The effects of QE2 and the debt ceiling debate
et al. over the last two years, along with the current state-of-play and future
outlook, are described in detail in this post.
Highlights
- Secondary offering market on the London Stock Exchange's AIM rebounds by 29% during H1 2012
- £1.5 billion ($2.4 billion) raised in secondary offerings on London's AIM during H1 2012
- Unsurprisingly, global macroeconomics are correlated with London Stock Exchange AIM secondary offering activity
- QE2 created a surge in activity during H2 2010 that carried into H1 2011
- Debt ceiling debate et al. caused a contraction in activity during H2 2011
- Data shows these events cut across all aspects of the secondary offering market
- Gross capital raised on London's AIM
- Relative number of London AIM-listed companies accessing the market
- Distribution of capital raises on London's AIM
- Average capital raised on London's AIM
- Relative number of London AIM-listed companies completing secondary offerings rebounds
H1 2010 - 24% H2 2010 - 32% H1 2011 - 27% H2 2011 - 18% H1 2012 - 25%
- Distribution of secondary offerings on the London Stock Exchange's AIM improve during H1 2012 but back to H1 2010 levels
- Average size of H1 2012 secondaries on London's AIM lower than before QE2 but for a positive reason
H1 2010 - £7m ($11m) H2
2010 - £9m ($14m)
H1 2011 - £8m ($13m) H2
2011 - £6m ($10m)
H1 2012 - £5m ($8m)
- Companies are maturing, as is London's AIM in its 17th year, and simply require less growth capital
- Current level of uncertainty mirrors H1 2010, leaving investors cautious and selective
- QE3 would certainly create an uptick in London Stock Exchange AIM secondary offering activity but not nearly as dramatic as QE2
London AIM
IPO Funds Raised
(in £ millions)
|
London AIM
Secondary Offering Funds Raised
(in £ millions)
|
|
H1 2010
|
351
|
2,185
|
H2 2010
|
666
|
3,553
|
H1 2011
|
265
|
2,451
|
H2 2011
|
295
|
1,165
|
H1 2012
|
200
|
1,505
|
Total
|
1,777
|
10,859
|
The success of the secondary offering market on the London Stock Exchange's AIM is
indisputable, which is the defining characteristic of a mature market. Since 2010, secondary offering funds raised on London's AIM have outpaced IPO funds raised on London's AIM by more than 6:1. 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.
Unsurprisingly, global macroeconomic developments are highly
correlated with secondary offering activity on London's AIM.
The pattern is easy to spot with respect to the gross secondary offering funds raised
on the London Stock Exchange's AIM since an average of 1,200 companies have been listed on London AIM since 2010 (i.e. lots
of data points), however, such a firm conclusion cannot be drawn with respect
to the London AIM IPO market since, by its very nature, it consists of relatively few discrete
transactions during any given half-year.
When QE2 was launched during the summer of 2010, secondary
offering activity on the London Stock Exchange's AIM surged, which carried over, with diminishing effect, into the
first half of 2011. When the debt
ceiling debate et al. unfolded during the summer of 2011, secondary offering
activity on London's AIM contracted and began to recover during the first half of 2012. These events cut across all aspects of the London AIM secondary offering market.
The chart below shows that the relative number of
London Stock Exchange AIM-listed companies completing secondary offerings is consistent with the pattern
of gross secondary offering funds raised on London's AIM described above.
The table below shows that the distribution of gross
funds raised from secondary offerings on London's AIM is also consistent with these patterns;
shifting from smaller to larger to even smaller, with the first half of 2012 essentially
back to the distribution during the first half of 2010.
(in £ millions)
|
H1 2010
|
H2 2010
|
H1 2011
|
H2 2011
|
H1 2012
|
< 3
|
68%
|
64%
|
65%
|
71%
|
69%
|
3 - 5
|
18%
|
19%
|
16%
|
16%
|
19%
|
10 - 50
|
11%
|
12%
|
16%
|
11%
|
10%
|
> 50
|
3%
|
5%
|
3%
|
2%
|
2%
|
The final table below shows that the average gross funds
raised from secondary offerings on London's AIM also follows the pattern; however, there is one
very important exception, the average during the first half of 2012 remained
broadly in line with the average during the second half of 2011, as opposed to rising
back up to, or around, pre-QE2 levels. On
the surface, one might conclude that the companies listed on London's AIM that completed secondary
offerings on the London Stock Exchange's AIM during the first half of 2012 simply could not raise more capital; however,
the fact is that these companies, and London's AIM now in its 17th year, have
matured greatly over the last two years and simply require less growth capital.
Number of
Secondaries*
|
Gross Funds Raised
(in £ millions)
|
Average Funds
Raised
(in £ millions)
|
|
H1 2010
|
307
|
2,185
|
7.12
|
H2 2010
|
384
|
3,553
|
9.25
|
H1 2011
|
320
|
2,451
|
7.66
|
H2 2011
|
204
|
1,165
|
5.71
|
H1 2012
|
284
|
1,505
|
5.30
|
Total
|
1,499
|
10,859
|
7.24
|
* This
is the number of discrete secondary offering transactions. Some companies completed more than one
secondary offering per half-year.
If one were to look back to 2008 and 2009, the vast majority
of weak companies listed on London's AIM were expelled in the wake of the global financial crisis as investors
selected those that would remain listed on London's AIM by providing access to secondary offering
funds on the London Stock Exchange's AIM. Generally speaking, secondary
offering funds raised on London's AIM since 2009 have been used to execute on organic and/or
acquisitive growth opportunities.
The current level of uncertainty mirrors the first half of
2010, leaving investors cautious and selective.
If QE3 is launched, one would certainly expect an uptick in secondary
offering activity on London's AIM, however, the effect will likely not be nearly as dramatic as
QE2.