist, indicate the possibility of a return to some semblance of normality.

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The stark news is that 293 companies left the market last year, and only 18 joined (of which 3 transferred to AIM from the Official List). The number of new entrants was dramatically down on 2008 (73, of which 10 were Official List transfers) although the number of companies leaving the market was not markedly higher (2008:252). At the year end there were 1,293 companies on AIM, down from a maximum of 1,694 at the end of 2007. The number of companies on AIM has not been as low as this since 2005.

Of the 15 genuinely new companies to the market, 13 were able to raise new funds at the time of admission, securing a total of £610.5 million. This is the lowest total raised on AIM by new entrants to the market since 2002. The newcomers to the market showed some interesting characteristics:

• only 5 companies were conventional trading businesses; the rest were either financial or investment companies across a range of general and specialist areas (6), or real estate companies (4)

• the overwhelming majority of the monies raised on admission went to the real estate (£355 million) and financial/investment (£235 million) sectors

• in contrast to recent years, only one mining company came to market, and one energy company

• 11 of the 15 companies were incorporated overseas - 8 in the Channel Islands, which seem to be making considerable strides in establishing themselves as the offshore jurisdiction of choice, if the limited sample of 2009 is indicative.

• 4 of the new entrants were companies with businesses with operation in Asia - energy, shipping, palm oil and private equity investment in the PRC. Together these companies raised a modest £18 million on admission.

These figures do little more than confirm what anyone working in - or needing access to - the market has been painfully aware of, that IPO activity was all but dead for much of 2009. But there are perhaps grounds for cautious optimism to be found in the timing of such new issue activity as there was - of the 15 new entrants, 10 of them came to market in the final three months of the year. January 2010 got off to a slow start but there are certainly signs, perhaps anecdotal only, that investor interest in new companies is beginning to warm up.

Where AIM has already shown real signs of recovery is in relation to the support provided to companies already on the market. In a frankly terrible year in 2008, hugely affected by the almost total market paralysis and then urge to disinvest in the second half of the year, further financings had fallen to a mere £3.2 billion, down by two thirds from the 2006 peak of £9.6 billion. As the economic environment, both locally and globally, started to stabilise investors demonstrated that in the right circumstances they were often prepared to support their existing investments, and follow-on funding last year rose by over 50 per cent to £4.9 billion.

The other areas of great concern to companies on the market, or considering coming to market, are share price performance and the level of activity in the company's shares. In both areas AIM had a good year. The FTSE AIM All Share Index rose by 70% over the year (compared with the FTSE All Share index which rose only 30%) and by 75% from its low in March 2009. More shares were traded on AIM last year than in any earlier year, and the total number of bargains was only 5 per cent off from the peak in 2007. Turnover was dramatically reduced from earlier years, but that is hardly surprising given the dramatic reduction in prices in 2008 and early 2009, and also that the number of companies on the market is only 75% of the 2007 peak.

Working from such a small sample of transactions in 2009 it is perhaps difficult to draw any reliable conclusions about the way the market is heading. The preponderance of non-trading companies coming to market could be seen as a little discouraging, but is perhaps a sign of the times. It's certainly interesting to see that interest in AIM from the Pacific Rim countries is still there - that coincides with our own experience, and we believe 2010 will see a continuation of Asian companies using AIM for liquidity even if not necessarily for significant fund-raising.

Whilst it has been reassuring to note the speed with which share prices on AIM have been recovering, albeit from a dramatically low base, it is likely that investors will need to reassure themselves generally that the market has found a stable floor, and that target valuations for new market entrants are at sensible and sustainable levels, before the IPO market for trading companies, wherever they are based, can really recover.

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David Smith, Partner,

David Smith is a partner in Fasken Martineau DuMoulin LLP and Fasken Martineau LLP (London) and a member of the Corporate/Commercial practice group.

David's practice focuses on capital markets and a combination of capital raising and mergers and acquisitions. He also regularly represents entrepreneurial growing companies, both public and private. David has been actively involved in the Alternative Investment Market (AIM) since its inception in 1995, and has acted as company secretary to a number of listed and AIM companies.

David is a skilled communicator who aims to provide practical advice that is sensitive to the needs of his clients at a time when they need cool, calm counsel. He also recognizes the importance of balancing the sophisticated and sometimes taxing demands and business practices of capital providers with the needs of his entrepreneur clients, whose desires are generally focused more on concluding a transaction than on technical detail.

While David represents clients across industries ranging from television to information technology, his practice has some emphasis on the health sciences and natural resources sectors; to that end, he has lectured and written on the application of royalty financing securitization structures in the pharmaceutical industry.

Honours and Awards

• David is recognised in the Capital Markets 2007/8 handbook, published by Practical Law for his expertise in Equity capital markets: small-mid cap. David "acts for a number of companies in AIM-related transactions", and "has a wealth of experience in this area". 

• David is recognised in the PLC Which Lawyer? Yearbook 2009, published by Practical Law for his expertise in Capital Markets: Equity (small-mid cap). 

• David is mentioned in Chambers UK legal directory 2010 as a 'Leader in his field' and is recommended in Life Sciences: Commercial/Corporate; "David Smith is another corporate lawyer with a life sciences specialism, who is recommended by clients for his decades of experience and high-calibre work".

Fasken Martineau DuMoulin LLP

Fasken Martineau is one of the world's leading international business law and litigation firms with more than 650 lawyers with offices in Canada, the United Kingdom, France and South Africa. Our practice includes every sector of business, industry and government.

Our approach is built on relationships. That means a comprehensive and sustained focus on service at the highest levels throughout our entire firm to meet and anticipate your evolving needs. Quite simply, the building of relationships starts with listening to you, our clients.

Our international excellence, sector expertise, integrity and ethics have earned us numerous prestigious accolades such as being named a top corporate dealmaker by Lexpert; consistently distinguished in the Canadian Legal Lexpert Directory, the prestigious Chambers Global Guide to the World's Leading Lawyers, the International Financial Law Review's Guide to the World's Leading Financial Law Firms, and The International Who's Who of Business Lawyers. 

© 2010 Fasken Martineau DuMoulin LLP. Originally published January 18, 2010.

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