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Home : News : Funding Growth on London's Market for Small-Cap Market

San Diego Real Estate Attorney

Funding Growth on London's Market for Small-Cap Companies
By Gordon Kaplan

If your rising company needs money to grow, and sufficient venture capital or private equity isn’t available –- at least on terms you are willing to pay –- an initial public offering on London’s international market for small-cap companies, the Alternative Investment Market, or AIM, could be the right strategic move.

AIM provides growing companies a flourishing marketplace and access to London’s deep pool of international investment capital, the largest in Europe and second only to New York. Founded, owned and regulated by the London Stock Exchange, AIM gives companies entry to a public market at an early stage in their development with straightforward and relatively easy admission criteria. According to a recent report cited in The New York Times, AIM has become a market of choice for small companies seeking development or expansion finance.

Emergence of AIM

Founded in 1995, in recent years AIM has expanded rapidly. From 10 companies listed in 1995, the market has grown to over 1,200 companies listed today. 335 new companies were listed on AIM in 2004, more than double the number in 2003. The market value of AIM companies is now over $71 billion. And AIM has evolved from being a market mainly for private investors with a tolerance for high risk to one that today draws half its investment base from institutions.

AIM seeks to attract in particular companies whose businesses are intrinsically international, no matter where they may be incorporated or headquartered. This includes companies in the technology, gaming, natural resources, and life sciences sectors. San Diego’s pharmaceutical and biotechnology companies should take note: as of June, 2005, AIM listed 43 companies in these sectors with a combined market value of over $3 billion.

Admission Requirements

Unlike most other markets, AIM does not require an applicant company to demonstrate a trading history, have a minimum number of publicly-held shares, or a minimum market capitalization. (The NASDAQ Small-Cap Market, for example, has minimum criteria for each of these areas.)

Instead, all AIM applicants must be sponsored by (and retain at all times) a nominated adviser, or “Nomad,” selected from a list of corporate finance and accounting firms approved by the London Stock Exchange, a list that includes many of the world’s largest investment banks such as Goldman Sachs, Citigroup and Merrill Lynch. The nominated adviser carries out extensive due diligence to assess whether the company is “appropriate” for AIM – in effect vouching that the company’s reports are factual and its business prospects viable. The nominated adviser also assists the company through the application process, and is responsible for advising and guiding the company’s directors on compliance with AIM rules and disclosure obligations on an on-going basis. The other admission requirements are similarly straightforward. Each company must:

• Prepare an admission document containing extensive information to enable investors to understand the company and its activities, including detailed financial information and projections. Details are also required of all directors, major shareholders and senior managers. The company’s directors are responsible for ensuring that the admission document is accurate and free from material omissions.

• Appoint a securities firm that is a member of the London Stock Exchange as the company’s stockbroker for the initial offering on AIM and subsequent trading in the after-market. The broker assesses market conditions and the level of interest in the company’s shares, advises on pricing, prepares and accompanies the company on road-shows to promote the shares, and places the shares with investors.

• Have no restrictions on the free transferability of its shares (subject to certain limited exceptions).

In practice, an offering of shares on admission to AIM is normally structured as a “placing” addressed only to institutional investors, and thus benefits from one of several exemptions to more burdensome rules and regulations that apply generally to “public offerings.” AIM applicants therefore need to consider carefully with their professional advisers the rules that will apply in the precise circumstances of their proposed offering on AIM.

Bottom Line

At the end of June, 2005 there were 18 U.S. companies on AIM, up from 8 two years ago. Spread across a range of sectors and including pharmaceutical, biotechnology, natural resources and a variety of technology and services companies, their combined market value on AIM was nearly $1.4 billion. If your company is seeking ways of raising additional development or expansion capital, it is worth taking a good look at AIM.

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