Monday, March 1, 2010

The U.S. Market for London's AIM - Target Rich, Knowledge Poor - Can the U.S. Market Reboot London's AIM?

I am pleased to share an article included in Smith & Williamson's Quoted Business publication which discusses AIM Advisers' marketing of the London Stock Exchange's AIM across the U.S. and the opportunity London's AIM presents for U.S. companies, their professional advisers and their existing VC/PE investors.

Quoted Business, Spring 2010, London's AIM and the US, A Tough Nut to Crack?

It is an indisputable fact that there is no place on the planet with more small and medium-sized, growth-oriented companies than the US.  In and of itself, this does not mean that, properly educated about the London Stock Exchange's AIM, those companies for which there is a strong rationale to seek a public listing should flock to London's AIM.  The other key ingredients are a dysfunctional domestic public market (think Securities and Exchange Commission (SEC) and Sarbanes-Oxley (SOX)) and a mountainous backlog of venture capital (VC) and private equity (PE) portfolio company investments with few credible exit paths to return capital to the limited partners (LPs) of what are often closed-end funds where the clock is ticking ever more loudly.

When SOX was enacted during the early part of this decade, commentators and professional advisers alike foresaw a wave of small and medium-sized US companies listing on London's AIM and there was even talk of erecting statues of Paul Sarbanes and Michael Oxley in London.  From the perspective of those in London, there may have been a wave of U.S. companies listing on London's AIM, but from a US perspective, six dozen companies dipping their toes across The Pond hardly scratches the surface and amounts to nothing more than a rounding error at the Bureau of Labor and Statistics.

Finding your perfect match
There are 41,300 privately held companies in the US which operate in sectors that are common on London's AIM and generate annual revenues ranging from $5 million - $250 million.  VC and PE portfolios are stuffed with 20,000 companies.  While there is some crossover between the two, logic dictates that there must be several hundred companies for which 1) a London Stock Exchange AIM listing would make sense, 2) the Nominated Advisers (Nomads) and Nominated Brokers would accept appointment, and 3) institutional and other London AIM investors would invest.  Obviously, this three-way match must be made for a transaction to take place, but how will it ever happen on a consistent basis or, given the size and diversity of the US and the complexity of a cross-border listing, must it be left to random chance?

Can progress be made from well-appointed offices in London or Santa Monica by filling up the inboxes of US-based professional advisers and VC/PE types or by holding endless conference calls with people who can’t understand the accents or by conducting webinars where most people’s attention is focused on their BlackBerrys or iPhones?  Pretty unlikely, but it sure can keep people busy and, I suppose, at least for a while, gainfully employed.

Promoting London's AIM around the US
This is why I set out on a 13-week, 12-city tour this fall to market the London Stock Exchange's AIM across the US.  The four-day, 2,100-mile drive from Santa Monica to Indianapolis, Indiana (the nation’s 13th largest city), where the tour began, was a bit painful but from then on it will be smooth sailing until I drive back to California from Florida in mid-December for the holidays.

One of the lawyers I met with in Indianapolis said “wow, you’re like a rock star”, to which my response was “yeah, minus the private jet, the drugs, the alcohol and all the other trappings of the rock ‘n’ roll lifestyle”.  I quickly learned that his type of humor doesn’t play well in the Midwest so when an accountant in Louisville, Kentucky, made a similar comment, my response was “well, I feel like Muhammad Ali’s punching bag”.  Now that was funny because Ali’s hometown is Louisville.  At least I caught on in city 2 of 12!

Now back to the main story of how to identify and introduce US companies to London's AIM.

Wedging oneself into a stranger’s office in a ‘foreign city’ is not easy.  Through a combination of leveraging relationships built in London since launching AIM Advisers, Inc. in 2001 and referencing the ‘soft marketing’ they have been exposed to via bespoke newsletters about London's AIM sent by e-mail, and the 58 US companies currently listed on the London Stock Exchange's AIM, the meeting acceptance rate has been about 25%.

The unfortunate reality in today’s world is that most people, even high-level professionals, have short attention spans, particularly when it comes to something they know virtually nothing about and have no idea how, or even if, it may benefit them.  The ability to answer, in great detail, the often unasked question of “what’s in it for me?” is critical; the short answer is “a lot”.

What’s in it for the VC/PE types is obvious, but many professional advisers believe they will lose clients if they suggest an IPO on the London Stock Exchange's AIM.  While it is unlikely that their clients will discover London's AIM on their own, by suggesting a sensible avenue for them to raise capital and be able to use London AIM-listed shares to effect acquisitions to grow their businesses, these professional advisers will have stronger clients, which in turn will benefit them.  In terms of the transactional and on-going work, a London AIM IPO is a significant transaction (think fees) that requires extensive legal, financial and operational due diligence; at least half of which is typically carried out by the company’s incumbent US advisers for the obvious reasons of historic knowledge and proximity.

The secret to getting the message across
Face-to-face meetings for an hour across the conference room table where questions can be answered and objections can be overcome in real-time where you have someone’s undivided attention is ‘the secret’.  Being able to convey the essential facts about the London Stock Exchange's AIM, the rationale for a London AIM IPO from a US company’s perspective and some guidance as to what a suitable company would look like for a London AIM IPO in the current economic environment arms them with the knowledge to better serve their existing clients, win new clients and/or identify suitable exits and/or growth financing opportunities for their portfolio companies.  Building relationships with the companies’ most trusted advisers and investors and letting them pre-vet the companies for our mutual benefit, eliminates having to deal with most of the 99% of the 41,300 companies that are unlikely matches for a London AIM IPO one reason or another.

As one example, a meeting with a law firm led to a four-hour meeting three days later with the founder, president and chief executive of a cleantech company in the same building, which has UK-based assets that may be suitable for a London Stock Exchange AIM listing.  The referring lawyer had received a dozen pieces of my ‘soft marketing’ over a period of 11 months, but we had had no personal contact until meeting at his office.

In terms of sector focus, it’s all things technology for London AIM IPOs, since that’s the nature of the economy and IP-based businesses tick the ‘growth’ and ‘international’ boxes.  In terms of geography, it’s greenfield, so any of the top 100 metro areas should be ripe with targets for London AIM IPOs.  It’s a big country.  It can’t be covered quickly enough.

Mark McGowan is the Founder and Managing Director of AIM Advisers, Inc., a California-based business that helps small and medium-sized, growth-oriented US companies complete IPOs on AIM.  Mark was the chief financial officer of DDD Group plc, an AIM-listed company with its corporate headquarters in the US.  Mark is a qualified accountant, having previously worked for Grant Thornton in Los Angeles, Hong Kong and throughout the Asia-Pacific region.

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