London's AIM - Secondary Offering Activity - H1 2012

Secondary Offering activity on the London Stock Exchange's AIM rebounded by 29% during the first half of 2012 with £1.5 billion ($2.4 billion) raised.  25% of the 1,100 companies listed on London's AIM completed a secondary offering on London's AIM during the first half of 2012, raising an average of £5 million ($8 million).

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 17^th 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 17^th 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.