London's AIM - U.S. Company IPO and Secondary Offering Activity - 2009

U.S. company IPO and Secondary Offering activity on the London Stock Exchange's (LSE) Alternative Investment Market (AIM) during 2009 and the current suitability criteria for U.S. companies considering listing on London's AIM are contained in the post below.

Highlights

• Unsurprisingly, listing activity on the London Stock Exchange's AIM has been virtually non-existent
• However, secondary offering activity on London's AIM remains resilient

• U.S. companies account for 8% of all London Stock Exchange AIM listings since 2008
• Also account for 8% of gross funds raised from London AIM listings

• U.S. companies account for 14% of all ‘operating company’ listings on London's AIM since 2008
• Account for 24% of gross funds raised from ‘operating company’ listings on London's AIM

• £420m ($672m) raised in secondary offerings on the London Stock Exchange's AIM for 34 U.S. companies listed on London's AIM since 2008
• 60% of all U.S. companies listed on London's AIM have completed at least one secondary offering on London's AIM since 2008
• U.S. companies make up 4.4% of London's AIM but capture 5.2% of secondary offering funds raised on London's AIM

• Selling shareholder activity on the London Stock Exchange's AIM continues at historic levels since 2008
• U.S. accredited investor and Qualified Institutional Buyer participation increases slightly on London's AIM 

• Criteria AIM Advisers' uses to vet potentially suitable U.S. companies for listing on London's AIM via IPOs (see the end of the post)

London AIM IPOs

The IPO market on the London Stock Exchange's AIM during 2009 was challenging with 77% of the IPOs (10 of 13) for ‘investment vehicles’ which were funded to target distressed real estate / commercial businesses, or small specialty finance companies.

Entire Market      All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	38	918	24
2009	13	610	47
Total	51	1,528	30

Exclusive of ‘investment vehicles’:

Entire Market      ‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	25	507	20
2009	3	16	5
Total	28	523	19

All of the U.S. companies listed on London's AIM in the table below that completed London Stock Exchange AIM IPOs in 2008 are ‘operating companies’.  Historically, U.S. companies listed on London's AIM have not been investment vehicles.

U.S. Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	4	123	31
2009	-	-	N/A
Total	4	123	31

U.S. companies listed on the London Stock Exchange's AIM have accounted for 8% of all London AIM IPOs and 14% of all ‘operating company’ listings on London's AIM since 2008.  While activity on London's AIM has been muted over the last two years, it is relevant to note that these companies have garnered 8% and 24%, respectively, of the gross IPO funds raised on London's AIM since 2008.

While the limited number of U.S. company listings on the London Stock Exchange's AIM since 2008 makes it difficult to draw firm conclusions, it is believed that the upward trend will persist from the £24 million average raised by the 50 U.S. ‘operating companies’ listed on the London Stock Exchange's AIM via IPOs from 2005 – 2007.

London AIM Secondary Offerings

While the 57 U.S. companies listed on London's AIM account for 4.4% of the 1,293 companies listed on the market, they have captured 5.2% of the secondary offering funds raised on London's AIM since 2008.  However, when two large secondary offerings during 2008 that raised an aggregate of £101 million for one U.S. company listed on the London Stock Exchange's AIM are excluded, the remaining U.S. companies listed on London's AIM are in line with the broader market at 4.0%.  Excluding this company also brings the average funds raised by the U.S. companies listed on London's AIM during 2008 down to £6.75 million which is also more in line with the broader market and the U.S. company average on the London Stock Exchange's AIM of £8.00 million for 2009.

Entire Market           All Companies	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	597	3,214	5.38
2009	762	4,861	6.38
Total	1,359	8,075	5.94

*  This is the number of discrete secondary offerings on London's AIM.  Some companies completed more than one secondary offering on London's AIM in each year.

All U.S. Companies	Number of London AIM Secondaries*	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
2008	21	236	11.24
2009	23	184	8.00
Total	44	420	9.55

*  This is the number of companies that completed secondary offerings on London's AIM as opposed to the number of discrete secondary offerings on London's AIM.

Of the 44 U.S. companies listed on London's AIM that completed secondary offerings on London's AIM since 2008, 10 completed secondary offerings on London's AIM in both years, therefore, 60% of the U.S. companies listed on London's AIM (34 of 57) have completed at least one secondary offering on London's AIM since 2008.

The distribution of the gross funds raised by these 44 U.S. companies listed on the London Stock Exchange's AIM is illustrated by the chart below.  Since 2008, 89% (39 of 44) of the U.S. companies listed on London's AIM that have completed secondary offerings on London's AIM have raised between £1 and £30 million.

London AIM Industry Dispersion

The companies listed on the London Stock Exchange's AIM are organized into 90 sub-sectors which feed into 40 sectors which feed into 10 super sectors.  The 57 U.S. companies listed on London's AIM are quite diverse and operate in all 10 super sectors; however, there is a concentration of oil and gas producers listed on London's AIM in Texas and concentrations in technology, including; digital media, biotech and cleantech, between Boston and Washington D.C., in Florida and in California.  Industrial companies listed on London's AIM contain a mixture of cleantech companies (fuel cells and solar) and B2B electronic payment companies listed on London's AIM.  Within Basic Materials, 50% of the companies listed on the London Stock Exchange's AIM produce chemicals/compounds for the health and growth of fish, plants and agriculture.  Within Consumer Goods, 50% of the companies listed on London's AIM are developing fuel cells for vehicles.  Within Consumer Services, 67% of the companies listed on the London Stock Exchange's AIM are media companies with some unique technology.

 

London AIM 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 investor support.  Historically, from 2005 – 2007, 22% 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.  Two of the four U.S. company IPOs on London's AIM during 2008 included selling shareholders.  In one of those London AIM IPOs, the Chairman and President, who had been with the company since 1969, sold 30% of his stake for £26 million.

While 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 secondary offerings on London's AIM and once on a standalone basis.  In all three instances, the companies were performing exceptionally well on London's AIM with the organized insider selling driven by a need to “satisfy excess demand” for the company’s London Stock Exchange AIM-listed shares.  There were no such transactions during 2008 or 2009.

U.S. London AIM Accredited Investor and Qualified Institutional Buyer (QIB) Activity

U.S. accredited investors and QIBs are permitted to participate in London Stock Exchange AIM IPOs and secondary offerings on London's AIM.  Historically, from 2005 – 2007, they have provided 20% of the funding for U.S. companies listing on London's AIM and 20% of the secondary offering funds raised on London's AIM for those companies.

While none of the four U.S. companies that listed on London's AIM during 2008 included accredited investors or QIBs, 24% (5 of 21) of the U.S. companies that completed secondary offerings on London's AIM during 2008 included such investors, contributing 40% of the total funds raised on London's AIM, however, this is skewed by £76 million of the £101 million discussed above and would have otherwise been only 11%.  During 2009, 26% (6 of 23) of the U.S. companies that completed secondary offerings on London's AIM were at least partially financed by accredited investors or QIBs, providing 29% of the total funds raised on the London Stock Exchange's AIM.

The following is a non-exhaustive list of the criteria that AIM Advisers' uses to vet potentially suitable U.S. companies for listing on the London Stock Exchange's AIM via IPOs, effectively looking through the lens of prospective AIM Nominated Advisers (Nomads) and AIM Nominated Brokers.  Obviously, overall consideration necessitates the use of judgment.  This list is meant to provide a starting point for discussions.

1. ‘Growth-oriented’ company[1]
2. Minimum opening market cap. on London's AIM of £30 million ($48 million), with  acquisition strategy[2]

• At least $24 million of annual revenue and $2.4 million of net income[3]

3. Minimum opening market cap. on London's AIM of £50 million ($80 million), without acquisition strategy

• At least $40 million of annual revenue and $4.0 million of net income

4. Maximum opening market cap. on London's AIM of £250 million ($400 million)[4]
5. International scope to the London Stock Exchange AIM-listed business (sales and/or operations), current or post-IPO, preferably UK/EU[5]

6. Outstanding management team with a real track record[6]
7. Solid Board of Directors or the ability to formulate one during listing process for a London AIM IPO[7]
8. Willingness to fully and fairly disclose any potential ‘skeletons in the closet’[8]
9. Sound internal controls and good corporate governance, or willingness to put in place during the listing process for a London AIM IPO

10. Reasonable valuation expectations, willingness to take a long view[9]
11. Free float of at least 25% post-IPO on London's AIM, ideally around 50%[10]
12. Strategic investor(s) and/or existing shareholder(s) anchoring the London AIM IPO[11] 

While historically 15% of the U.S. companies listed on the London Stock Exchange's AIM have been backed by VCs/PEGs, given the changing landscape of London's AIM and the factors above, the future outlook is that closer to 50% of the U.S. companies listing on London's AIM will come from VC/PE portfolios.

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[1]  This would be characterized by growth of revenues and/or profits of at least 20% per annum, whether organic or through acquisition.

[2]  Current market appetite is for a minimum opening market cap. on the London Stock Exchange's AIM of £50 million ($80 million), however, with a credible acquisition strategy that can executed with the capital raised from the London AIM IPO and/or the company’s new AIM-listed shares over the first year or two on London's AIM, the opening market cap. on London's AIM can be as low as £30 million ($48 million).

[3]  This is a rule-of-thumb.  Valuation is ultimately determined by reference to the London AIM-listed company’s DCF model.  There is no requirement that companies listing on London's AIM be profitable, however, the London's AIM is currently risk adverse, therefore, companies consider a listing on London's AIM will either already be profitable or will be able to clearly demonstrate self-sufficient post-IPO on London's AIM.

[4]  Above this level, U.S. companies are better served on the U.S. public markets from the perspectives of valuation and liquidity and should be large enough to bear the internal and external costs of Exchange Act reporting and SOX compliance.  The London Stock Exchange's (LSE) Main Market might be a consideration but the rationale is weak.  No U.S. company has its primary listing on the Main Market of the London Stock Exchange (LSE).

[5]  Many technology companies meet this listing test for London's AIM since they are often not reliant on physical locations.  London AIM investors will not accept U.S. companies seeking to list on London's AIM as the ‘venue of last resort’ and/or because of an inability to be able to comply with the Exchange Act or SOX; however, a conscious decision to avoid onerous U.S. regulation for companies in the $48 million - $400 million market cap. range is viewed as sensible.

[6]  An added bonus would be a management team that has previously made money for public company investors.

[7]  In a U.S. context, many companies considering listing on London's AIM are quite small and often need to augment their Board of Directors.

[8]  Voluntary disclosure of any personal bankruptcies, corporate bankruptcies, companies that have gone into administration, liquidation, etc. will typically not cause a company / management team to be deemed unsuitable for listing on London's AIM.

[9]  If these are present, companies that consider listing on London's AIM during 2010 should be able to negotiate lower professional fees, given increased competition for fewer listings on the London Stock Exchange's AIM, and attract meaningful media attention.

[10] UK institutional investors on London's AIM are very reluctant to invest in London AIM-listed companies that will not have a free float of at least 25% (this is a requirement on the London Stock Exchange's Main Market) for fear of Special Resolutions being ‘crammed down’ and to increase the chance of achieving strong aftermarket liquidity on London's AIM and the derivation of a ‘fair’ share price / market cap on London's AIM.  The 50% free float target on London's AIM is usually achieved through a combination of new shares issued by the company for cash in the London AIM IPO and existing shareholders reducing their positions at the time of the London AIM IPO.

[11]  Given current London AIM conditions, this would likely be a requirement for a listing on London's AIM in the ultra-high-risk biotech space, however, moving down the continuum of less risky sectors, the traditional view of institutional investors in London's AIM is that pure financial investors can exit entirely at the time of listing on London's AIM and insiders / management can sell down 20 - 25% of their holdings at the time of listing on the London Stock Exchange's AIM, all on a case-by-case basis.

London's AIM - Secondary Offering Activity - 2009

Highlights

• Secondary offering funds raised on the London Stock Exchange's AIM increases 51%
• £4.9 billion ($7.8 billion) raised in secondary offerings on London's AIM during 2009
• Relative number of London AIM-listed companies completing secondary offerings on London's AIM rebounds

2007 – 57%                             2008 – 36%                             2009 – 54%

• Average size of secondary offerings on London's AIM increases by 19%

2008 – £5.38m ($8.61m)         2009 – £6.38m ($10.21m)

• Exclusive of three large secondary offerings, average London AIM Placing holds firm

2008 – £5.34m ($8.54m)         2009 – £5.36m ($8.58m)

• 70% of secondary offerings on the London Stock Exchange's AIM raise < £3m but noticeable increase in the £5 – £10m range

• London's AIM has expelled the vast majority of the weak and is supporting those that remain

The success of the secondary offering market on the London Stock Exchange's AIM is indisputable, which is the defining characteristic of a mature market.  From 2003 – 2006, the ratio of aggregate funds raised in London Stock Exchange AIM IPOs to aggregate funds raised in secondary offerings on London's AIM was 1.8; a relationship which has more than reversed during 2007 – 2009 where nearly 2.3 times more funds have been raised in London AIM secondary offerings than in London Stock Exchange AIM IPOs.  London's AIM was naturally maturing; 2007 was the first year where secondary offerings on London's AIM outpaced IPOs on London's AIM.  The financial crisis has accelerated the maturation process.

Year	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
2007	6,262	9,602
2008	918	3,214
2009	610	4,861
Total	7,790	17,677

Examining London's AIM at a more granular level for 2008 and 2009 reveals a sharp rise in secondary offering activity on the London Stock Exchange's AIM during the second half of 2009, in fact, 51% higher than the first half of 2008.

Half-Year	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
H1 ‘08	830	2,272
H2 ‘08	88	942
H1 ‘09	222	1,432
H2 ‘09	388	3,429
Total	1,528	8,075

However, one needs to dig a little deeper into the secondary offering activity on the London Stock Exchange's AIM in order to conclude on its health.  Historically, the vast majority of secondary offerings on London's AIM have taken the form of Placings, however, there were three large London AIM Placing & Open Offers during 2009 which raised an aggregate of £1.0 billion ($1.6 billion) of the £1.1 billion ($1.8 billion) total.  All three occurred during the second half of 2009 and were for real estate investment, development and management companies listed on London's AIM, with one company moving up to the Main Market of the London Stock Exchange a few months later.

The fact that the average London AIM Placing held firm, £5.34 million ($8.54 million) in 2008 and £5.36 million ($8.58 million) in 2009, is encouraging.

Type of Secondary Offering	2008# of SOs	2008 Gross Raised (in £ millions)	2008 Ave. Raised (in £ millions)	2009# of SOs	2009 Gross Raised (in £ millions)	2009 Ave. Raised (in £ millions)
P&OO*	3	25	8.33	21	1,123	53.48
Placing	580	3,098	5.34	673	3,607	5.36
Other	14	91	6.50	68	131	1.93
Total	597	3,214	5.38	762	4,861	6.38

*  Placing & Open Offer

The most positive sign of the health of the secondary offering market on London's AIM is the fact that 54% of all AIM-listed companies completed a secondary offering on the London Stock Exchange's AIM during 2009, up from 36% in 2008, and back to historic, pre financial crisis levels.  As mentioned above, the breadth and depth of secondary offering activity on the London Stock Exchange's AIM is the defining characteristic of a mature market.

 

The pattern from 2008 persisted throughout 2009 with 70% of secondary offerings on London's AIM raising less than £3 million.  The sub-£1 million secondaries on London's AIM were for companies where the London AIM investors wanted more time to determine whether or not the business is viable, whereas the noticeable increase in the £5 – £10 million range was for London AIM-listed companies where the investors want them to capitalize on organic and/or acquisitive growth opportunities.

 

The outlook for 2010, and perhaps the next several years, is for secondary offering activity on the London Stock Exchange's AIM to continue to outpace London AIM IPO activity.  At its peak in 2007, London's AIM was home to 1,700 companies whereas today 1,300 companies are listed on London's AIM.  Over the last two years, the weak companies listed on the London Stock Exchange's AIM have been expelled, through fire sale acquisitions or by simply delisting.  While the financial crisis has accelerated the natural selection process, it is clear that the vast majority of the remaining 1,300 companies listed on London's AIM will continue to find investor support from London AIM’s healthy and vibrant secondary offering market.

AIM Advisers' London AIM IPO Presentation Schedule in Select U.S. Cities

I am pleased to announce AIM Advisers' London Stock Exchange AIM IPO presentation schedule in select U.S. cities.

City and State	Week(s)
Phoenix / Tucson, Arizona	12 April
Austin / San Antonio, Texas	19 April
Houston, Texas	26 April and 3 May
Dallas, Texas	10 May and 17 May
Chicago, Illinois	24 May, 31 May and 7 June
Milwaukee / Madison / Green Bay, Wisconsin	14 June
Minneapolis / St. Paul, Minnesota	21 June
Denver / Boulder / Colorado Springs, Colorado	28 June

Please feel free to contact me by phone or e-mail to schedule an appointment in your city to learn more about London’s AIM and the opportunity it presents for certain U.S. companies.

I look forward to meeting you this spring.

The U.S. Market for London's AIM - Target Rich, Knowledge Poor - Can the U.S. Market Reboot London's AIM?

I am pleased to share an article included in Smith & Williamson's Quoted Business publication which discusses AIM Advisers' marketing of the London Stock Exchange's AIM across the U.S. and the opportunity London's AIM presents for U.S. companies, their professional advisers and their existing VC/PE investors.

Quoted Business, Spring 2010, London's AIM and the US, A Tough Nut to Crack?

It is an indisputable fact that there is no place on the planet with more small and medium-sized, growth-oriented companies than the US.  In and of itself, this does not mean that, properly educated about the London Stock Exchange's AIM, those companies for which there is a strong rationale to seek a public listing should flock to London's AIM.  The other key ingredients are a dysfunctional domestic public market (think Securities and Exchange Commission (SEC) and Sarbanes-Oxley (SOX)) and a mountainous backlog of venture capital (VC) and private equity (PE) portfolio company investments with few credible exit paths to return capital to the limited partners (LPs) of what are often closed-end funds where the clock is ticking ever more loudly.

When SOX was enacted during the early part of this decade, commentators and professional advisers alike foresaw a wave of small and medium-sized US companies listing on London's AIM and there was even talk of erecting statues of Paul Sarbanes and Michael Oxley in London.  From the perspective of those in London, there may have been a wave of U.S. companies listing on London's AIM, but from a US perspective, six dozen companies dipping their toes across The Pond hardly scratches the surface and amounts to nothing more than a rounding error at the Bureau of Labor and Statistics.

Finding your perfect match

There are 41,300 privately held companies in the US which operate in sectors that are common on London's AIM and generate annual revenues ranging from $5 million - $250 million.  VC and PE portfolios are stuffed with 20,000 companies.  While there is some crossover between the two, logic dictates that there must be several hundred companies for which 1) a London Stock Exchange AIM listing would make sense, 2) the Nominated Advisers (Nomads) and Nominated Brokers would accept appointment, and 3) institutional and other London AIM investors would invest.  Obviously, this three-way match must be made for a transaction to take place, but how will it ever happen on a consistent basis or, given the size and diversity of the US and the complexity of a cross-border listing, must it be left to random chance?

Can progress be made from well-appointed offices in London or Santa Monica by filling up the inboxes of US-based professional advisers and VC/PE types or by holding endless conference calls with people who can’t understand the accents or by conducting webinars where most people’s attention is focused on their BlackBerrys or iPhones?  Pretty unlikely, but it sure can keep people busy and, I suppose, at least for a while, gainfully employed.

Promoting London's AIM around the US

This is why I set out on a 13-week, 12-city tour this fall to market the London Stock Exchange's AIM across the US.  The four-day, 2,100-mile drive from Santa Monica to Indianapolis, Indiana (the nation’s 13^th largest city), where the tour began, was a bit painful but from then on it will be smooth sailing until I drive back to California from Florida in mid-December for the holidays.

One of the lawyers I met with in Indianapolis said “wow, you’re like a rock star”, to which my response was “yeah, minus the private jet, the drugs, the alcohol and all the other trappings of the rock ‘n’ roll lifestyle”.  I quickly learned that his type of humor doesn’t play well in the Midwest so when an accountant in Louisville, Kentucky, made a similar comment, my response was “well, I feel like Muhammad Ali’s punching bag”.  Now that was funny because Ali’s hometown is Louisville.  At least I caught on in city 2 of 12!

Now back to the main story of how to identify and introduce US companies to London's AIM.

Wedging oneself into a stranger’s office in a ‘foreign city’ is not easy.  Through a combination of leveraging relationships built in London since launching AIM Advisers, Inc. in 2001 and referencing the ‘soft marketing’ they have been exposed to via bespoke newsletters about London's AIM sent by e-mail, and the 58 US companies currently listed on the London Stock Exchange's AIM, the meeting acceptance rate has been about 25%.

The unfortunate reality in today’s world is that most people, even high-level professionals, have short attention spans, particularly when it comes to something they know virtually nothing about and have no idea how, or even if, it may benefit them.  The ability to answer, in great detail, the often unasked question of “what’s in it for me?” is critical; the short answer is “a lot”.

What’s in it for the VC/PE types is obvious, but many professional advisers believe they will lose clients if they suggest an IPO on the London Stock Exchange's AIM.  While it is unlikely that their clients will discover London's AIM on their own, by suggesting a sensible avenue for them to raise capital and be able to use London AIM-listed shares to effect acquisitions to grow their businesses, these professional advisers will have stronger clients, which in turn will benefit them.  In terms of the transactional and on-going work, a London AIM IPO is a significant transaction (think fees) that requires extensive legal, financial and operational due diligence; at least half of which is typically carried out by the company’s incumbent US advisers for the obvious reasons of historic knowledge and proximity.

The secret to getting the message across

Face-to-face meetings for an hour across the conference room table where questions can be answered and objections can be overcome in real-time where you have someone’s undivided attention is ‘the secret’.  Being able to convey the essential facts about the London Stock Exchange's AIM, the rationale for a London AIM IPO from a US company’s perspective and some guidance as to what a suitable company would look like for a London AIM IPO in the current economic environment arms them with the knowledge to better serve their existing clients, win new clients and/or identify suitable exits and/or growth financing opportunities for their portfolio companies.  Building relationships with the companies’ most trusted advisers and investors and letting them pre-vet the companies for our mutual benefit, eliminates having to deal with most of the 99% of the 41,300 companies that are unlikely matches for a London AIM IPO one reason or another.

As one example, a meeting with a law firm led to a four-hour meeting three days later with the founder, president and chief executive of a cleantech company in the same building, which has UK-based assets that may be suitable for a London Stock Exchange AIM listing.  The referring lawyer had received a dozen pieces of my ‘soft marketing’ over a period of 11 months, but we had had no personal contact until meeting at his office.

In terms of sector focus, it’s all things technology for London AIM IPOs, since that’s the nature of the economy and IP-based businesses tick the ‘growth’ and ‘international’ boxes.  In terms of geography, it’s greenfield, so any of the top 100 metro areas should be ripe with targets for London AIM IPOs.  It’s a big country.  It can’t be covered quickly enough.

Mark McGowan is the Founder and Managing Director of AIM Advisers, Inc., a California-based business that helps small and medium-sized, growth-oriented US companies complete IPOs on AIM.  Mark was the chief financial officer of DDD Group plc, an AIM-listed company with its corporate headquarters in the US.  Mark is a qualified accountant, having previously worked for Grant Thornton in Los Angeles, Hong Kong and throughout the Asia-Pacific region.