Quarterly analysis of the AIM market by Deloitte, the business advisory firm, has shown next to no new activity on AIM in 2009, with quarter one showing new lows for total new money raised.
Richard Thornhill, capital markets Director at Deloitte, commented: “Consistent with quarter four 2008, the new year has brought such low levels of new companies coming to AIM that to all intents and purposes the fundraising market for new companies on AIM does not exist. Just £13 million of new money was raised on the market in the final quarter of 2008, which itself was the lowest for a decade. However, in Q1 2009 this has fallen again to just £3 million in total. To put this in perspective, over £300m was raised on the AIM market by new companies in the first quarter of 2008. Across the same periods the number of companies listing has fallen from 32 to five, and in the last 12 months there have been 87 listings in total compared with 519 in the 2005, the most active year on AIM.”
So what impact is this having on the way companies view becoming listed as a suitable strategic move as they grow and develop?
Thornhill continued: “During the early part of 2008 there remained a number of companies that still wanted to list even though there wasn’t the opportunity to raise any money (complete an Admission only) and 16 such listings were complete in Q1 2008. At that time, this was considered a good way to get the ‘administrative’ element of the listing process out of the way to leave the company in question well placed to raise funds quickly when the markets turned. Come 2009, however, the number of companies wanting to take this route has also dried up with only one such transaction taking place in Q1. This speaks volumes for market expectations with regard to public fundraising opportunities for smaller companies over the medium term.”
So is it the case that management teams are questioning the whole process of listing and whether it really delivers the advantages that brought so many companies to markets, like AIM, over the last five years?
One prominent feature of the AIM market in the period since the start of 2008 that supports this view has been the number of companies that have de-listed from the exchange. There were a total of 258 de-listings across the 12 months to 30 December 2008 and this trend has continued in 2009 with a further 77 companies de-listing in Q1. Over this time the total number of companies listed on AIM has fallen from 1,694 at 31 December 2007 to 1,478 as at 31 March 2009, a fall of 13%.
Of the companies that are de-listing the principal factor appears a desire on the part of the company to leave the market rather than being compelled by the exchange to leave (this is the case for 46 out the 77 de-listings (60%) that have taken place in Q1). Such de-listings occur when either the company takes the positive decision to de-list and informs the exchange of its decision, or the shares in such a company have been suspended for more than six months and the company does not do anything to rectify the suspension. Either way, in these cases management have clearly taken the decision that the effort and cost involved in maintaining an AIM list are no longer delivering the benefits that they need.
What do we expect going forward into 2009?
Thornhill commented: “It remains difficult to foresee any change in the negative sentiment towards AIM in the short to medium term.
“We expect that the coming months will see a continued exodus from the market of those companies which do not see value in maintaining their AIM listed status.
“One positive factor arising from the first quarter of 2009 is the increase in the FTSE AIM ALL-share index, which after a long period of significant falls (the AIM market lost two-thirds of its value in 2008) has shown an increase of around 5% in the first quarter of 2009. This compares with a fall of over 10% in the FTSE main market all share. As for any market, the momentum and interest in AIM is partly driven by value expectations and if the bottom has now been reached and the coming months start to show a track record of increasing valuation this may tempt more companies back towards the market.
“In addition, there remains the opportunity for select companies already on the exchange to raise money if their proposition is compelling enough. Secondary fundraising totalled £563 million in the quarter which compares well with the £307 million raised in Q4 2008.
“It is clearly early days for now to call a change in this trend. We will continue to monitor the AIM market for signs of life across Q2 and beyond.”