Thursday, September 16, 2010

AimZine - Meet The London AIM Players ... Mark McGowan of AIM Advisers, Inc. - Promoting London's AIM in the USA

I am pleased to share a feature included in AimZine which discusses AIM Advisers' marketing of the London Stock Exchange's AIM across the U.S. and some key points for U.S. companies considering an IPO on London's AIM versus other venues for capital raising and access to public shares, such as NASDAQ.

Michael Crockett, Co-Founder and Managing Editor, AimZine, London, England

Did you know that there are 57 U.S. companies listed on London's AIM?  Furthermore, did you know that U.S.-based London AIM-listed companies have outperformed the London AIM index over the last three years by a considerable margin?

These facts I gleaned from a fascinating conversation I had with Mark McGowan, Managing Director of US-based AIM Advisers, Inc.  Mark founded AIM Advisers in 2001 to help US companies who wish to list on the London Stock Exchange's AIM.  As a former Finance Director of AIM-listed DDD Group he is well qualified to assist US companies, particularly in the lead up to an Initial Public Offering (IPO) on London's AIM.

My first question was naturally: ‘what are the benefits to a US Company to list on the London Stock Exchange's AIM?’  The answer is that for the right companies there are considerable advantages and Mark is optimistic that these compelling reasons will help him to attract significant further business over the coming years.

Mark spent the early years focused on building relationships in London, most notably with AIM Nominated Advisers (Nomads) and AIM Nominated Brokers.  Since then, Mark has focused the majority of his attention on marketing activities in the US and serving clients.  When I spoke to Mark in mid-May he was in Houston, almost half way through a 12-week driving tour covering seven key US cities - Phoenix, Austin/San Antonio, Houston, Dallas, St. Louis, Minneapolis/St. Paul and Denver/Boulder.  On this business development tour Mark is presenting to key advisors such as accountants and lawyers and key investors such as VCs and PEGs.  In the first 4 weeks Mark had already completed 70 meetings.

Mark explains that the goal is to make advisors and investors aware that the London Stock Exchange's AIM is an option for US companies when seeking their next stages of growth capital and access London AIM-listed shares for acquisitions.  Many of the firms he has met to date have had little awareness of the considerable attractions of London's AIM.  However, Mark’s view is that US companies need to tick a number of boxes before considering a London Stock Exchange AIM IPO.

Mark has been pleased with the interest shown in London's AIM by US advisors and investors and, when looking at the benefits, it is not difficult to understand the interest.

Small US growth companies often aspire to list on the US NASDAQ exchange.  However, London's AIM can provide similar benefits to NASDAQ but with some considerable savings.  The cost of an IPO on the London Stock Exchange's AIM is broadly similar to the cost of listing on the US NASDAQ exchange.  However, London's AIM has a significant advantage when comparing the costs of maintaining the listing due to the high regulatory burden in the US, where companies need to comply with the requirements of the Exchange Act and Sarbanes-Oxley (SOX).

However, it is not just a matter of cost.  Mark told AimZine: ‘I think a more fundamental point from a U.S. company's point-of-view, beyond less regulation and less cost on London's AIM vs. NASDAQ, is that a company with a market capitalization of $100 million will actually be paid attention to on London's AIM since it will be in the top 15%.  I describe this main benefit to those with whom I am meeting as the opportunity for a quality, growth-oriented U.S. company to be a 'big fish in a small pond' on London's AIM.  London AIM investors will actually care about a company of this size on London's AIM and equity research will be written.  On NASDAQ, 1,000 of the 2,800 companies have a market cap, below $100 million but no one cares about these small companies which are often described as NASDAQ's orphans.  Less regulation and less cost on London's AIM is just a follow-on benefit.  What the company really wants is the ability to raise capital and get noticed so that they can use their London Stock Exchange AIM-listed shares for acquisitions and/or attract the attention of larger corporates who may consider paying a significant premium over the London AIM market price to acquire the company which is what I call the 'Trojan Horse Strategy'.’

In his presentation Mark suggests that to be suitable for a London AIM IPO, a US Company should be profitable, or close to profitability, and be able to command a market capitalisation of over $24 million.  At this level there is scope to grow to around $500 million where it then begins to make sense to list on NASDAQ, given the liquidity and valuation advantages.  A $500 million company should be big enough to bear the internal and external costs of the Exchange Act and SOX.

One key message that is conveyed is that London's AIM is a ‘real stock exchange’ and the company needs to have the right mindset before embarking on the process of listing.  For example, the due diligence required for a London AIM IPO is no less than that required for NASDAQ.

Two common questions that have arisen from US advisors and investors concern the availability of institutional capital on London's AIM and liquidity on London's AIM.  On the former point the London Stock Exchange's AIM scores well as a significant number of institutions have fairly ‘deep pockets’ and quality US companies have proved to be popular with these institutions.  On the liquidity point, Mark is confident that a good company with the right AIM Nominated Broker(s) and financial PR/IR firm can achieve a fair valuation with plenty of interest in their shares.

Significant Savings
When looking at the costs of ongoing listing, AIM Advisers estimates that a NASDAQ listing will cost $2 - $3 million per year compared to $320 - $480 thousand on London's AIM.  This is one of the reason AIM Advisers offers for why companies under $500 million may be better served on the London Stock Exchange's AIM.  Therefore, it is surprising to note that 75% of the 2,800 companies on NASDAQ are capitalized at less than $500 million.

Mark explains: ‘The reason why many of these 2,100 companies on NASDAQ do not delist or utilize AIM's Designated Markets Route and then delist is because they already have more than 500 shareholders and would have to comply with the Exchange Act and SOX anyway.  The genie is out of the bottle and it is impossible to put him back in.  This is a key point for a U.S. company considering its next steps.  I think many would be better served by taking their (suitable) $50 million, $100 million, $150 million market cap. company to London's AIM with a 3 - 5 year view and see if they can actually grow the business as they believe they can and, if so, great, now they're ready for primetime; dual list on NASDAQ and either strike off the London AIM listing or, more likely, move it up to the Main Market of the London Stock Exchange where even more investors are able to invest.  My role in acting as a strategic adviser to the company is key in terms of being able to identify the most suitable AIM Nominated Advisers (Nomads) and AIM Nominated Brokers along the key attributes of reputation, sector and size focus, initial and secondary capital raising ability, sectoral equity research analysts and, finally, the all-important sales and trading aftermarket on London's AIM since much of the economic incentive for the AIM Nominated Broker vanishes after the London AIM IPO but the company wants to ensure that its London Stock Exchange AIM-listed shares are liquid since a core strategy of many is to be able to use those shares for acquisitions.’

One interesting statistic in comparing London's AIM with NASDAQ is that 62% more capital has been raised on London's AIM than NASDAQ since 2005.

Mark is keen to stress that the London Stock Exchange's AIM is not right for everyone and as well as the size and profitability criteria, he believes it is preferable for the candidate company to have some overseas exposure, ideally with some business in or plans for Europe.

Once a company has decided that it is interested in a London AIM listing, AIM Advisers will work with the company to determine the suitability of a London Stock Exchange AIM IPO by viewing the company through the eyes of potential AIM Nominated Advisers (Nomads) and AIM Nominated Brokers, assisting with their selection and the appointment of the various other key advisors as well as supporting the company with three hands-on services through the London AIM IPO process.

AimZine Comment: We will be keeping watch for further suitable U.S. companies completing IPOs on London's AIM, particularly those that are assisted by AIM Advisers.  Mark views London's AIM as a 3 - 5 year ‘bridge’ to grow quality companies from $24 million to $500 million.  UK Private Investors may be keen to help such companies across that bridge!

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 London's AIM.  Mark was the chief financial officer of DDD Group plc, a London 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.