Tuesday, December 17, 2013

London's AIM - U.S. Company IPO and Secondary Offering Activity - H1 2013

U.S. companies accounted for 18% of the IPOs on the London Stock Exchange's AIM during the first half of 2013, more than from any other country, except the U.K.  Of the 15 U.S. company London AIM IPOs since 2010, five have included meaningful liquidity events for Selling Shareholders.

Three of the four U.S. company London Stock Exchange AIM IPOs during the first half of 2013 are featured in this post.  All achieved attractive pre-money valuations and two included significant Selling Shareholders.

The relative surge of U.S. companies completing IPOs on London's AIM since 2005 is expected to continue.  U.S. companies currently account for 5% of all companies listed on London's AIM, which is forecast to grow to 10% by the end of this decade.

Highlights
  • U.S. companies account for 9% (15 of 158) of London Stock Exchange AIM IPOs since 2010
    • More than from any other country, except the U.K. (32%)
  • Three of the four U.S. company London Stock Exchange AIM IPOs during H1 2013 are featured in this newsletter
    • Digital Globe Services - Colorado - Consumer Services - Media Agency
      • Raised $20.5m, of which, $12.5m cash exit for the Strategic Investor
      • Market Cap $73.9m
      • Revenue and EBITDA multiples of 3.3 and 22.0, P/E ratio of 36.6
    • Electrical Geodesics - Oregon - Healthcare - Medical Device
      • Raised $12.0m, Market Cap $44.3m, Pre-Money Revenue Multiple 2.6
    • IBEX Global Solutions - Washington, D.C. - Industrials - Business Support Services
      • Raised $22.5m, of which, $5.9m cash exit for the Strategic Investor
      • Market Cap $89.9m, Pre-Money EBITDA Multiple 13.8
  • 2005 - 2009, U.S. companies account for 8% (66 of 846) of London AIM IPOs
  • Since 2010, U.S. companies account for 9% (15 of 158) of London AIM IPOs
  • During the first six months of 2013, U.S. companies account for 18% (4 of 22) of London AIM IPOs
    • London AIM investors remain selective but desire exposure to USD assets/revenue
    • London AIM investors seeking high-quality, growth-oriented companies 
  • Currently 5% (58 of 1,085) of the companies listed on London Stock Exchange's AIM are from the U.S.
  • End-of-decade expectation is that 10% of London's AIM will consist of U.S. companies
  • London AIM IPO market remains selective, therefore, prospective issuers should carefully consider:
  • £415 million raised from secondary offerings on London's AIM for 33 U.S. companies since 2010
  • 57% of all U.S. companies on London's AIM have completed at least one secondary since 2010
  • 64% of secondary offerings on London's AIM raise between £1 million and £10 million
  • Selling shareholder activity at the time of a London AIM IPO increases from 25% to 33% since 2010
  • U.S. Accredited Investor and QIB participation on London's AIM continues at the historic level of 20%
  • Industry and geographic dispersion of the 58 U.S.companies listed on London's AIM - see below

U.S. London AIM-Listed Company IPOs - Macro View
The table below shows that IPO activity on the London Stock Exchange's AIM during the first half of 2013 was consistent with first half activity on London's AIM in recent years.  Looking across the last seven half-years, it is easy to spot the second half seasonality of London AIM IPOs, which QE2 exacerbated during 2010.  Generally speaking, compared to 2010, the companies that completed IPOs on London's AIM during 2011, 2012 and the first half of 2013 were stronger and simply required less growth capital.



Entire Market

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
H2 2012
  23
   495
22
H1 2013
  22
   258
12
Total
158
2,530
16

Historically, U.S. companies have accounted for less than 5% of London Stock Exchange AIM IPOs, however, since 2005, there has been a relative surge of U.S. companies completing IPOs on London's AIM.  From 2005 - 2009, 8% of all IPOs on London's AIM were for U.S. companies.  Since 2010, this figure has grown to 9% and during the first six months of 2013, 18% of all IPOs on London's AIM were for U.S. companies, accounting for 14% of the gross capital raised.  With a limited number of data points, it’s difficult to draw firm conclusions; however, the medium-term expectation is that U.S. companies will account for approximately 10% of all companies listed on the London Stock Exchange's AIM by the end of this decade; growing from 58 to over 100.



United States

Number of
London AIM IPOs

Gross Funds Raised
(in £ millions)

Average Funds Raised
(in £ millions)
H1 2010
  -
  -
N/A
H2 2010
  2
  52
  26
H1 2011
  -
  -
N/A
H2 2011
  7
  45
    6
H1 2012
  2
  55
  28
H2 2012
  -
  -
N/A
H1 2013
  4
  37
    9
Total
15
189
  13

While London Stock Exchange AIM IPO investors remain selective, it is clear from the relative surge of U.S. companies completing IPOs on London's AIM since 2005 that they desire exposure to USD assets and revenue streams from high-quality, growth-oriented companies.

U.S. London AIM-Listed Company IPOs - H1 2013’s Featured Transactions
The table and summaries below provide some high-level insights into three of the U.S. company IPOs on London's AIM during the first half of 2013.  Further details can be found by clicking on the company name, which leads to a comprehensive, four-page summary of each transaction.

The diversity of the sectors on the London Stock Exchange's AIM in which these three companies operate is worth noting and reinforces the message to private companies seeking additional growth capital for the next stage of their development that the London Stock Exchange's AIM is open to companies from all sectors.  The three most important factors, in the eyes of prospective U.K. investors, are the quality of the company’s management team, international operations/plans and future growth prospects.


(in USD millions)






Industry Sector

Consumer Services Media Agency

Healthcare
Medical Device
Industrials
Business Support Services




Gross Capital Raised
$20.5
$12.0
$22.5
Opening Market Cap
  73.9
  44.3
  89.9
Revenue
  20.0
  12.5
136.0
EBITDA
    3.0
    0.6
    5.3
Net Income
    1.8
    0.2
    1.0




Pre-Money Multiples/Ratio



Revenue
    3.3
    2.6
    0.5
EBITDA
  22.0
   53.8[1]
  13.8
P/E
  36.6
 161.51
   73.31




Cash Received by Strategic Investor Selling Shareholder

$12.5

   N/A

  $5.9

Digital Globe Services provides outsourced online customer acquisition solutions to large, consumer-facing organizations; mainly U.S. cable companies.  The Company procures paid search advertising, develops and manages branded web sales portals and establishes and maintains sales contact centers.  DGS’s competitive advantages include its proprietary databases and algorithms for cost-effective procurement of online advertising and the driving of customer action, expertise in optimizing websites and contact centers for maximum sales conversion and a fee-per-sale business model to closely align the economic interests of DGS with their clients.  The Company was founded in 2008 and is headquartered in Castle Rock, Colorado, however, the vast majority of DGS’s 427 employees are based in Pakistan.  Future growth opportunities are focused on providing additional services to existing customers, expansion into new geographical markets, such as Latin and South America, Europe and Asia and expansion into new industry verticals, such as energy, finance, insurance and healthcare.  The Company’s Strategic Investor acted as the Selling Shareholder and achieved a partial exit of $12.5 million in cash at the time of the London Stock Exchange AIM IPO.

Electrical Geodesics is a medical device company that designs, develops and commercializes a range of non-invasive neurodiagnostic hardware and software products used to monitor and interpret brain activity.  A key component of these products is the Company’s proprietary dense array electroencephalography (dEEG) platform technology.  The dense array method gathers brain activity data from many more electrodes (up to 256) than conventional EEG products, generating significantly higher-quality and more precise levels of information.  Electrical Geodesics’ technology has advanced steadily over the last 20 years, with regulatory clearances from the U.S. FDA, EU MDD/CE and a number of other major international regulatory bodies.
Barriers-to-entry include reliance on trade secrets and know-how as well as patents, particularly with respect to the myriad technologies surrounding electrical brain imaging.  The Company was founded in 1992 to commercialize advanced EEG products invented by the Company’s Co-Founder, Chairman and CEO in the Brain Electrophysiology Laboratory at the University of Oregon.  The vast majority of the Company’s 78 employees are based in Eugene, Oregon.  Electrical Geodesics’ technology has been increasingly adopted as a powerful research tool and, more recently, as a cost-effective and patient-friendly clinical neurodiagnostic platform.

IBEX Global Solutions provides voice-based contact center services (i.e. inbound customer support and retention, technical assistance and sales order entry and outbound customer acquisition) and other business process outsourcing solutions; mainly to U.S.-based, Fortune 500 telecommunications and consumer technology companies.  The majority of the Company’s services are provided ‘onshore’ from eight locations in the U.S. and the balance is provided ‘offshore’ from three locations in the Philippines and one in Senegal.  IBEX’s competitive advantage lies primarily in maintaining efficient variable and fixed cost structures.  Variable costs are controlled by understanding the labor markets in which the Company operates and targeting optimal wage and benefit levels.  Fixed costs are controlled by locating the majority of the Company’s support functions in Pakistan (software and technology development and analytics) and the Philippines (workforce management and quality assurance).  IBEX was founded in 2002 when the Strategic Investor acquired a stake in one of the operating companies and then acquired and integrated six additional companies over the next decade.  The Company has 8,000 employees; 3,850 in the U.S. at its Washington, D.C. headquarters and across the eight contact centers, 2,100 in the Philippines, 1,600 in Pakistan, 400 in Senegal and 50 in the U.K.  Future growth opportunities are focused on providing additional voice-based services to existing U.S. clients, winning new voice-based U.S. clients, diversifying into non-voice services, such as email support, chat and website administration, adding industry verticals, such as healthcare and utilities, and expanding into Canada, the U.K. and France.  The Company’s Strategic Investor acted as the Selling Shareholder and achieved a partial exit of $5.9 million in cash at the time of the London AIM IPO.

U.S. London AIM-Listed Company Secondary Offerings
The 58 U.S. companies listed on the London Stock Exchange's AIM account for 5.3% of the 1,085 companies listed on AIM, however, they only account for 3.2% of the secondary offering funds raised on London's AIM since 2010.  In prior years, the U.S. companies listed on the London Stock Exchange's  AIM have accessed larger amounts of capital, resulting in rapid growth, and are now more advanced in terms of their stage-of-development relative to the London Stock Exchange's AIM as a whole.  As such, many are now self-sustaining and simply require less growth capital.



Entire Market
Number of
London AIM
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
H2 2012
   248
     973
3.92
H1 2013
   250
  1,080
4.32
Total
1,997
12,912
6.47
*   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.



United States
Number of
London AIM
Secondaries*

Gross Funds Raised
(in £ millions)

Average Funds Raised
(in £ millions)
H1 2010
       7
       15
2.14
H2 2010
     14
     109
7.79
H1 2011
     12
       38
3.17
H2 2011
       9
       59
6.56
H1 2012
     11
       33
3.00
H2 2012
     13
       78
6.00
H1 2013
     17
       83
4.88
Total
     83
     415
5.00
*   This is the number of London AIM-listed companies that completed secondary offerings on London's AIM as opposed to the number of discrete secondary offerings on London's AIM.

Of the 83 U.S. companies listed on the London Stock Exchange's AIM that completed secondary offerings on London's AIM since 2010, 50 completed London AIM secondary offerings in more than one half-year, therefore, 57% of the U.S. companies listed on London's AIM (33 of 58) have completed at least one London AIM secondary offering since 2010.  The distribution of gross funds raised by these 83 U.S. companies listed on the London  Stock Exchange's AIM is illustrated in the chart below, with 64% (53 of 83) raising between £1 and £10 million.
 

U.S. London AIM-Listed Company Selling Shareholder Activity
The ability of existing shareholders to sell some or all of their holdings in a London Stock Exchange AIM IPO depends on a variety of factors; the most important of which are the strength of the company and the level of new investor support.  Historically, from 2005 - 2009, 25% of U.S. company IPOs on London's AIM included selling shareholders who were often either founders of the company, longstanding members of executive management or the board of directors, commercial partners who had made a strategic investment in the company or VCs/PEGs who invested in and nurtured the company for several years prior to its London Stock Exchange AIM IPO.

One of the two U.S. company IPOs on London's AIM during the second half of 2010 included selling shareholders.  In that transaction, the selling shareholders included a PEG, a VC, a Strategic Investor and several Angel Investors for an aggregate of $30.2 million.  None of the U.S. company IPOs on London's AIM during the second half of 2011 included selling shareholders.  Both of the U.S. company IPOs on London's AIM during the first half of 2012 included substantial cash and other consideration received by the founders and other shareholders, amounting to $47.4 million and $54.1 million.  Two of the four U.S. company IPOs on London's AIM during the first half of 2013 included the Strategic Investor as the selling shareholder, receiving $12.5 million and $5.9 million in cash, as described in detail above.

While London AIM selling shareholders are most common in conjunction with a London AIM IPO, U.S. company insiders have sold in the aftermarket on London's AIM in organized transactions on three occasions since 2004; twice as part of London AIM secondary offerings and once on a standalone basis.  In all three instances, the London AIM-listed companies were performing exceptionally well with the organized insider selling on London's AIM driven by a need to “satisfy excess demand” for the company’s shares on London's AIM.  There were no such transactions from 2010 through the first half of 2013; however, insider selling in the normal course of daily share trading on the London Stock Exchange's AIM is commonplace.

U.S. London AIM-Listed Company Accredited Investor and Qualified Institutional Buyer (QIB) Activity
U.S. Accredited Investors and QIBs are permitted to participate in London AIM IPOs and secondary offerings on London's AIM.  Historically, from 2005 - 2009, they have provided 20% of the funding for U.S. company IPOs on London's AIM and 20% of the secondary offering funds raised for those companies listed on London's AIM.

From 2010 through the first half of 2013, 19% (16 of 83) of the U.S. companies listed on the London Stock Exchange's AIM that completed secondary offerings on London's AIM were at least partially financed by Accredited Investors or QIBs, providing 12% of the total funds raised.

U.S. London AIM-Listed Company Industry and Geographic Dispersion
London Stock Exchange AIM-listed companies are organized into 90 sub-sectors, which feed into 40 sectors, which feed into 10 super sectors.  The 58 U.S. companies listed on London's AIM are quite diverse and operate in eight of the 10 super sectors (oil and gas / alternative energy, basic materials, industrials, healthcare, technology, financials, consumer services and consumer goods).

There is a concentration of U.S. oil and gas exploration and production companies listed on the London  Stock Exchange's AIM in Texas, which includes three oil and gas field technology services companies.  The other major concentration of U.S. companies listed on London's AIM is in industrial and consumer technology, including; digital media, biotech and cleantech, between Boston and Washington D.C. and in California.

Within Basic Materials, three of the nine U.S. companies listed on the London Stock Exchange's AIM produce chemicals/compounds for the health and growth of fish, plants and agriculture, four U.S. companies listed on London's AIM are mining concerns, one is a forestry investment fund and one U.S. company listed on London's AIM is a clean water antimicrobial technology company.

Industrials is comprised mainly of a wide range of U.S. industrial technology companies listed on London's AIM; from body armor for the military and other customers to the marking, tracking and authentication of high-value goods to B2B electronic payment companies and B2C voice-based contact center services and other business process outsourcing solutions.

Consumer Services consists of a U.S. digital media company listed on the London Stock Exchange's AIM, an athlete representation agency and a provider of B2C online customer acquisition solutions listed on London's AIM.

Consumer Goods consists of a U.S. AIM-listed company that develops fuel cells for vehicles and a U.S. AIM-listed online and mobile, social/casual, interactive games developer and publisher.

 

[1]  Not particularly meaningful given the relatively small denominators.