Tuesday, November 19, 2013

London's AIM - Several Factors Positively Influencing London AIM IPO Activity

A confluence of factors have positively influenced the London Stock Exchange's AIM, yielding 45 London AIM IPOs during the first 10 months of 2013 versus 35 London AIM IPOs during the first 10 months of 2012, with a number of high-profile healthcare and technology IPOs on London's AIM over the last 18 months.

At a macro-level, the UK economy is expected to grow by 1.6% this year, more than double the Government's forecast back in March, optimism among UK manufacturers rose last month at the fastest rate since April 2010, households' optimism in the recovery improved for the 10th straight month in October and the FTSE 100 has been above 6,000 for the entire year.

On the legislative/tax front, London AIM shares can now be held in UK Individual Savings Accounts (ISAs), the US equivalent of IRAs, and the current 0.5% stamp duty (tax) on the purchase of shares will be abolished from April 2014.  London AIM shares can be one of the most tax-advantaged investments; avoiding capital gains tax, income tax, inheritance tax and, soon, stamp duty.  The benefit for companies considering a London Stock Exchange AIM IPO (and those already listed on London's AIM) should be a further reduction in the cost-of-capital and an increase in aftermarket liquidity; both positively impacting valuations.  A few relevant articles on these topics can be accessed here:

The Telegraph - Should You Join the Rush Into AIM Shares?

The Telegraph - Shares Listed on AIM Can Now be Held in ISAs

The Financial Times - Stamp Duty on AIM Shares Abolished

All of the above follows on from a relaxation of the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules introduced in the UK's Finance Act 2012, which increased the limits on the size of qualifying companies from up to 50 employees and gross assets of £7 million to up to 250 employees and gross assets of £15 million, increased the annual maximum amount that can be invested in a qualifying company from £1 million to £5 million and, importantly for foreign companies contemplating a London Stock Exchange AIM IPO, the EIS and/or VCT funds raised can now be used anywhere in the world, provided the company has a UK 'permanent establishment'.  The 'permanent establishment' test can most easily be met by having someone in the UK who has the authority to 'bind the company to contracts', therefore, an office, branch, etc. is not necessarily required.

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