London's AIM - U.S. Company Performance - Share Price and Liquidity - H1 2009

Highlights

• U.S. domiciled companies* listed on the London Stock Exchange's AIM achieve a weighted return of 11%
• Foreign domiciled U.S. operating companies** listed on London's AIM achieve a weighted return of 36%
• FTSE AIM All-Share Index rises 34%
• Significant liquidity difference between U.S. and foreign domiciled U.S. companies listed on London's AIM

While there were 41 U.S. domiciled companies listed on London's AIM and 35 foreign domiciled U.S. operating companies listed on London's AIM as of the beginning of 2009, only 36 of the former and 34 of the latter traded on the London Stock Exchange's AIM for the entire six months.  Six U.S. companies listed on London's AIM left London's AIM during the first half of 2009; three delisted, citing a lack of liquidity on London's AIM and a low profile on the market, and three delisted due to business failure.  These companies listed on the London Stock Exchange's AIM are not included in the chart and analysis below because their aggregate market capitalization on London's AIM as of the beginning of 2009 was only 1% of the U.S. companies’ market capitalization, therefore, their effect on the share price return analysis is immaterial.

 

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

Index	Unweighted	Weighted
U.S. Domiciled Companies	93%	11%
Foreign Domiciled Companies	29%	36%
FTSE AIM All-Share Index	N/A	34%

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

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

The 93% unweighted return for the U.S. domiciled companies listed on London's AIM is heavily skewed by one company which returned a staggering 3,114% where, if excluded, it would drop to 7%.

In some respects, weighted results are a self-fulfilling prophesy in that companies listed on the London Stock Exchange'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, further increasing its market capitalization on London's AIM and relative weighting.  This was even more true during the first half of 2009 compared to 2008 because of the challenging capital raising environment on London's AIM.  When these factors are controlled for by weighting the companies’ returns on the London Stock Exchange's AIM by their market capitalizations on London's AIM as of the beginning of 2009, the 36 U.S. domiciled companies listed on London's AIM lost 13% and the 34 foreign domiciled U.S. operating companies listed on London's AIM gained 18%.

In terms of average monthly liquidity on the London Stock Exchange's AIM , 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 more normal times, all of the weighted results exceed all of the unweighted results, reflecting the positive relationship between a company’s liquidity on London's AIM and its market capitalization on London's AIM .  The unweighted results represent the level of monthly liquidity on the London Stock Exchange's AIM that the average company can expect to achieve.  The reversal of this relationship for the U.S domiciled companies listed on London's AIM indicates that relative trading volumes on London's AIM were greatest for the companies listed on London's AIM with the smallest market capitalizations listed on the London Stock Exchange's AIM.  This could represent London AIM investors coming into companies listed on London's AIM that they felt were undervalued but is more likely reflective of London AIM investors exiting small companies listed on London's AIM where they are no longer comfortable with the risk/reward relationship.  This view is supported by the share price underperformance of the U.S. domiciled companies listed on London's AIM relative to the foreign domiciled U.S. operating companies listed on the London Stock Exchange's AIM and London's AIM as a whole.  The expectation is that these companies listed on London's AIM are the most likely delisting candidates during the second half of 2009.

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	5.61%	0.98%	5.45%
Unweighted	5.12%	2.65%	4.01%

 

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. holding company.  The four main reasons being:

1. Once the Reg. S period expires, the London AIM IPO shares can trade directly within CREST
2. Pre-IPO shares not subject to Reg. S can immediately trade directly within CREST
3. Articles of incorporation fully conform to U.K. law providing comfort to U.K. investors
4. London AIM 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(s), financial PR/IR firm and Independent Equity Research firm.

AIM Advisers' London AIM IPO Presentation Schedule in Select U.S. Cities

I am pleased to announce AIM Advisers' London AIM IPO presentation schedule in select U.S. cities.

City and State	Week Commencing
Indianapolis, Indiana	21 September
Louisville / Lexington, Kentucky	28 September
Cincinnati / Dayton, Ohio	5 October
Columbus, Ohio	12 October
Cleveland, Ohio	19 and 26 October
Pittsburgh, Pennsylvania	2 November
Miami, Florida	9 November
West Palm Beach, Florida	16 November
Fort Lauderdale, Florida	23 November
Tampa / St. Petersburg, Florida	30 November
Orlando / Daytona Beach, Florida	7 December
Jacksonville / Gainesville, Florida	14 December

Please feel free to contact me by phone or e-mail to schedule an appointment in your city to learn more about the London Stock Exchange's AIM and the opportunity it presents for certain U.S. companies.

I look forward to meeting you this fall.

London's AIM - U.S. Company IPO and Secondary Offering Activity - H1 2009

Highlights

• Unsurprisingly, listings on the London Stock Exchange's AIM have been virtually non-existent
• However, secondary offering activity on London's AIM remains resilient
• ‘Channel checks’ indicate a small London AIM-listing pipeline building
• Unavailable, or frozen, banking facilities seen as driving SMEs towards London AIM equity financing
• Swapping debt for London AIM-listed equity to deleverage; reducing risk and interest expense
• Raising cash by listing on London's AIM for growth, both domestically and internationally
• Obtaining London AIM-listed shares to affect acquisitions of weak competitors

• U.S. companies listing on the London Stock Exchange's AIM account for 10% of all London AIM IPOs since 2008
• U.S. companies listing on the London Stock Exchange's AIM account for 15% of all ‘operating company’ listings on London's AIM since 2008
• Respectively account for 11% and 24% of gross funds raised from London AIM IPOs since 2008 

• £300m raised from secondary offerings on London's AIM for 35 U.S. companies listed on London's AIM since 2008
• 50% of all U.S. companies listed on the London Stock Exchange's AIM have completed at least one secondary offering on London's AIM since 2008
• U.S. companies listed on London's AIM make up 5% of London's AIM but capture 7% of secondary offering funds on London's AIM

• Selling shareholder activity continues at historic levels on the London Stock Exchange's AIM since 2008
• U.S. accredited investor and Qualified Institutional Buyer participation on London's AIM increases slightly

London AIM IPOs

After a five month hiatus dating back to December 2008, two listings on the London Stock Exchange's AIM completed during the final two months of the first half of 2009, however, both were anomalies.  One was a ‘vulture’ property fund that raised £220 million on London's AIM and the other was a small specialty finance company that raised £2 million on the London Stock Exchange's AIM.

Feedback gathered from meetings during the month of June in London with securities lawyers, accountants, London AIM Nominated Advisers (Nomads), London AIM Nominated Brokers, financial PR/IR firms, independent equity research firms and the London Stock Exchange’s AIM Team indicate that a small pipeline on listing candidates for London's AIM building.  The common comment was that there “appear to be small signs of life over the last 6 - 8 weeks and, while the summer will be quiet, there is a bit of a backlog waiting to be fulfilled”.  SMEs are being driven towards London AIM equity financing given the fragile state of the banking system.  Funding via London's AIM is not available for companies that simply need cash for survival but rather for those that are profitable and generating cash (or are very close) and want to recapitalize their balance sheets to reduce risk and interest expense, raise additional cash by listing on London's AIM for domestic and/or international growth and, perhaps most strategically important, use London Stock Exchange AIM-listed shares as a currency to acquire weak competitors that have valuable intellectual property (IP), customer lists and human capital.  Companies in this position view the current economic climate as an opportunity to accelerate growth by listing on London's AIM and supercharge profitability coming out of the recession.

Entire Market      All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2008	31	830	27
H2 2008	7	88	13
H1 2009	2	222	111
Total	40	1,140	29

Exclusive of SPACs and Investment and Real Estate Funds:

Entire Market      ‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2008	22	455	21
H2 2008	5	68	14
H1 2009	-	-	N/A
Total	27	523	19

All of the U.S. companies listed on the London Stock Exchange's AIM in the table below that completed London AIM IPOs since 2008 are ‘operating companies’.  U.S. companies listed on London's AIM have been relatively immune from the ‘investment vehicle’ phenomenon on London's AIM with only three, six and three such U.S. companies listing on London's AIM to market in 2005, 2006 and 2007, respectively.

U.S. companies listed on London's AIM have accounted for 10% of all London AIM IPOs and 15% of all ‘operating company’ listings on London's AIM since 2008.  While activity on London's AIM has been muted over the last year-and-a-half, it is relevant to note that these companies listed on London's AIM have garnered 11% and 24%, respectively, of the gross funds raised on the London Stock Exchange's AIM since 2008.

While the limited number of U.S. company listings on London's AIM since 2008 makes it difficult to draw firm conclusions, it is believed that the upward trend will persist from the £24 million average raised by the 50 U.S. ‘operating companies’ that that listed on London's AIM from 2005 – 2007.

U.S. Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2008	3	70	23
H2 2008	1	53	53
H1 2009	-	-	N/A
Total	4	123	31

London AIM Dilution

One interesting shift in the on the London Stock Exchange's AIM that occurred during 2008 is the substantial decrease in London AIM IPO dilution of existing shareholders (see chart below).  There are two main reasons for this shift.  First, the London Stock Exchange (LSE) codified the London AIM Nominated Adviser (Nomad) Rules in early 2007 which has increased the scrutiny of prospective new 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.  Second, London AIM investors have become more risk adverse in the current economic climate.  Consequently, the quality of the companies listing on  the London Stock Exchange's AIM has increased and, as a result, the London AIM IPO dilution of existing shareholders has decreased.

 

London AIM Secondary Offerings

While the 70 U.S. companies listed on London's AIM account for 5% of the 1,412 companies listed London's AIM, they have captured 7% of the secondary offering funds raised on London's AIM since 2008.  However, when two large secondary offerings on the London Stock Exchange'sAIM during the first half of 2008 that raised an aggregate of £101 million for one U.S. company listed on London's AIM are excluded, the remaining U.S. companies listed on London's AIM are in line with the broader London AIM market at 5%.  Excluding this company also brings the average funds raised by the U.S. companies listed on the London Stock Exchange's AIM during the first half of 2008 down to £6.66 million which is more in line with the average for the second half of 2008 and the first half of 2009.  50% of all U.S. companies listed on London's AIM have completed at least one secondary offering since 2008.

Entire Market All Companies	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2008	315	2,195	6.97
H2 2008	263	932	3.54
H1 2009	335	1,433	4.28
Total	913	4,560	4.99

*  This is the number of discrete secondary offerings on London's AIM.  Some companies completed more than one secondary offering on London's AIM in some periods.

All U.S. Companies	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2008	16	201	12.56
H2 2008	5	35	7.00
H1 2009	14	64	4.57
Total	35	300	8.57

*  This is the number of companies that completed secondary offerings on London's AIM as opposed to the number of discrete secondary offerings on London's AIM.

Since 2008, 69% (24 of 35) of the U.S. companies listed on the London Stock Exchange's AIM that have completed secondary offerings have raised between £1 and £10 million on London's AIM.

 

London AIM Industry Dispersion

Companies listed on the London Stock Exchange's AIM are organized into 90 sub-sectors which feed into 39 sectors which feed into 10 super sectors.  The 70 U.S. companies that are listed on London's AIM are quite diverse and operate in all 10 super sectors; 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.  Within Industrials, 50% of the U.S. companies listed on London's AIM are renewable energy companies focused on fuel cells, solar and storage.  Within Basic Materials, 40% of the U.S. companies listed on the London Stock Exchange's AIM produce chemicals/compounds for the health and growth of plants and agriculture.  Within Consumer Goods, 70% of the U.S. companies listed on London's AIM are developing fuel cells and manufacturing zero emission vehicles.  Within Consumer Services, 75% of the U.S. companies listed on London's AIM are media companies with some unique technology.

 

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. companies listed on London's AIM included selling shareholders who were often either founders of the company, longstanding members of executive management or the board of 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.  Two of the four U.S. company listings on London's AIM during 2008 included selling shareholders.  In one of the 2008 U.S. company listings on London's AIM, 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 listed on the London Stock Exchange's AIM were performing exceptionally well with the organized insider selling driven by a need to “satisfy excess demand” for the company’s AIM-listed shares.  There were no such transactions during 2008 or the first half of 2009.

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

U.S. accredited investors and QIBs are permitted to participate in London AIM IPOs and secondary offerings on London's AIM.  Historically, from 2005 – 2007, they have provided 20% of the funding for U.S. company listings on London's AIM and 20% of the secondary offering funds raised on London's AIM for those companies.

While none of the four U.S. company listings on the London Stock Exchange's AIM during 2008 included accredited investors or QIBs, 24% (5 of 21) of the U.S. companies listed on AIM that completed secondary offerings on London's AIM during 2008 included such investors, contributing 40% of the total funds raised on London's AIM, however, this is skewed by £76 million of the £101 million discussed above and would have otherwise been only 11%.  During the first half of 2009, 29% (4 of 14) of the U.S. companies listed on the London Stock Exchange's AIM that completed secondary offerings on London's AIM were at least partially financed by accredited investors or QIBs, providing 28% of the total funds raised on London's AIM.