London's AIM - Secondary Offering Activity - 2012

Secondary offerings on the London Stock Exchange's AIM raised £2.5 billion ($4.0 billion) during 2012, however, their continuing decline since 2010 now appears to be signaling the start of a new IPO cycle on London's AIM for three main reasons; two connected to the secondary offering market and one driven by the global economy.

The three main reasons, along with the effects of QE2, the debt ceiling debate et al. and QE3 on the London AIM secondary offering market over the last three years, are described in detail in this post.

Highlights

• £2.5 billion ($4.0 billion) raised in secondary offerings on the London Stock Exchange's AIM during 2012

• Secondary offerings on London's AIM continue to decline, signaling a shift towards increasing London Stock Exchange AIM IPO activity
• Valuations for the 1,100 companies currently listed on London's AIM are now ‘fair’
• Companies are maturing, as is London's AIM in its 18^th year, and simply require less capital
• Economies outside the U.K. are gathering pace, accounting for 69% of London AIM IPOs
• Ratio of secondary offering funds raised on London's AIM to IPO funds raised on London's AIM was 6:1 in 2010/2011, now 3.6:1

• Global macroeconomics exaggerated the natural course of the London Stock Exchange AIM secondary offering market
• QE2 assisted the surge in activity during 2010, which carried into 2011
• Debt ceiling debate et al. acted as a counterbalance during 2011
• QE3 launched in late 2012, however, with diminishing or no effect
• Data shows these events cut across all aspects of the secondary offering market
• Gross capital raised on London's AIM
• Distribution of capital raises on London's AIM
• Average capital raised on London's AIM

• Average size of secondary offerings on London's AIM continues to decline but for a positive reason

2010 - £8m ($13m)                    2011 - £7m ($11m)                    2012 - £5m ($8m)

• Relative number of London Stock Exchange AIM-listed companies completing secondary offerings holds steady 

2010 - 56%                                 2011 - 45%                                 2012 - 48%

	London's AIM IPO Funds Raised (in £ millions)	London's AIM Secondary Offering Funds Raised (in £ millions)
2010	1,017	5,738
2011	560	3,616
2012	695	2,478
Total	2,272	11,832

Since the London Stock Exchange's AIM was launched in 1995, an aggregate of £80 billion ($128 billion) has been raised for growth-oriented SMEs, £35 billion ($56 billion) for London AIM IPOs and £45 billion ($72 billion) for London AIM Secondary Offerings.  It appears as if the London Stock Exchange's AIM is about to enter a new IPO cycle for three main reasons; two connected to the secondary offering market and one driven by the global economy.

Since we are now a few years out from the worst of the global financial crisis, valuations for the vast majority of the 1,100 companies listed on London's AIM are now ‘fair’ and, as these companies have naturally matured, they simply require less growth capital, causing investors to shift towards London Stock Exchange AIM IPOs.  There is early evidence of this shift in that the ratio of secondary offering funds raised on London's AIM to IPO funds raised on London's AIM was approximately 6:1 during 2010 and 2011, reducing to 3.6:1 during 2012.

The global macroeconomic healing process is still underway and appears to be gathering pace outside the U.K. and Continental Europe.  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 from 2010 - 2012 were for U.K. companies.  Over that same timeframe, there has been a relative surge of London AIM IPOs from the world’s two largest economies, the U.S. and China, accounting for 8% and 9%, respectively, where growth prospects remain good.  The internationalization of London's AIM is expected to continue.

Global macroeconomic developments exaggerated, and 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 London's AIM since an average of 1,144 companies have been listed on the London Stock Exchange's 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 year.

When QE2 was launched during 2010, secondary offering activity on London's AIM surged, which carried over, with diminishing effect, into 2011.  When the debt ceiling debate et al. unfolded during the summer of 2011, secondary offering activity on the London Stock Exchange's AIM contracted.  The launch of QE3 in late 2012 has had a diminishing or no effect.  These events cut across all aspects of London AIM's secondary offering market.

The table below shows that the distribution of gross funds raised from secondary offerings on London's AIM is also consistent with this pattern, shifting from larger to smaller.  The chart provides more detail.

(in £ millions)	2010	2011	2012
< 3	66%	67%	70%
3 - 10	18%	16%	20%
10 - 50	12%	14%	9%
> 50	4%	3%	1%

 

The next table shows that the average funds raised from secondary offerings on London's AIM is also consistent with these patterns.

	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2010	691	5,738	8.30
2011	524	3,616	6.90
2012	532	2,478	4.66
Total	1,747	11,832	6.77

*   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 half-year.

On the surface, one might conclude that the companies that completed secondary offerings on London's AIM during 2012 simply could not raise more capital; however, the fact is that these companies, and the London Stock Exchange's AIM now in its 18^th year, have matured quite a bit over the last two years and simply require less growth capital.  The chart below supports this conclusion since the relative number of London AIM-listed companies completing secondary offerings actually increased slightly during 2012.

 

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 by providing access to secondary offering funds on London's AIM.  Generally speaking, secondary offering funds raised on the London Stock Exchange's AIM from 2010 - 2012 have been used to execute on organic and/or acquisitive growth opportunities.