London's AIM - U.S. Company Performance - Share Price and Liquidity - 2007

Highlights

• U.S. domiciled companies* listed on London's AIM achieve a weighted return of 44%
• Foreign domiciled U.S. operating companies** listed on London's AIM achieve a weighted return of 17%
• Significant liquidity difference between U.S. and foreign domiciled U.S. companies listed on London's AIM

While there were 45 U.S. domiciled companies listed on the London Stock Exchange's AIM and 40 foreign domiciled U.S. operating companies listed on London's AIM as of the end of 2007, only 32 of the former and 29 of the latter traded on the London Stock Exchange's AIM for the entire year.  The majority of the others joined London's AIM during 2007 and are not included below.

Given the fact that London's AIM caters to small and medium-sized, growth-oriented companies, averages can be deceiving.  Of the 61 U.S. companies listed on London's AIM, five achieved triple digit returns, ⅓ lingered around breakeven (± 25%) and ½ lost greater than 25%.

  

The weighted returns in the table below were calculated using the average market capitalizations of the U.S. companies listed on the London Stock Exchange's AIM throughout the year, similar to how an index fund would calculate returns.

Unweighted and Weighted Share Price Returns	Unweighted	Weighted	Weighted Excluding Market Cap. > £250m
U.S. Domiciled Companies	1%	44%	16%
Foreign Domiciled Companies	(7%)	17%	19%
FTSE AIM All-Share Index	N/A	(1%)	N/A

*   U.S. operating company listed on London's AIM directly through a U.S. entity.

**  U.S. operating company listed on London's AIM through a U.K. or tax haven entity with central operations and/or decision making in the U.S.

In some respects, weighted results are a self-fulfilling prophesy in that companies listed on London's AIM with increasing share prices, and therefore increasing market capitalizations listed on London's AIM, become more heavily weighted relative to those with decreasing share prices / market capitalizations.  In addition, a company listed on the London Stock Exchange's AIM that is performing well has a better chance of completing a secondary offering on London's AIM and for its share price on London's AIM to hold up relative to the dilutive effects of the secondary offering on London's AIM, further increasing its market capitalization on the London Stock Exchange's AIM and relative weighting.  When these factors are controlled for by weighting the companies’ returns by their market capitalizations on London's AIM as of the beginning of 2007, the 32 U.S. domiciled companies listed on London's AIM gained 14% and the 29 foreign domiciled U.S. operating companies listed on the London Stock Exchange's AIM gained 10%.

In terms of average monthly liquidity, the foreign domiciled U.S. operating companies listed on London's AIM  outperformed the U.S. domiciled companies listed on London's AIM and, in fact, London's AIM as a whole.  In all cases, the weighted results exceed the unweighted results, reflecting the positive relationship between a company’s liquidity on the London Stock Exchange's AIM and its market capitalization on London's AIM.  The unweighted results represent the level of monthly liquidity on London's AIM that the average company can expect to achieve.

Average Monthly Liquidity on London's AIM	Foreign Domiciled U.S. Operating Companies Listed on London's AIM	U.S. Domiciled Companies Listed on London AIM	Entire London's AIM
Weighted	7.70%	2.86%	6.10%
Unweighted	6.32%	2.29%	4.22%

 The key takeaway from the chart above is that there is a liquidity advantage for U.S. companies that list on the London Stock Exchange's AIM via a U.K. or tax haven holding company.  The two main reasons being:

1. The shares are free from Reg. S restrictions, allowing for electronic trading / settlement
2. Institutional investors only allocate a portion of their investments to non-U.K. companies 

Nevertheless, irrespective of where a company is domiciled, liquidity on the London Stock Exchange's AIM can be improved.  The reasons for a lack of liquidity on London's AIM are often company specific and not obvious.  As a consequence, thoughtful and thorough investigation is needed in order to formulate actionable solutions.  Several strategic decisions can be taken during the planning of the London Stock Exchange AIM IPO to minimize the risk of lack of liquidity on London's AIM becoming a problem in the first instance; including, selection of the most appropriate Nominated Adviser (Nomad), Nominated Broker, financial PR/IR firm and Independent Equity Research firm.