Saturday, April 4, 2009

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

Highlights
  • Number of listings on the London Stock Exchange's AIM and aggregate funds raised on London's AIM drop by 82% and 81%, respectively
  • Average funds raised for ‘operating companies’ listed on London's AIM increases from £23m to £31m
  • £780m raised from London Stock Exchange AIM IPOs for 26 U.S. companies listed on London's AIM across 16 industries since 2007
  • U.S. ‘operating companies’ listing on London's AIM account for 17% of all operating company London AIM IPOs since 2007
  • U.S. ‘operating companies’ listing on London's AIM account for 22% of funds raised on London's AIM since 2007
  • IPO dilution on the London Stock Exchange's AIM increases slightly from 31% to 33%
  • Secondary offerings on London's AIM hold firm for U.S. companies listed on London's AIM with an average of £7m
  • £500m raised from secondary offerings on London's AIM for 36 U.S. companies listed on London's AIM since 2007
  • 50% of all U.S. companies listed on London's AIM have completed at least one secondary offering on London's AIM since 2007
  • Selling shareholder activity on London's AIM continues at historic levels
  • U.S. accredited investor and Qualified Institutional Buyer participation on the London Stock Exchange's AIM moderates

London AIM IPOs
While London's AIM has certainly not been immune to the global slowdown in IPOs, the codification of the London AIM Nominated Advisers (Nomads) Rules in early 2007 has increased the scrutiny of prospective new entrants 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 the London Stock Exchange's AIM, of a significant number of Special Purpose Acquisition Corporations (SPACs) and Investment and Real Estate Funds listing on London's AIM, has largely come to an end.  These factors cause the overall London AIM metrics to be misleading; therefore, the following tables distinguish between London AIM as a whole, which includes ‘investment vehicles’, and the ‘operating companies’ listed on the London Stock Exchange's AIM on a stand-alone basis.

London's AIM had a higher proportion of ‘investment vehicle’ IPOs in 2007 than in 2008 at 39% and 29%, respectively.  While the number of listings on the London Stock Exchange's AIM decreased substantially during 2008, the average funds raised for ‘operating companies’ listed on London's AIM increased slightly to £19 million.


Entire Market
     All Companies
Number of London AIM IPOs

Gross Funds Raised
(in £ billions)

Average Funds Raised
(in £ millions)
          2007
182
6.26
34
          2008
38
0.92
24

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)
          2007
111
1.99
18
          2008
27
0.52
19

The U.S. companies listed on the London Stock Exchange's AIM were relatively immune from the ‘investment vehicle’ phenomenon on London's AIM with only three London AIM listings in 2007 and none in 2008.  While the limited number of U.S. company listings on London's AIM in each year makes it difficult to draw firm conclusions, it is believed that an upward trend will persist from 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 London's AIM from 2005 – 2007.  London Stock Exchange AIM investors continue to seek larger, more mature companies.


U.S. Companies
     All Companies
Number of London AIM IPOs

Gross Funds Raised
(in £ millions)

Average Funds Raised
(in £ millions)
          2007
22
657
30
          2008
4
123
31


U.S. Companies
     ‘Operating Companies’
Number of London AIM IPOs

Gross Funds Raised
(in £ millions)

Average Funds Raised
(in £ millions)
          2007
19
431
23
          2008
4
123
31

Since 2007, 26 U.S. companies listed on London's AIM and raised an aggregate of £780 million via London AIM IPOs with 65% of these U.S. companies now listed on London's AIM raising between £5 million and £50 million on London's AIM.  It should be noted that of the London Stock Exchange AIM IPOs that individually raised more than £50 million, almost half (3 of 7) were for ‘investment vehicles’.
 

London AIM Dilution
As noted in the opening paragraph, London Stock Exchange AIM IPO conditions have been challenging and, separately, Nominated Advisers (Nomads) have increased their scrutiny of prospective AIM IPO listing candidates.  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 significant and the dilution for the U.S. companies listed on London's AIM has been relatively steady, 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, however, the limited number of London AIM IPOs during 2008 makes it difficult to draw firm conclusions.
 

London AIM Industry Dispersion
The 16 industries in which the 26 U.S. companies listed on the London Stock Exchange'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 London's AIM in the chart below is a zero emissions vehicle manufacturer, the “Chemicals” company listed on the London Stock Exchange's AIM is developing compounds for the health and growth of plants and agricultural and the “Aerospace & Defense” company listed on London's AIM is a developer and manufacturer of composite armor products for commercial and military uses.
 

London's AIM Secondary Offerings
The secondary offering market for U.S. companies listed on the London Stock Exchange's AIM has been healthy and remarkably consistent; however, there were some large transactions that slightly skew the results.  The first is a £50 million NASDAQ listing during 2007 of a U.S. company that completed a £25 million listing on London's AIM in 2003.  This 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 £101 million in two secondary offerings on London's AIM during 2008.  When these are excluded from the table below, the average for 2007 and 2008 is £7.50 million and £6.40 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 2007.



All U.S. Companies
Number of
London AIM
Secondary Offerings

Gross Funds Raised
(in £ millions)

Average Funds Raised
(in £ millions)
2007
29
260
8.97
2008
27
236
8.74

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 IPOs 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 three such transactions during 2007 and two during 2008 which is consistent with historic levels.  In one of the 2008 transactions, 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 Stock Exchange 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 London'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.  One such transaction occurred during 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 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 listings on London's AIM and 20% of the secondary offering funds raised on London's AIM for those companies.  During 2007, four U.S. companies listed on London's AIM raising an aggregate of £151 million with £89 million coming from U.S. accredited investors and QIBs.  There were no such transactions during 2008.  In terms of secondary offerings on London's AIM, 39% of the funds raised for U.S. companies on the London Stock Exchange's AIM were provided by U.S. accredited investors and QIBs during 2007; however, this is skewed by the £50 million NASDAQ listing discussed above and would have otherwise been 25%.  During 2008, U.S. accredited investors and QIBs participated in 19% (5 of 27) of the secondary offerings on London's AIM, contributing 40% of the total funds raised on London's, however, this too is skewed by £76 million of the £101 million discussed above and would have otherwise been only 11%.