The AIM market, the London Stock Exchange’s junior market, has been subjected to an unprecedented level of criticism over recent weeks. The fiasco at Quindell, which saw another twist this week, as the company called in PwC to review its accounting practices, has seen blame apportioned to Aim itself, and those who regulate it.
In tandem, there is a fear that the bulge bracket banks are abandoning Aim and, in particular, shedding their “nominated adviser” or “nomad” status. Bank of America Merrill Lynch has withdrawn from its position as an Aim nomad, following the lead taken by UBS and Deutsche Bank. All this has sparked a debate over what exactly is wrong with the Aim market. In my view, however, the fears are misplaced. The Aim regulatory regime is not only vigorous, but the market will remain strong and continue to enjoy robust growth.
Aim is an exchange-regulated market, and the nomads perform the role of quasi regulator with respect to their clients. It is up to the nomads to determine the suitability of the company for admission to the market, and also to advise firms on their ongoing obligations. The role is labour-intensive and involves a high regulatory burden, for which investment banks, and some accounting firms, are paid a relatively modest fixed fee.
Many Aim nomads are integrated houses which, in addition to policing their client’s activities, also provide corporate finance advice, equity research, corporate broking and equity sales. These latter roles, producing lumpy revenue as opposed to the annuity of a nomad retainer, are far more lucrative to the adviser. The FCA’s regulation requires strict Chinese walls between these various activities, yet among corporates there is a perception (for the most part correct) that, to properly service their needs, their Aim nomad/broker has to make the full gamut of corporate finance services available to them.
Aim has always had its fair share of detractors and has, across almost two decades of its existence, been considered high risk. Crucially, companies seeking admission to Aim are not required to show the three years trading track record or have a minimum level of market capitalisation that is necessary for a premium listing on the main market of the London Stock Exchange. There is also a perception of a particularly light-touch regulatory regime surrounding the Aim market.
Having undertaken the legal work on the admission process for many companies seeking an Aim quotation over the last 15 years, and seeing first-hand the rigour required with respect to due diligence, verification and the admission process as a whole, I would refute these concerns. The regime in place is robust. In the current landscape, where some red tape is arguably stifling the ability of larger corporates to raise funds and grow in a nimble and responsive way, it is important that there is a place where regulation isn’t too heavy-handed, and where corporates can work within a regulatory regime to access capital.
Since its inception, £84bn has been raised on Aim, of which £37bn has been raised at the initial public offering (IPO) stage, with the balance through secondary fundraisings. This has provided an invaluable source of growth capital for a broad spectrum of nimble SMEs, for whom a main market quotation may be inappropriate. Without Aim, these companies might struggle to raise the required levels of investment. To date, Aim has allowed SMEs from a wide range of sectors, including natural resources, property, media, tech and leisure, to access growth capital ranging from £5m to £250m.
Aim was of course hit hard during the credit crunch. However, in the last 12 months or so, it has been revitalised and the number of IPOs and successful secondary fundraisings has risen steeply in 2014 – a trend we see as a positive signal of a return to a healthier economy in the UK.
Further, the perceived shift of bulge bracket banks away from Aim does not reflect their abandonment of the junior market. Instead, it should be better interpreted (and has been by some in-the-know market commentators) as a focus of their resources on the more lucrative sales and broking end of the market for large companies, rather than the labour-intensive nomad regulatory role. Aim regulation would undoubtedly welcome any bulge bracket bank as a nomad.
Given the tax attractions of investments in Aim companies, including no stamp duty on share transfers, the ability to invest via an Isa, and inheritance tax benefits, there is no doubt in my mind that the junior market will remain strong and continue to grow.