London's AIM - U.S. Company Performance - Share Price and Liquidity - 2008

Highlights

• U.S. companies listed on the London Stock Exchange's AIM outperform FTSE AIM All-Share Index by nearly 20% in a difficult year
• U.S. domiciled companies* listed on London's AIM weighted loss of 43%
• Foreign domiciled U.S. operating companies** listed on London's AIM weighted loss of 46%
• FTSE AIM All-Share Index loses 63%

• 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 end of 2008, only 38 of the former and 34 of the latter traded on the London Stock Exchange's AIM for the entire year.  The other four joined London's AIM during 2008 and are not included in the chart and analysis below.  The 10 U.S. companies listed on London's AIM that left London's AIM during 2008 are also not included since three were sold, two at a premium and one at market value, two delisted citing a lack of liquidity on the London Stock Exchange's AIM and a low profile on the market and five delisted due to business failure.  The net effect on the share price return analysis is immaterial since the companies listed on London's AIM that were sold at a premium had larger market capitalizations on the London Stock Exchange's AIM and the companies listed on London's AIM that failed had smaller market capitalizations.

  

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

Index	Unweighted	Weighted
U.S. Domiciled Companies	(54%)	(43%)
Foreign Domiciled Companies	(53%)	(46%)
FTSE AIM All-Share Index	N/A	(63%)

*   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.

In some respects, weighted results are a self-fulfilling prophesy in that companies with increasing share prices on the London Stock Exchange's AIM, and therefore increasing market capitalizations on London's AIM, become more heavily weighted relative to those with decreasing share prices / market capitalizations.  In addition, a company listed on London'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 the London Stock Exchange's AIM and relative weighting.  When these factors are controlled for by weighting the companies’ returns by their market capitalizations as of the beginning of 2008, the 38 U.S. domiciled companies listed on London's AIM lost 52% and the 34 foreign domiciled U.S. operating companies listed on London's AIM lost 49%.

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 all cases, the weighted results exceed the unweighted results, reflecting the positive relationship between a company’s liquidity on London's AIM and its market capitalization listed on the London Stock Exchange'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	6.30%	2.27%	5.52%
Unweighted	5.66%	1.71%	3.89%

 

 

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's 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 AIM Nominated Adviser (Nomad), AIM Nominated Broker(s), financial PR/IR firm and Independent Equity Research firm.