London's AIM - U.S. Company IPO and Secondary Offering Activity - H1 2008

Highlights

• Number of listings on the London Stock Exchange's AIM and aggregate funds raised in London AIM IPOs drop by 77% and 82%, respectively
• Average funds raised for ‘operating companies’ listing on London's AIM increases from £20m to £23m
• IPO dilution on London's AIM decreases slightly from 30% to 28%
• £725m raised from IPOs on London's AIM for 25 U.S. companies listed on London's AIM across 16 industries since 2006
• U.S. ‘operating companies’ listed on the London Stock Exchange's AIM account for 17% of all operating company IPOs on London's AIM since 2006 

• Secondary offering market on London's AIM is healthy and stable with average holding firm at £7m
• 50% of all U.S. companies listed on London's AIM have completed at least one secondary on London's AIM since 2006
• £460m raised from secondary offerings on the London Stock Exchange's AIM for 45 U.S. companies listed on London's AIM since 2006

• Selling shareholder activity on London's AIM and U.S. accredited investor and QIB participation on London's AIM continues 

London AIM IPOs

While the London Stock Exchange's AIM has certainly not been immune to the global slowdown in IPOs, the codification of the AIM Nominated Adviser (Nomad) Rules in early 2007 has increased the scrutiny of prospective new company listings on London's AIM by Nominated Advisers (Nomads) since the Nominated Adviser (Nomad) vouches to the London Stock Exchange (LSE) as to a company’s suitability for listing on London's AIM.  In addition, the trend which began in 2006, and continued throughout 2007 on London's AIM, of a significant number of Special Purpose Acquisition Corporations (SPACs) and Investment and Real Estate Funds completing IPOs on London's AIM has come to an end.  These factors cause the overall London Stock Exchange AIM market metrics to be misleading; therefore, the following tables distinguish between the London's AIM as a whole, which includes ‘investment vehicles’, and the ‘operating companies’ listed on London's AIM on a stand-alone basis.

The overall London Stock Exchange AIM market had a high proportion of ‘investment vehicle’ IPOs; 43%, 35% and 29% during H1 2007, H2 2007 and H1 2008, respectively.  While the number of ‘operating company’ IPOs on London's AIM increased during H2 2007, the average funds raised decreased but has since rebounded back up to the H1 2007 level of £21 million.

Entire Market      All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
H1 2007	90	3.33	37
H2 2007	92	2.93	32
H1 2008	31	0.83	27

Exclusive of SPACs and Investment and Real Estate Funds:

Entire Market      ‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
H1 2007	51	1.05	21
H2 2007	60	0.94	16
H1 2008	22	0.46	21

The U.S. companies listed on London Stock Exchange's AIM were relatively immune from the ‘investment vehicle’ phenomenon on London's AIM with only two, one and none occurring during H1 2007, H2 2007 and H1 2008, respectively.  The increase in the average funds raised from listings on London's AIM during H2 2007 was an anomaly since five London Stock Exchange AIM IPOs which raised a total of £250 million came to market in July and August 2007.  While the limited number of London AIM IPOs in any given half year makes it difficult to draw firm conclusions, the results below are consistent with the £24 million average raised on London's AIM by the 50 U.S. ‘operating companies’ listed on London's AIM that completed IPOs on the London Stock Exchange's AIM from 2005 – 2007.

U.S. Companies      All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2007	13	380	29
H2 2007	9	277	31
H1 2008	3	70	23

U.S. Companies      ‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2007	11	215	20
H2 2007	8	216	27
H1 2008	3	70	23

Since 2006, 25 U.S. companies listed on the London Stock Exchange's AIM and have raised an aggregate of £725 million via London AIM IPOs with 68% raising between £5 million and £50 million.  It should be noted that of the London AIM IPOs that individually raised more than £50 million, half (3 of 6) were for ‘investment vehicles’.

 

London AIM Dilution

As noted in the opening paragraph, market conditions on the London Stock Exchange's AIM have been challenging and, separately, AIM Nominated Advisers (Nomads) have increased their scrutiny of prospective new company listings on London's AIM.  The natural consequence of these two factors is that the quality of the companies listing on London's AIM has increased and, as a result, the London AIM IPO dilution of existing shareholders has decreased.  Since the decrease in dilution for the overall London AIM market has been significantly more pronounced than for the U.S. companies listed on London's AIM, it may be that the U.S. companies listed on the London Stock Exchange's AIM have, on average, typically been of higher quality with more compelling business propositions and stronger management teams.

 

London AIM Industry Dispersion

The 16 industries in which the 25 U.S.companies listed on London's AIM operate are quite diverse; however, there is a concentration of oil and gas producers listed on London's AIM in Texas and concentrations in technology, including; digital media, biotech and cleantech, between Boston and Washington D.C., in Florida and in California.  In fact, the “Automobiles & Parts” company listed on the London Stock Exchange's AIM in the chart below is a zero emissions vehicle manufacturer and the “Aerospace & Defense” company listed on the London Stock Exchange's AIM is a developer and manufacturer of composite armor products for military and commercial uses.

 

London AIM Secondary Offerings

The secondary offering market for U.S. companies listed on the London Stock Exchange's AIM is healthy and has been remarkably consistent; exclusive of two anomalies.  The first is the £50 million NASDAQ listing during H1 2007 of a U.S. company that completed a £25 million IPO on London's AIM in 2003.  The NASDAQ listing is considered a secondary offering on London's AIM.  The second is a U.S. company listed on the London Stock Exchange's AIM which raised a total of £101 million during H1 2008.  When these are excluded from the table below, the average secondary offering on London's AIM during H1 2007 and H1 2008 is £7.24 million and £6.66 million, respectively.  50% of all U.S. companies listed on London's AIM have completed at least one secondary offering on London's AIM since 2006.

All U.S. Companies	Number of London AIM Secondary Offerings	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2007	16	161	10.08
H2 2007	13	98	7.56
H1 2008	16	201	12.56

London AIM Selling Shareholder Activity

The ability of existing shareholders to sell some or all of their holdings in a London Stock Exchange AIM IPO depends on a variety of factors; the most important of which are the strength of the company and the level of investor support.  Historically, from 2005 – 2007, 22% of U.S. company listings on London's AIM included selling shareholders who were often either founders of the company, longstanding members of executive management or the board or directors, commercial partners who had made a strategic investment in the company or VCs/PE Firms who invested in and nurtured the company for several years prior to its London Stock Exchange AIM IPO.  There were no such transactions on London's AIM during the first half of 2007 and only one during the first half of 2008 in which the Chairman and President, who had been with the company since 1969, sold 30% of his stake for £26 million.

While selling shareholders are most common in conjunction with a London AIM IPO, U.S. company insiders have sold in the aftermarket on London's AIM in organized transactions on three occasions since 2004; twice as part of secondary offerings on London's AIM and once on a standalone basis.  In all three instances, the companies were performing exceptionally well on London's AIM with the organized insider selling driven by a need to “satisfy excess demand” for the company’s London AIM-listed shares.  One such transaction occurred during the first half of 2007 in which executive management and certain non executive directors and employees realized £9 million for themselves as part of a £17 million secondary offering on the London Stock Exchange's AIM.  There were no such transactions during the first half of 2008.

U.S. London AIM Accredited Investor and Qualified Institutional Buyer (QIB) Activity

U.S. accredited investors and QIBs are permitted to participate in London Stock Exchange AIM IPOs and secondary offerings on London's AIM.  Historically, from 2005 – 2007, they have provided 20% of the funding for U.S. company listing on London's AIM and 20% of the secondary offering funds raised on London's AIM for those companies.  During the first half of 2007, one U.S. company listed on London's AIM completed a £61 million IPO which was entirely backed by U.S. accredited investors with no such transactions on London's AIM occurring during the first half of 2008.  In terms of secondary offerings on London's AIM, 37% of the funds raised for U.S. companies listed on the London Stock Exchange's AIM were provided by U.S. accredited investors during the first half of 2007; however, this is heavily skewed by the £50 million NASDAQ listing discussed above and would have otherwise been only 8%.  During the first half of 2008, U.S. accredited investors participated in 31% (5 of 16) of the secondary offerings on London's AIM, contributing 47% of the total funds raised on London's AIM, however, this too is skewed by £76 million of the £101 million discussed above and would have otherwise been only 14%.