London's AIM - Secondary Offering Activity - 2011

Secondary Offering activity on the London Stock Exchange's AIM stock exchange remains strong with £3.6 billion ($5.8 billion) raised during 2011.  45% of the 1,100 companies listed on London's AIM completed a secondary offering during 2011, raising an average of £7 million ($11 million).  The post below provides additional insights.

Highlights

• Secondary offering market on the London Stock Exchange's AIM remains strong

• £3.6 billion ($5.8 billion) raised in secondary offerings on London's AIM during 2011

• ‘Operating companies’ capture 83% of secondary offering funds raised on London's AIM during 2011

• Average size of ‘operating company’ secondary offerings on the London Stock Exchange's AIM moderates during 2011

                2008 - £5m ($8m)        2009 - £5m ($8m)       2010 - £8m ($13m)       2011 - £7m ($11m)

• Trend continues between London AIM secondaries raising < £5m and the £5m - £30m range 

        < £5m                             2008 - 80%               2009 - 79%                2010 - 75%               2011 - 74%

    £5m - £30m                      2008 - 15%               2009 - 17%                2010 - 19%               2011 - 20% 

• Relative number of London Stock Exchange AIM-listed companies completing secondary offerings on London's AIM moderates

    2008 - 36%                          2009 - 54%                          2010 - 56%                          2011 - 45%

• London's AIM has expelled the vast majority of the weak and is supporting those that remain

The success of secondary offerings on London's AIM is indisputable, which is the defining characteristic of a mature market.  Since 2008, secondary offering funds raised on the London Stock Exchange's AIM have outpaced IPO funds raised on London's AIM by more than 5:1.  The expectation is that this ratio will cut in half over the next few years, in line with the macroeconomic healing process, as investors’ risk profiles gradually shift back towards London AIM IPOs.  The early-stage growth profile and/or attractive valuations for companies listed on London's AIM that are ‘known quantities’ have been the main drivers of secondary offering activity on the London Stock Exchange's AIM.

When reviewing the “All Companies” tables below, one anomaly should be adjusted for.  During 2009, there were three large London AIM Placing & Open Offers which raised an aggregate of £1.1 billion for real estate investment, development and management companies listed on the London Stock Exchange's AIM.  Historically, the vast majority of secondary offerings on London's AIM take the form of Placings and are much smaller in size.  When the adjustments are made, the aggregate secondary offering funds raised on London's AIM during 2009 drops from £4.9 billion to £3.8 billion and the average drops from £6.38 million to £5.03 million.

All Companies	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
2008	918	3,214
2009	610*	4,861**
2010	1,017	5,738
2011	560	3,616
Total	3,105	17,429

*   Includes two large London Stock Exchange's AIM IPOs focused on acquiring distressed real estate and commercial businesses.  If excluded, London AIM IPO funds raised drops to £248m.

** Includes three large London AIM Placing & Open Offers for real estate companies.  If excluded, Secondary Offering funds raised on London's AIM drops to £3,814m.

‘Operating Companies’*	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
2008	523	2,539
2009	16	3,113
2010	723	4,888
2011	516	3,013
Total	1,778	13,553

*  Generally excludes SPACs, Investing Companies and Investment and Real Estate Funds.

The key takeaways from the tables above are that secondary offering activity on London's AIM has remained strong and 83% of the funds raised on London's AIM over the last four years have been for ‘operating companies’ listed on the London Stock Exchange's AIM, after adjusting for the previously mentioned anomaly during 2009.  QE2 and the debt ceiling debate et al. had positive and negative effects on secondary offering activity on London's AIM from the summers of 2010 and 2011, respectively.

All Companies	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	578	3,214	5.56
2009	762	4,861**	6.38**
2010	691	5,738	8.30
2011	524	3,616	6.90
Total	2,555	17,429	6.82

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

** Includes three large London AIM Placing & Open Offers for real estate companies.  If excluded, the gross and average raised on the London Stock Exchange's AIM drop to £3,814m and £5.03m.

‘Operating Companies’*	Number of London AIM Secondaries**	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	493	2,539	5.15
2009	682	3,113	4.56
2010	595	4,888	8.22
2011	455	3,013	6.62
Total	2,225	13,553	6.09

*   Generally excludes SPACs, Investing Companies and Investment and Real Estate Funds.

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

The key takeaway from the tables above is that the 2010 spike in gross secondary offering funds raised on the London Stock Exchange's AIM and the average size, after adjusting for the previously mentioned anomaly during 2009, has moderated during 2011, however, secondary offering activity on London's AIM was still quite strong.

Consistent with the above (see chart below), there is a slight, but noticeable, London AIM secondary offering trend developing with the breakpoint being £5 million ($8 million).  The relative number of secondary offerings on the London Stock Exchange's AIM raising less than this amount has decreased from 2008 - 2011 (80%, 79%, 75% and 74%), whereas the relative number raising between £5 million ($8 million) and £30 million ($48 million) has increased from 2008 - 2011 (15%, 17%, 19% and 20%).

This trend has developed because, during 2008 and 2009, investors were willing to deploy relatively small amounts of capital to continue to assess the viability of certain companies listed on London's AIM, whereas in 2010 and 2011, capital was being deployed for executing on organic and/or acquisitive growth opportunities.

 

The chart below shows that the relative number of companies able to complete secondary offerings on the London Stock Exchange's AIM during 2011 moderated to 45%.  When looking at London AIM data going back to 2004, the long-term average approximates 50%.  The launch of QE2 during the summer of 2010 and the debt ceiling debate et al. during the summer of 2011 had slight positive and negative effects, respectively, on the secondary offering market on the London Stock Exchange's AIM.

The chart below also illustrates the ‘crash’ of 2008 and a wave of relatively small ‘rescue financings’ during 2009.  The best evidence of the health and stability of the secondary offering market on London's is the fact that the average secondary offering on the London Stock Exchange's AIM raised £7.70 million ($12.32 million) during 2010 - 2011, only 18% less than the £9.08 million ($14.53 million) average secondary offering on London's AIM during 2006 - 2007.  As previously mentioned, the breadth and depth of secondary offering activity on London's AIM is the defining characteristic of a mature market.

 

The vast majority of weak companies were expelled from London's AIM during 2008 and 2009 as investors selected those companies that would remain on the London Stock Exchange's AIM by providing access to secondary offering funds.