London's AIM - IPO Activity - H1 2012

IPO activity on the London Stock Exchange's AIM increased slightly during the first half of 2012 with 22 IPOs on London's AIM, two of which have their main place of operation in the U.S.  Gross capital raised on London's AIM amounted to £200 million ($320 million).

The median trailing pre-money revenue multiple achieved by the companies listing on London's AIM was 2.19 for the 12 companies that generated revenues > £2 million.  The median trailing pre-money P/E ratio and EBITDA multiple achieved by the companies listing on London's AIM was 9.38 and 6.32, respectively, for the 10 companies that earned profits > £1 million.

This post provides some insight into each of the 22 companies listings on the London Stock Exchange's AIM; the industries and geographies in which they operate, their overall listing, financial and operating metrics and the outlook for London AIM IPOs.

Highlights

• London Stock Exchange AIM IPO activity increases slightly - 22 listings on London's AIM during H1 2012 compared to 19 listings on London's AIM during H1 2011
• Companies completing IPOs on London's AIM since 2010 are smaller but stronger

• £200 million ($320 million) raised for IPOs on London's AIM in H1 2012 (£1.5 billion for secondaries)

• London Stock Exchange AIM IPO market remains selective, therefore, prospective issuers should carefully consider:
• Suitability before embarking on the process of listing on London's AIM
• Key advisers, most notably AIM Nominated Advisers (Nomads) and AIM Nominated Brokers

• Average London AIM IPO raised £9 million ($14 million)
• 82% of London AIM IPOs raised between £3 million and £30 million ($5 million and $48 million)

• Average opening market capitalization upon listing on London's AIM of £37 million ($59 million)
• 73% of opening market caps upon listing on London's AIM between £10 and £150 million ($16 and $240 million)

• London Stock Exchange AIM IPO dilution of existing shareholders amounted to 28%
• Average and median share price return on London's AIM of 24% and 7% since London AIM IPO (median date 4/23/12)
• FTSE AIM All-Share Index fell 3% during H1 2012 and 13% from 4/23 - 6/30/12

• Average post-IPO free float on London's AIM of 52%

• 12 of the 22 companies listing on London's AIM generated revenues > £2 million (range £2 million - £124 million)
• Median trailing pre-money revenue multiple of 2.19
• Those w/o significant revenues broadly in the natural resources space or financials

• 10 of the 22 companies listing on the London Stock Exchange's AIM earned profits > £1 million (range £1 million - £23 million)
• Median trailing pre-money P/E ratio and EBITDA multiple of 9.38 and 6.32

• Industry dispersion and insight into the 22 companies listing on London's AIM below
• Geographic dispersion and related commentary on the 22 companies listing on London's AIM also below

	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2010	16	351	22
H2 2010	30	666	22
H1 2011	19	265	14
H2 2011	26	295	11
H1 2012	22	200	9
Total	113	1,777	16

The table above shows that IPO activity on London's AIM during the first half of 2012 was slightly stronger than during the first half of 2011 in terms of the number of companies listing on London's AIM, however, slightly weaker in terms of capital raised on London's AIM.  Looking across the last five half-years, it is easy to spot the second half seasonality for London Stock Exchange AIM IPOs, which QE2 exacerbated during 2010.  Generally speaking, since 2010, companies listing on London's AIM have been smaller and stronger and have simply required less growth capital.

Despite the relatively weak macroeconomic situation, the Secondary Offering market on London's AIM has been booming with £1.5 billion ($2.4 billion) raised during the first half of 2012 as a result of attractive valuations for companies listed on London's AIM that are ‘known quantities’.  The strength of the Secondary Offering market on London's AIM is a positive sign for London Stock Exchange AIM IPOs over the medium to longer term as London AIM investors remain confident in the market.

The types of companies that completed London AIM IPOs during the first half of 2012 generally fell into three categories; those with significant revenues and significant profits, or very close to profitability, Investing Companies seeking to acquire or invest in companies/assets and natural resource plays at a very nascent stage.  Investing Companies listed on the London Stock Exchange's AIM are typically backed by ‘known figures’ with a history of achieving returns.  The oil and gas and mining companies listed on London's AIM all had owned or identifiable assets, solid geological studies and exceptional management teams with track records of success.

The chart below provides the distribution of gross funds raised from London AIM IPOs.  The sweet spot for London AIM IPOs is between £3 million ($5 million) and £30 million ($48 million).

 

Of the aggregate gross funds raised on the London Stock Exchange's AIM, 95% was for the companies listed on London's AIM and 5% was for selling shareholders, which were present in four of the London AIM IPOs, although, only three sold a meaningful stake.  While the average amount of gross capital raised on London's AIM was £9 million ($14 million), the median was £7 million ($11 million).

The average and median offering costs on London's AIM amounted to 20% and 13%, respectively, of the gross funds raised on the London Stock Exchange's AIM, however, the average, in particular, is skewed by a number of relatively small London AIM IPOs where the fixed costs dominate.

The chart below provides the distribution of opening market capitalizations upon listing on London's AIM.  The average company’s opening market capitalization upon listing on London's AIM was £37 million ($59 million) whereas the median was £29 million ($46 million).  73% of the companies listing on the London Stock Exchange's AIM commanded opening market capitalizations that ranged from £10 million to £150 million ($16 million to $240 million).

 

The aggregate opening market capitalization of the 22 companies that completed IPOs on London's AIM during the first half of 2012 was £0.8 billion ($1.3 billion).  The average and median post-IPO free float of these companies listed on the London Stock Exchange's AIM was 52% and 47%, respectively.

The chart below highlights an interesting, and what will likely be a permanent, shift in the market with respect to London Stock Exchange AIM IPO dilution of existing shareholders.  There are two main reasons for this shift; one regulatory and the other macroeconomic.  The regulatory reason is the London Stock Exchange’s codification of the AIM Nominated Advisers (Nomads) Rules in 2007, which increased the scrutiny of prospective companies listing on London's AIM 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.  The macroeconomic reason is the global financial crisis, which has caused London AIM investors to become more risk adverse.  Consequently, 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.  The 30% - 35% dilution level appears to have seen a step-change downward to the 25% - 30% range.  2009 is viewed as an anomaly given the lack of London Stock Exchange AIM IPO activity.

 

For the London AIM market as a whole, the average and median dilution of existing shareholders was 38%, whereas when Investing Companies are excluded, it was and 28% and 19%, respectively.

The final chart in this section provides the distribution of share price returns on London's AIM since each of the 22 companies listed on London's AIM through June 30, 2012.  It should be noted that the median London AIM IPO date is April 23, 2012, therefore, the average and median returns on London's AIM of +24% and +7%, respectively, only represent, on average, the last 68 days of the first half of 2012, the weakest part of the half-year for the overall market.  As a point-of-reference, the FTSE AIM All-Share Index fell 3% during the first half of 2012 and 13% from April 23, 2012 through June 30, 2012; therefore, the relative aftermarket performance of the 22 London Stock Exchange AIM IPOs has been quite strong.

 

London AIM Industry Dispersion and Revenue and Profitability Profile

Companies listed on the London Stock Exchange's AIM are organized into 90 sub sectors, which feed into 40 sectors, which feed into 10 super sectors.  The only super sectors that were not represented with London AIM IPOs during the first half of 2012 were Telecommunications and Utilities.  The chart below illustrates the eight super sectors in which London AIM IPOs occurred during the first half of 2012.  Since the classifications can be deceptive, the table below the chart provides some insight into the individual companies.

 

     

Financials (5)	One intends to invest in or acquire multi-level marketing companies, one is a residential housing rental franchisor, one intends to make equity or debt investments in companies where the owner(s) require liquidity and/or obtain limited partnership interests in private equity funds that are being repositioned, in both cases at discounts to intrinsic value, one intends to invest in mining and oil and gas assets and one intends to acquire a company, business, group of businesses or asset(s) in the natural resources or consumer goods sector
Oil & Gas / Alternative Energy (4)	Oil & Gas Exploration and Production (2), one is focused on onshore and offshore oil and gas and the other is focused on oil sands Renewable Energy Equipment (1), an environmental technology company specializing in the development and application of green energy and energy efficient water heating solutions, primarily through the manufacture and sale of solar-powered water heating systems Oil & Gas Equipment and Services (1), a provider of specialist reach and recovery products and technologies (used in non-vertical drilling for oil and gas to optimize production efficiency) to the international upstream (exploration and production) oil and gas services market
Consumer Services (3)	One produces and commercializes children’s CGI animation television series’ and brand’s based on sports and sport’s stars, one provides portable accommodation, using steel shipping containers as the form-factor, and does not require mains service, such as power, water and waste drainage, for short-term events (motor racing, horse racing, golf, tennis, sailing, music festivals, country shows and cultural events) and longer-term uses (military deployments and civilian construction projects) and one is a Feng Shui consultancy to corporations and individuals with company-owned and franchised retail outlets
Basic Materials (3)	Mining Exploration and Production (2), one is focused on gold and copper and the other is focused on iron ore and tin Mining Services (1), a vertically integrated mining services group that separates, refines and sells rare earth elements with a smelting and separation plant, a rare earth elements’ sales and distribution company and the ability to provide technical support and equipment to third-party rare earth elements’ mining companies and factories
Technology (2)	One is a provider of collaboration software to the software development industry, allowing globally distributed software engineering teams to simultaneously access the same programs, improving productivity and preventing downtime and data loss and the other is a provider of software solutions and services to the automotive dealership industry with dealer management, business intelligence and customer and vehicle relationship management products
Consumer Goods (2)	One is an online and mobile, social/casual, interactive games developer and publisher and the other is a designer, manufacturer and supplier of company-branded sport’s shoes and designer and supplier of company-branded clothing and accessories, all of which are sold at distributor or sub-distributor owned stores
Industrials (2)	One is an independent utility cost management consultancy that has established relationships with major energy suppliers and provides services to its customers so that they can achieve better value from their energy contracts, reduce their energy consumption and reduce their carbon footprint and the other is a B2B e-commerce service provider that connects international buyers with high-quality manufacturers that have been independently audited for quality standards
Healthcare (1)	This company enables research into viral infections and enables pharmaceutical companies to accelerate and reduce the cost of bringing antiviral therapeutics and vaccines to market by isolating volunteers in a specialist facility for 10 - 15 days, exposing them to a characterized respiratory virus, treating them with an experimental drug candidate or simply observing them and collecting samples and recording data as to the effectiveness of the drug

Of the 22 companies listing on London's AIM, 12 generated significant revenues (i.e. > £2 million) during their most recent financial year with the range being £2 million - £124 million ($3 million - $198 million).  The average pre-money revenue multiple achieved by London Stock Exchange AIM-listed companies was 3.19 and the median was 2.19.  Of the 12 companies listing on London's AIM that generated significant revenues, 10 earned significant profits (i.e. > £1 million), with the range being £1 million - £23 million ($2 million - $37 million), and the other two recorded small losses (i.e. < £1 million).  The average pre-money P/E ratio and EBITDA multiple achieved by London Stock Exchange AIM-listed companies was 12.12 and 8.83, respectively, and the medians were 9.38 and 6.32.

As previously noted, the types of companies that listed on London's AIM during the first half of 2012 generally fell into three categories; those with significant revenues and significant profits, or very close to profitability, Investing Companies seeking to acquire or invest in companies/assets and natural resource plays at a very nascent stage.  As such, only one of the five financial companies listed on the London Stock Exchange's AIM generated significant revenues and earned significant profits (the residential housing rental franchisor listed on London's AIM), only two of the four oil and gas / alternative energy companies listed on London's AIM generated significant revenues and earned significant profits (the renewable energy equipment company listed on the London Stock Exchange's AIM and the oil equipment and services company listed on London's AIM but neither of the oil and gas E&P companies listed on London's AIM) and only one of the three basic materials companies listed on the London Stock Exchange's AIM generated significant revenues and earned significant profits (the mining services company listed on London's AIM but neither of the mining E&P companies listed on London's AIM).

Across the other super sectors, only consumer services stands out with only one of the three companies listed on London's AIM generating significant revenues and earning significant profits.  Both of the technology companies listed on the London Stock Exchange's AIM generated significant revenues but only one earned a significant profit with the other one recording a small loss.  Both of the consumer goods companies listed on London's AIM and both of the industrial companies listed on London's AIM generated significant revenues and earned significant profits.  The healthcare company listed on London's AIM generated significant revenues but recorded a small loss.

One of the 22 companies listed on London's AIM was able to complete its London AIM IPO by using the ‘fast track route to London's AIM’ since its securities were, and still are, traded on a London AIM Designated Market (ADM), the Australian Securities Exchange (ASX) in this case, for at least the previous 18 months.  So as to place this in the proper context, none of the 45 London AIM IPOs during 2011 and only two of the 46 London Stock Exchange AIM IPOs during 2010 utilized the fast track route, both with the ASX as the ADM.  Companies utilizing the fast track route to London's AIM do not have to produce the typical London AIM Admission Document but rather a brief, but detailed, pre-admission announcement.  The 10 ADMs are the top tier markets of the ASX, Deutsche Börse Group, Johannesburg Stock Exchange, NASDAQ, NYSE, NYSE Euronext, NASDAQ OMX Stockholm, Swiss Exchange, TMX Group and UKLA Official List.

It appears as if the migration of companies to the London Stock Exchange's AIM from the PLUS Stock Exchange (the old OFEX) in the U.K. has come to an end with none of the 22 companies that completed IPOs on London's AIM during the first half of 2012 having previously been listed on PLUS, whereas nine of the 45 London AIM IPOs during 2011 and four of the 46 London AIM IPOs during 2010 were of companies that were previously listed on PLUS.

The two U.S. companies that listed on London's AIM during the first half of 2012 did so via U.K. domiciled holding companies that acquired these U.S. companies with the London AIM IPO funds raised.  As U.K.-domiciled companies, they must prepare their financial statements in accordance with IFRS; however, both continue to use the USD as their reporting currency.

London's AIM Geographic Dispersion (Main Place of Operation)

Unsurprisingly, the U.K. is the main place of operation for more companies listed on London's AIM than any other country, region or continent; however, the dominance of U.K. companies listed on London's AIM has continued to shrink in recent years.  While approximately 60% of the 1,100 companies listed on London's AIM are based in the U.K., only 31% of London Stock Exchange AIM IPOs during 2010 and 2011 and 27% during the first half of 2012 were for U.K. companies.  The irony here is that of the six U.K. companies that completed London AIM IPOs during the first half of 2012, only two generated significant revenues and earned significant profits, two generated significant revenues and recorded small losses and the final two did not even generate significant revenues, whereas the bar is higher for Chinese and U.S. companies listing on London's AIM.

The three Continental European companies listing on the London Stock Exchange's AIM followed the same pattern as the U.K. companies listing on London's AIM in that only one generated significant revenues and earned significant profits and the other two did not even generate significant revenues.

All four Chinese companies listing on London's AIM generated significant revenues (£26 million, £14 million, £124 million and £4 million) and generated significant profits (£5 million, £4 million, £23 million and £1 million).

Both U.S. company IPOs on London's AIM generated significant revenues (£8 million and £11 million) and generated significant profits (£2 million and £4 million).

There were no industry sector concentrations amongst the U.K., Continental European, Chinese or U.S. companies that completed IPOs on London's AIM during the first half of 2012, however, the seven London AIM IPOs from the other five jurisdictions were mainly for Investing Companies or natural resource plays.