Tuesday, September 22, 2015

London's AIM - IPO Activity - H1 2015

The 18-month bull market for AIM IPOs paused during the first half of 2015 as a result of the UK General Election and a resumption of the Greek debt crisis.  Since the election was definitive and Greece has taken a more reasonable and realistic position with the EU, the bull market for AIM IPOs is expected to continue during the second half of this year with a wave of activity in autumn.

The average and median AIM IPO during the first half of 2015 raised $32 million and $17 million, respectively, with 65% raising between $5 million and $47 million.  7 of the 23 IPOs included meaningful liquidity events for selling shareholders.  The average and median opening market caps were $101 million and $70 million, respectively, with 87% falling between $16 million and $388 million.


16 of the 23 companies generated significant revenues and the median trailing pre-money revenue multiple was 1.54.  10 of the 23 companies earned significant profits and the median trailing pre-money P/E ratio and EBITDA multiple was 14.85 and 10.26, respectively.

Consumer services' businesses accounted for 22% of the AIM IPOs during the first half of 2015, although, it is interesting to note the technology component; two of the five engage with consumers exclusively online.  Industrial companies also accounted for 22%, financials for 17% (three of the four were Investing Companies with TMT mandates), healthcare AIM IPOs and consumer goods each accounted for 13% (two of the three healthcare companies were from the U.S. and all three were in the biotech/pharma sector with no revenue; two of the three consumer goods' companies were focused exclusively or primarily online), pure play technology accounted for 9% and basic materials (i.e. mining) for 4%.

This post provides insight into each of the 23 companies; the industries and geographies in which they operate and their overall listing, financial and operating metrics.

Highlights
  • 23 companies completed IPOs on AIM during H1 2015, a 45% decrease from H1 2014
    • 7 included meaningful liquidity events for selling shareholders
  • £468 million ($725 million) raised for IPOs during H1 2015, a 75% decrease from 2014
  • £2.4 billion ($3.7 billion) raised in secondary offerings during H1 2015, a 20% increase
  • Average IPO raised £20.4 million ($31.6 million), median £11.2 million ($17.4 million)
    • At a cost of 9.0% and 11.3%, respectively, of gross funds raised
  • 65% of IPOs raised between £3 million and £30 million ($5 million and $47 million)
  • Average opening MC of £65 million ($101 million), median £45 million ($70 million)
  • 87% of MCs between £10 million and £250 million ($16 million and $388 million)
  • IPO dilution of existing shareholders amounted to 26%
  • Average post-IPO free float of 33%
  • Average and median share price return of 112% and 10% since IPO (median date 4/2/15)
    • FTSE AIM All-Share Index rose 8% during H1 2015 and 2% from 4/2 - 6/30/15
  • 16 of the 23 companies generated revenues > £2 million (range £3 million - £1.1 billion)
    • Median trailing pre-money revenue multiple of 1.54
    • Those w/o significant revenues are investing companies or in healthcare or mining 
  • 10 of the 23 companies earned profits > £1 million (range £2 million - £13 million)
    • Median trailing pre-money P/E ratio and EBITDA multiple of 14.85 and 10.26
  • Industry and geographic dispersion and financial profile of the 23 companies - pages 5 - 7
  • Detailed descriptions and insights into the 23 companies - pages 8 and 9




Number of IPOs
Gross Funds Raised
(in £ millions)
Average Funds Raised
(in £ millions)
H1 2012
  22
   200
  9
H2 2012
  23
   495
22
H1 2013
  22
   258
12
H2 2013
  40
   767
19
H1 2014
  42
1,858
44
H2 2014
  40
   960
24
H1 2015
  23
   468
20
Total
212
5,006
24

The table above shows that there was a pause in the 18-month bull market for AIM IPOs during the first half of 2015 as a result of the UK General Election and a resumption of the Greek debt crisis.  Since the result of the UK General Election was definitive (i.e. no coalition government) and positive for business and Greece has taken a more reasonable and realistic positon with the EU, the expectation is that AIM IPOs will be back up around 40 during the second half of 2015.

From a sectoral perspective, consumer services’ businesses accounted for 22% of AIM IPOs, although, it is interesting to note the technology component; two of the five engage with consumers exclusively online.  Industrial companies also accounted for 22%, financials for 17% (three of the four were Investing Companies with TMT mandates), healthcare and consumer goods each accounted for 13% (two of the three healthcare companies were from the U.S. and all three were in the biotech/pharma sector with no revenue; two of the three consumer goods’ companies were focused online), pure play technology accounted for 9% and basic materials (i.e. mining) for 4%.  The oil and gas sector is currently closed to investment, with no IPOs during the first half of 2015 after accounting for 11%, 21% and 33% during 2014, 2013 and 2012.

The chart below provides the distribution of gross funds raised from AIM IPOs during the first half of 2015.  While there was a spike in IPOs raising between £15 million and £30 million ($23 million and $47 million), this half-year did not have enough activity to convey the fact that the sweet spot for AIM IPOs is between £3 million and £50 million ($5 million and $78 million).


Of the aggregate gross funds raised, 80% was for the companies and 20% was for selling shareholders, which were present in nine of the IPOs, with seven selling a meaningful equity stake.  While the average amount of gross capital raised was £20.4 million ($31.6 million), the median was only £11.2 million ($17.4 million).

The equation in the chart at the top of the next page can be used to predict the cost of an AIM IPO with 91% confidence.  The 17 data points represent the gross funds raised and associated costs for the non-Investing Company IPOs that raised at least £3 million ($5 million).  Since these 17 companies raised an average of £24.8 million ($38.4 million), the expected cost would be £2.1 million ($3.3 million) or 8.5% of the gross funds raised.


The average and median offering costs for all 23 AIM IPOs amounted to 14% and 10%, respectively, of the gross funds raised, however, the average, in particular, is skewed by a handful of relatively small IPOs where the fixed costs dominate.

The chart below provides the distribution of opening market capitalizations.  The average company’s opening market capitalization was £65 million ($101 million) whereas the median was £45 million ($70 million).  The sweet spot for market capitalizations on AIM is between £10 million and £250 million ($16 million and $388 million).


The aggregate opening market capitalization of the 23 companies that completed IPOs on AIM during the first half of 2015 was £1.5 billion ($2.3 billion).  The average and median post-IPO free float of these companies was 33% and 28%, respectively.

The first chart on the next page shows that during the depths of the global financial crisis in Europe, when investor aversion to risk was at its height, the IPO dilution of existing shareholders decreased markedly since only the highest quality companies were able to complete AIM IPOs.  The second half of 2013 represented the start of a new bull market for AIM IPOs and the quality of the companies remained high.  The increase in dilution during 2014 was simply the result of company and investor demand for larger capital raises.

The UK General Election and a resumption of the Greek debt crisis during the first half of 2015 created a pause in the bull market for AIM IPOs, which meant that only the highest quality companies were able to complete AIM IPOs, resulting in a slight decrease in dilution.  Since the result of the UK General Election was definitive and Greece has taken a more reasonable positon with the EU, the expectation is that the bull market for AIM IPOs will resume during the second half of 2015 and IPO dilution of existing shareholders will continue its upward trend.


The final chart in this section provides the distribution of share price returns.  It should be noted that there was one AIM IPO that surged nearly 2,100%.  If that IPO is excluded, the average and median returns would be 21% and 9%, respectively.  As a point-of-reference, the FTSE AIM All-Share Index rose 8% during the first half of 2015 and 2% from April 2, 2015 through June 30, 2015; therefore, the relative performance of the 23 IPOs has been quite strong.


Industry and Geographic Dispersion and Revenue and Profitability Profile

 

 

Revenue and
Profitability*
UK (13)
China (3)
U.S. (2)
Israel (2)
Other (3)
Totals (23)
Consumer Services (5)
2 SR & SP



1 SR & SP
2 SR & SP
  5 SR & SP
Industrials (5)
2 SR & SP
2 SR

1 SR & SP



  3 SR & SP
  2 SR
Financials (4)
1 SR & SP
2 Neither


1 Neither



  1 SR & SP
  3 Neither
Healthcare (3)
1 Neither


2 Neither


  3 Neither
Consumer Goods (3)

2 SR

1 SR & SP



  1 SR & SP
  2 SR
Technology (2)

1 SR


1 SR

  2 SR
Basic Materials (1)





1 Neither
  1 Neither

Totals (23)
5 SR & SP
5 SR
3 Neither
2 SR & SP

1 Neither


2 Neither
1 SR & SP
1 SR
2 SR & SP

1 Neither
10 SR & SP
  6 SR
  7 Neither

* Significant Revenues (SR) and Significant Profitability (SP) are defined as > £2 million and > £1 million, respectively.

AIM-listed companies are organized into 90 sub sectors, which feed into 40 sectors, which feed into 10 super sectors.  The first pie chart on the previous page illustrates the relative number of AIM IPOs in each super sector during the first half of 2015.  Since the classifications can be deceptive, the table at the end of this newsletter on pages eight and nine provides some detailed descriptions and insights into the individual companies.

From a sectoral perspective, consumer services’ businesses accounted for 22% of AIM IPOs, although, it is interesting to note the technology component; two of the five engage with consumers exclusively online.  Industrial companies also accounted for 22%, financials for 17% (three of the four were Investing Companies with TMT mandates), healthcare and consumer goods each accounted for 13% (two of the three healthcare companies were from the U.S. and all three were in the biotech/pharma sector with no revenue; two of the three consumer goods’ companies were focused online), pure play technology accounted for 9% and basic materials (i.e. mining) for 4%.  The oil and gas sector is currently closed to investment, with no IPOs during the first half of 2015 after accounting for 11%, 21% and 33% during 2014, 2013 and 2012.

The second pie chart on the previous page shows the main country of operation for the companies that completed IPOs on AIM during the first half of 2015.  Unsurprisingly, the UK is the main place of operation for more AIM-listed companies than any other country.  Approximately 60% of the 1,068 companies listed on AIM are based in the UK.  During the depths of the global financial crisis in Europe, UK companies only accounted for 31% of AIM IPOs in 2010, 2011 and 2012.  The second half of 2013 represented the start of a new bull market for AIM IPOs and UK company participation bounced back to expected levels, accounting for 53%, 63% and 57% of AIM IPOs during 2013, 2014 and the first half of 2015, respectively.

Of the 23 companies that completed AIM IPOs during the first half of 2015, 16 (70%) generated significant revenues (i.e. > £2 million or $3 million) during their most recent financial year with the range being £3 million - £1.1 billion ($5 million - $1.7 billion).  The average trailing pre-money revenue multiple was 1.98 and the median was 1.54.  Of the 16 companies that generated significant revenues, 10 (63%) earned significant profits (i.e. > £1 million or $2 million), with the range being £2 million - £13 million ($3 million - $20 million).  The average trailing pre-money P/E ratio and EBITDA multiple for the 10 companies that earned significant profits was 16.14 and 10.45, respectively, and the medians were 14.85 and 10.26.

Of the 13 UK companies that completed AIM IPOs during the first half of 2015, 10 (77%) generated significant revenues during their most recent financial year.  Of these 10 companies, five (50%) earned significant profits.  The comparative metrics for 2014 were 56% and 69%, respectively, indicating that investors during the first half of 2015 wanted to see more commercial traction but are willing to wait a little longer for significant profits.  Of the 10 companies from outside the UK that completed AIM IPOs during the first half of 2015, six (60%) generated significant revenues.  Of these six companies, five (83%) earned significant profits.  The comparative metrics for 2014 were 60% and 44%, respectively, indicating that investors wanted to see the same level of commercial traction but were demanding that more of those that generated significant revenues had also earned significant profits.

Only one of the 23 companies that completed its AIM IPO during the first half of 2015 did so via the ‘fast track route to AIM’, where their securities were traded on an AIM Designated Market (ADM) for at least the previous 18 months.  In this case, the UKLA Official List (i.e. the London Stock Exchange’s Main Market) was the ADM.  One additional company that completed its AIM IPO during the first half of 2015 did so by simultaneously being acquired by an Investing Company listed on the LSE’s Main Market and raising fresh capital; the Investing Company then delisted from the Main Market and the acquired operating company emerged on AIM.  During 2014, only one of the 82 AIM IPOs utilized the fast track route and the UKLA Official List was the ADM.  During 2013, two of the 62 AIM IPOs utilized the fast track route, both with the UKLA Official List as the ADM, and during 2012, two of the 45 AIM IPOs utilized the fast track route, both with the Australian Securities Exchange (ASX) as the ADM.  Companies utilizing the fast track route do not have to produce the typical AIM Admission Document but rather a brief, but detailed, pre-admission announcement.  The 10 ADMs are the top tier markets of the ASX, Deutsche Börse Group, Johannesburg Stock Exchange, NASDAQ, NYSE, NYSE Euronext, NASDAQ OMX Stockholm, Swiss Exchange, TMX Group and UKLA Official List.

No company that completed its IPO on AIM during the first half of 2015 migrated to AIM from the UK’s ICAP Securities & Derivatives Exchange (ISDX, formerly the PLUS Stock Exchange and formerly OFEX).  During 2014, 2013 and 2012, four of the 82 companies, six of the 62 companies and two of the 45 companies, respectively, that completed their IPOs on AIM were previously listed on the ISDX.

One final point to note during the first half of 2015 is that one company simultaneously completed its IPO on AIM and the Enterprise Securities Market of the Irish Stock Exchange (ESM).

Consumer Services
(5)
One is a leading UK automotive dealership and leasing group, one is a UK-focused, real money, bingo-led online gaming operator, one owns and operates five luxury beachfront hotels and a beachfront restaurant in Barbados, one has developed a proprietary, artificial intelligence based software platform that enables the automation and optimization of online advertising campaigns and one is the leading retailer of gasoline and premium food and hot beverages along motorways in the Republic of Ireland with a growing presence in the UK
Industrials
(5)
One provides assistance and travel service products, such as insurance policies, via a B2B2C business model worldwide, one is the UK’s leading provider of façade access and fall arrest equipment services, lightning protection and electrical testing, high-level cleaning and specialist electrical and mechanical services, one provides gas heating appliance installation and maintenance services to residential and commercial properties and general building services, such as domestic and commercial plumbing, electrical work and general repairs across London and South East England, one is a China-based provider of air filtration and clean air technology products to the industrial, commercial and residential markets and one is a mid-sized, UK commercial law firm
(4)
One is an Investing Company that intends to identify, acquire and invest in Chinese-based SMEs with technology and/or IP in the education sector that can be leveraged through the company’s existing contacts at local and international higher education institutions for the provision of online vocational training video courses for industrial workers, one is an Investing Company that intends to invest in UK and Chinese businesses or projects that are seeking to expand and/or establish themselves internationally in the media and entertainment sectors, primarily theatre production and the music industry, one is an Investing Company that intends to buy, fix and sell businesses in the European Telecommunications, Media and Technology (TMT) sector that are focused on network-based communications and/or entertainment and one is one of the UK’s leading providers and administrators of Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSASs)
Healthcare
(3)
One is a UK-based drug discovery and development company focused on improving the characteristics of existing drug classes to create highly differentiated, best-in-class new drugs in the areas of cancer and infectious disease where their oncology-related drug programs encompass immuno-oncology and their anti-infective drug programs have the potential to produce one of the first new chemical classes of antibiotics in a generation, one is a U.S.-based, clinical stage biopharmaceutical company specializing in the development of novel antibiotics designed to be effective against serious and life-threatening infections caused by multidrug resistant bacteria and one is a U.S.-based pharmaceutical company that uses its proprietary computational drug discovery platform to generate multiple, chemically-diverse, novel drug candidates for each of its drug programs by accurately modeling molecular interactions, developing sophisticated optimization algorithms and the computer integration of synthetic and medicinal chemistry knowledge, resulting in the design of novel potential therapeutics for medical conditions in anticoagulation, diabetic macular edema and oncology
Consumer
Goods
(3)
One is a leading Chinese producer and processor of frozen seafood, seaweed-based foods and marine snack foods for the domestic market and for export to Japan, South Korea and the U.S., one is one of the largest UK-based online retailers of musical instruments and music equipment, selling third-party and own-branded products to customers ranging from beginners to musical enthusiasts and professionals in the UK and Continental Europe through its internally-developed ecommerce platform, with multilingual, multicurrency functionality presented on custom-designed websites in 19 countries and one is one of the largest retailers of fishing tackle in the UK, catering to all types of anglers - coarse, carp, game and sea fishing - operating online and from a chain of seven retail outlets in the North of England, which are designed to be ‘destination' stores with a comprehensive range of products, knowledgeable and enthusiastic staff and an offering that includes own-branded products
(2)
One is a software developer and operator of its own online brokerage that has developed a simplified trading platform for themselves and other online brokers in Europe, with expansion plans focused on Japan, China and the U.S., to provide individuals with the ability to trade binary options and one is a leading provider of satellite broadband services to consumer and business users in the UK and Europe where they intend to continue to grow the subscriber base organically and through acquisition by consolidating a fragmented market across Europe where 20 million homes and businesses are not expected to be able to access broadband speeds of more than 2 Mbps for the foreseeable future via fixed line broadband networks, falling into what is called the ‘digital divide’
Basic
Materials
(1)
This company is focused on the discovery and development of high-quality iron ore projects in Africa, initially focusing on Gabon

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