Wednesday, October 8, 2014

London's AIM - Secondary Offering Activity - H1 2014

Secondary offerings on London's AIM stock exchange raised £2.0 billion ($3.4 billion) during the first half of 2014, 82% more than during the first half of 2013.  The second half of 2013 represented the start of a new bull market for AIM IPOs with a surge of activity that carried over into the first half of 2014.  In fact, more capital was raised on AIM for IPOs during H1 2014 (£1.9 billion or $3.2 billion) than in 2012 and 2013 combined.

Further evidence of the start of a new bull market for AIM IPOs can be found in the aggressive shift in the ratio of secondary offering funds raised to IPO funds raised; reducing from 3.57:1 in 2012 to 2.65:1 in 2013 and to near parity during the first half of 2014 to 1.06:1.

The average size of secondary offerings spiked by 48% during the first half of 2014 compared to the first half of 2013.  Since we are now several years out from the worst of the global financial crisis, the macroeconomic healing process in the developed world is largely complete.  During the global financial crisis, AIM-listed companies sought smaller amounts of survival and/or growth capital from secondary offerings, however, they are now seeking larger amounts of acquisition capital.

Sustainable economic growth has gathered pace in the UK and the U.S. in particular.  While 58% of the 1,104 companies currently listed on AIM are based in the UK, only 50% of the IPOs since 2012 were for UK companies.  There has been a relative surge of IPOs from China, Africa and the U.S., accounting for 10%, 6% and 4%, respectively, since 2012.

The internationalization of AIM is expected to continue, however, the focus should shift towards the U.S. since China lifted its moratorium on domestic IPOs in January 2014 that had been in place since October 2012 and the vast majority of African IPOs were natural resource focused, which is currently out-of-favor.


Highlights
  • £2.0 billion ($3.4 billion) raised in secondary offerings during the first half of 2014
  • Secondary offerings raise 82% more during H1 2014 than H1 2013
    • Sustainable growth has gathered pace in the UK and the U.S. in particular
    • Companies are maturing, as is AIM in its 19th year, and require acquisition capital
  • The second half of 2013 represented the start of a new bull market for AIM IPOs
    • More AIM IPO capital raised during H1 2014 than in 2012 and 2013 combined
    • Ratio of secondary offering funds raised to IPO funds raised decreases sharply 
2012 - 3.57:1               2013 - 2.65:1               H1 2014 - 1.06:1
  • The internationalization of AIM is expected to continue but focus should shift to the U.S.
  • Pent-up demand still to be satisfied in the UK, global financial crisis was deeper/longer
    • Since 2012, UK captures 50% of IPOs, China 10%, Africa 6% and the U.S. 4%
      • China lifted its moratorium on domestic IPOs in January 2014
      • African IPOs were natural resource focused, which is now out-of-favor
  • Average size of secondary offerings spiked during the first half of 2014
H1 2012 - £5.30m ($9.01m)       H2 2012 - £3.92m ($6.66m)
H1 2013 - £4.32m ($7.34m)       H2 2013 - £4.77m ($8.11m)       H1 2014 - £6.41m ($10.90m)
  • Distribution of secondary offerings continued to ‘barbell’ during the first half of 2014
    • < £3m and > £10m raises were 81% of activity, now 88%
    • £3m - £10m raises were 19% of activity, now 12%
  • Step-change up in the relative number of AIM-listed companies completing secondaries
H1 2012 - 25%            H2 2012 - 22%            H1 2013 - 23%
H2 2013 - 32%            H1 2014 - 28%



IPO Funds Raised
(in £ millions)
Secondary Offering Funds Raised
(in £ millions)
H1 2012
   200
1,505
H2 2012
   495
   973
H1 2013
   258
1,080
H2 2013
   767
1,636
H1 2014
1,858
1,968
Total
3,578
7,162

Since the London Stock Exchange launched AIM in 1995, an aggregate of £88 billion ($150 billion) has been raised for growth-oriented SMEs, £39 billion ($66 billion) for IPOs and £49 billion ($84 billion) for Secondary Offerings.  During the first half of 2014, 82% more capital was raised for secondary offerings on AIM than during the first half of 2013.

Since we are now a several years out from the worst of the global financial crisis, the macroeconomic healing process in the developed world is largely complete.  During the global financial crisis, AIM-listed companies sought smaller amounts of survival and/or growth capital from secondary offerings, however, they are now seeking larger amounts of acquisition capital.  As a result, the average size of secondary offerings spiked during the first half of 2014.



Number of
Secondaries*
Gross Funds Raised
(in £ millions)
Average Funds Raised
(in £ millions)
H1 2012
   284
1,505
5.30
H2 2012
   248
   973
3.92
H1 2013
   250
1,080
4.32
H2 2013
   343
1,636
4.77
H1 2014
   307
1,968
6.41
Total
1,432
7,162
5.00
*   This is the number of discrete secondary offering transactions.  Some companies completed more than one secondary offering per half-year.


The second half of 2013 represented the start of a new bull market for AIM IPOs with a surge of activity that carried over into the first half of 2014.  In fact, more capital was raised on AIM for IPOs during the first half of 2014 than in 2012 and 2013 combined.  Further evidence of the start of a new bull market for AIM IPOs can be found in the aggressive shift in the ratio of secondary offering funds raised to IPO funds raised; reducing from 3.57:1 in 2012 to 2.65:1 in 2013 and to near parity during the first half of 2014 at 1.06:1.

Sustainable economic growth has gathered pace in the UK and the U.S. in particular.  While 58% of the 1,104 companies currently listed on AIM are based in the UK, only 50% of the IPOs since 2012 were for UK companies.  There has been a relative surge of IPOs from China, Africa and the U.S., accounting for 10%, 6% and 4%, respectively, since 2012.  The internationalization of AIM is expected to continue, however, the focus should shift towards the U.S. since China lifted its moratorium on domestic IPOs in January 2014 that had been in place since October 2012 and the vast majority of African IPOs were natural resource focused, which is currently out-of-favor.

The table below shows that the distribution of gross funds raised from secondary offerings continued to ‘barbell’ during the first half of 2014.  Coming out of the global financial crisis, AIM largely consists of two classes of growth-oriented SMEs; those that are very close to self-sustainability and only require small cash injections and those that have achieved significant scale and are aggressively acquiring competitive and complementary businesses for substantial sums.  The chart below the table provides more detail.

(in £ millions)
H1 2012
H2 2012
H1 2013
H2 2013
H1 2014
 < 3
69%
71%
71%
71%
73%
  3 - 10
19%
20%
18%
16%
12%
  10 - 50
10%
  8%
10%
11%
12%
  > 50
  2%
  1%
  1%
  2%
  3%


The chart below shows that there has been a step-change up in the relative number of AIM-listed companies completing secondaries, which coincides with the start of the new bull market for AIM IPOs discussed above.  The robustness of the secondary offering market on AIM is indisputable, which is the litmus test of success for a stock exchange focused on growth-oriented SMEs.


If one were to look back to 2008 - 2011, the vast majority of weak companies were expelled in the wake of the global financial crisis as investors selected those that would remain by providing access to secondary offering funds.  Generally speaking, secondary offering funds raised since 2012 have been used to execute on organic and/or acquisitive growth opportunities.