Reading the latest performance figures for AIM is depressing. Let’s be honest, things could be a lot better. If all the indicators are correct, 2023 will be AIM’s worst year since 2002. The number of companies on AIM is down, the number of flotations are down, the amount of money raised through IPOs and secondary fund raisings is down, trading is down and so are company valuations which is prompting in a slew of acquisitions, the only measure on an upward trend.
But before we all start crying into our tea-cups, perhaps we should follow the advice of our esteemed political leaders of all stripes and take a longer-term view: is AIM meeting the objectives it was originally set-up to achieve?
When it was established in 1995, AIM’s goal was to provide growth companies with access to investment in a light-touch regulatory environment. Its launch coincided with the dot.com boom and so many of its earliest companies were in technology, which thrived alongside the market’s many energy and mining companies (before the bubble burst). In the early days, there were a lot of companies on the market that shouldn’t have floated and have since left, such as a number of Chinese sham companies in the mid-to-late 2000s, as well as a froth of companies that came to market in the doc.com era that didn’t stand-up to scrutiny. But, there have been success stories, too. Many companies that came to market with a value of several hundred thousand pounds are now worth many millions.
Just because market performance is down that doesn’t mean that AIM’s not working. Where a company’s market capitalisation has gone down, industry sector factors may be to blame, or it might be that a market has matured and the valuation has fallen compared to investors’ initial excitement – a common occurrence in growth markets. Some companies have been sold-on, and some have exited having achieved their goals by being on AIM.
AIM’s performance indicators are tracking what is happening generally in the economy and are to be weathered. Nobody would deny that AIM now finds itself in difficult territory, but it is not alone. Market shocks such as, the pandemic, the shift in focus around global logistics, and the war in Ukraine together with the resulting factors of high inflation, high interest rates, weak growth, and low economic confidence, are effecting all markets everywhere, not just AIM, although the spikes may be more spectacular because of its higher risk, growth company profile.
Many of the alternatives to AIM are drying-up and/or losing their sparkle. The lustre of SPACs which lured many technology IPOs to other markets has dulled, and as many unfortunate companies can attest, the glitter of NASDAQ (in terms of a larger pool of less risk-averse retail investors and higher initial valuations), has not resulted in the gold-plated share prices in the long-term that they hoped for and expected.
Some companies that opted to join London’s main market standard list because they thought it would be easier (and cheaper), have since encountered difficulties because of the higher administrative burden and costs of the general requirements and prospectus rules. It is also a lot harder to do secondary raises. As a result, a number are now de-camping to join AIM because of its greater flexibility. In addition, the option to raise funds and grow outside of the markets by attracting private equity investment is also on the wane because of the increased cost of money.
Many countries are looking to beef-up their stock markets’ profiles in an attempt to reset the dial. Christine Lagarde, President of the European Central Bank at the European Banking Congress this November declared her intention to create a capital markets union to “make Europe’s capital markets more supportive”, and Jeremy Hunt is also planning capital market reforms to support the UK stock market and promote investment in British companies.
While 2024 doesn’t promise a change in terms of an improved performance, perhaps it can promise an improved perspective on AIM’s prospects.
AIM is less regulated than the main market, but it still has many more checks and balances and is much less ‘Wild West’ compared to other markets, which should instill confidence in these more turbulent times. There may be a smaller number of companies on AIM, but the quality of company coming to the market has improved and it is therefore a better place for companies to be. Where companies are undervalued, there is scope for companies to significantly increase their value, and an additional plus point is the inclusion of AIM shares in ISAs which should lead to more trading. In addition, there is an increasing number of firms across all adviser categories providing a wider pool of choice and a variety of expertise to companies.
More importantly, the industry sectors of the future that we are all depending upon to reboot the global economy, play to AIM’s traditional strengths. The 4th industrial revolution: AI, green technology and renewables, are all industries in AIMs bailiwick. We are likely to see more growth companies in these nascent industries across all sectors than we have seen over the past ten years, which will provide a huge opportunity for AIM to promote its successes and position itself to take advantage of these developments compared to other markets.
It’s a British tendency to down-play our successes. We are loath to blow our own trumpet. Twenty-five years on, AIM is still a success and there’s a lot of opportunity ahead. While the numbers are down, the product is still good and we should talk-up AIM’s achievements. Looking forward, there’s a lot to be positive about.
This article was originally published in the 15th Anniversary AIM Advisers Rankings Guide. For more information, please contact Mark Ling.