London's AIM - Secondary Offering Activity - H1 2008

Highlights

• Number of secondary offerings on the London Stock Exchange's AIM and aggregate funds raised on London's AIM drop by 30% and 65%, respectively
• £2.2b raised in secondary offerings on London's AIM during H1 2008….165% more than raised in IPOs on London's AIM
• 20% of London AIM-listed companies completed secondary offerings on London's AIM during H1 2008
• Sub-£1m secondary offerings on the London Stock Exchange's AIM have largely disappeared with 80% falling between £1m and £10m
• Average size of secondary offerings on London's AIM shrinks from H1 2007 but stabilizes from H2 2007

H1 2007 – £13.88m            H2 2007 – £6.90m                H1 2008 – £6.97m  

•  Outlook:  300 more secondary offerings on London's AIM in H2 2008 raising £2.1b for an average of £7m

The success of the secondary offering market on the London Stock Exchange's AIM is indisputable; however, that success should not be viewed in isolation, but rather through the lens of the broader market for IPOs on the London Stock Exchange's AIM.  The trend which began in 2006, and continued throughout 2007, of a significant number of Special Purpose Acquisition Corporations (SPACs) and Investment and Real Estate Funds completing IPOs on the London Stock Exchange's AIM has come to an end.  The effect on the London AIM IPO market was dramatic but the effect on the secondary offering on London's AIM market was more modest.

‘Operating companies’ listed on the London Stock Exchange's AIM captured 55% of the London AIM IPO funds raised during the first half of 2008 but only 32% during the first half of 2007.  The comparable metrics for secondary offerings on the London Stock Exchange's AIM were 77% during the first half of 2008 and 62% during the first half of 2007.

All Companies	London AIM IPO Funds Raised (in £ billions)	London AIM Secondary Offering Funds Raised (in £ billions)
H1 2007	3.33	6.29
H1 2008	0.83	2.20

Exclusive of SPACs and Investment and Real Estate Funds:

‘Operating Companies’	London AIM IPO Funds Raised (in £ billions)	London AIM Secondary Offering Funds Raised (in £ billions)
H1 2007	1.05	3.92
H1 2008	0.46	1.70

The average size of secondary offerings on London's AIM shrunk from H1 2007 but stabilized from H2 2007.

All Companies	Number of London AIM Secondary Offerings	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
H1 2007	453	6.29	13.88
H2 2007	496	3.42	6.90
H1 2008	315	2.20	6.97

Given current conditions on the London Stock Exchange's AIM, investors are not funding sub-£1 million secondary offerings on London's AIM.  However, London AIM investors have shown strong interest in the £1 to £3 million range which increased on a relative basis from 26% during the first half of 2007 to 59% during the first half of 2008.  80% of all secondary offerings on London's AIM during the first half of 2008 raised between £1 and £10 million.

 

The relative number of companies listed on London's AIM that were able to complete secondary offerings on the London Stock Exchange's AIM during the first half of 2008 remains healthy at 20%, however, this does represent a decrease from the two preceding halves.  As noted above, London AIM investors are not funding sub-£1 million secondary offerings on London's AIM. 

 

The outlook for London's AIM the balance of 2008 is similar to the actual results on London's AIM for the first half of 2008; 300 secondary offerings on the London Stock Exchange's AIM raising £2.1 billion yielding an average London AIM secondary offering of £7 million.

London's AIM - IPO Activity - H1 2008

Highlights

• Number of London Stock Exchange AIM IPOs and aggregate funds raised on London's AIM drop by 66% and 75%, respectively
• Decreases for ‘operating companies’ listing on London's AIM were less dramatic with both at 57%
• Average funds raised on London's for ‘operating companies’ listing on London's AIM holds firm at £21m
• 80% of IPOs on the London Stock Exchange's AIM in both half years raise between £3m and £100m
• First time since 2005 that majority of funds raised on London's AIM (55%) was for ‘operating companies’
• Substantial decrease in London AIM IPO dilution of existing shareholders of ‘operating companies’

H1 2007 – 36%                             H2 2007 – 32%                       H1 2008 – 24%

• Selective market but quality companies are listing on London's AIM and being rewarded with less dilution
• London's AIM shifting back to its original purpose of funding growth-oriented SMEs
• Outlook:  30 more IPOs on London's AIM in H2 2008 and a further shift towards ‘operating companies’ listing on London's AIM

The trend which began on the London Stock Exchange's AIM in 2006, and continued throughout 2007, of a significant number of Special Purpose Acquisition Corporations (SPACs) and Investment and Real Estate Funds completing IPOs on London's AIM has come to an end.  During the first half of 2008, only nine Investment Funds listed on the London Stock Exchange's AIM and there were no SPAC or Real Estate Investment Fund IPOs on London's AIM.  These ‘investment vehicles’ listing on London's AIM cause the overall market metrics to be misleading.

The key takeaway from comparing the tables below is that only 57% of listings on London's AIM during the first half of 2007 were for ‘operating companies’ and those companies only captured 32% of the gross funds raised on the London Stock Exchange's AIM.  During the first half of 2008, 71% of the IPOs on London's AIM were for ‘operating companies’ and, for the first time since 2005, they captured a majority (55%) of the gross funds raised on the London Stock Exchange's AIM.

All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
H1 2007	90	3.33	37
H1 2008	31	0.83	27

Exclusive of SPACs and Investment and Real Estate Funds:

‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
H1 2007	51	1.05	21
H1 2008	22	0.46	21

Notwithstanding the bifurcation of the London AIM IPO market between ‘investment vehicles’ and ‘operating companies’, 80% of the IPOs on the London Stock Exchange's AIM in each half year raised between £3 and £100 million.

 

While London's AIM has certainly not been immune to the global slowdown in IPOs, the codification of the AIM Nominated Advisers (Nomads) Rules in early 2007 has increased the scrutiny of prospective companies listing on London's AIM by AIM Nominated Advisers (Nomads) since the AIM Nominated Adviser (Nomad) vouches to the London Stock Exchange (LSE) as to a company’s suitability for listing on London's AIM.  Consequently, the quality of the companies listing on London's AIM has increased and, as a result, the London AIM IPO dilution of existing shareholders has decreased.

 

The outlook for the balance of 2008 is for another 30 London AIM IPOs and a further shift towards ‘operating companies’ listing on the London Stock Exchange's AIM.  The London AIM IPO market will continue to be cautious and selective; focusing on more mature, higher quality ‘operating companies’ with London AIM IPO fundraisings averaging around £20 million.

London's AIM - U.S. Company IPO and Secondary Offering Activity - 2005 to 2007

Highlights

• £2.1b raised in London Stock Exchange AIM IPOs for 62 U.S. companies listed on London's AIM across 20 industries
• Pace of secondary offerings for U.S. companies listed on London's AIM increases from £105m to £180m to £260m; totaling £545m
• 22% of U.S. company listings on the London Stock Exchange's AIM included selling shareholders
• U.S. accredited investors and QIBs participate in London AIM IPOs, provide 20% of IPO and secondary funds raised on London's AIM

London AIM IPOs

The 62 U.S. companies that completed IPOs on London's AIM during the last three years raised an average of £34 million with 75% raising between £7.5 million and £100 million.

  

Over the last three years, the average London Stock Exchange AIM IPO raised £27 million; however, it’s important to distinguish between IPOs for ‘operating companies’ listing on London's AIM and ‘investment vehicles’.  The table below illustrates the dramatic impact that London AIM IPO funding of ‘investment vehicles’ had on the market.

Entire Market 2005 - 2007	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
‘Investment Vehicles’	206	13.01	63
‘Operating Companies’	589	8.20	14
Total	795	21.21	27

In contrast, the next table shows that a greater proportion of U.S. company listings on London's AIM were for operating companies listed on the London Stock Exchange's AIM, raising an average of £24 million, 70% more than the market average of £14 million.

U.S. Companies 2005 - 2007	Number of London AIM IPOs	Gross Funds Raised (in £ billions)	Average Funds Raised (in £ millions)
‘Investment Vehicles’	12	0.92	77
‘Operating Companies’	50	1.19	24
Total	62	2.11	34

London AIM Industry Dispersion

The 20 industries in which the 62 U.S. companies listed on London's AIM operate are quite diverse; 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.  In fact, the “Automobiles & Parts” companies listed on the London Stock Exchange's AIM in the chart below are fuel cell developers or zero emissions vehicle manufacturers.

  

London AIM Selling Shareholder Activity

14 of the 62 U.S. companies that completed IPOs on the London Stock Exchange's AIM during the last three years 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/PE Firms who invested in and nurtured the company for several years prior to its London Stock Exchange AIM IPO.  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; twice as part of secondary offerings on London's AIM and once on a standalone basis.  In all three instances, the companies listed on London's AIM were performing exceptionally well with the organized insider selling driven by a need to “satisfy excess demand” for the company’s London Stock Exchange AIM-listed shares.

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.  In fact, they provided 20% of the London AIM IPO funding, or £425 million, for the 62 U.S. companies that completed IPOs on London's AIM during the last three years.  They also provided £100 million for U.S. company secondary offerings on London's AIM, again 20% of the total, over the last three years.

London AIM Secondary Offerings

The secondary offering market for U.S. companies listed on the London Stock Exchange's AIM has been strong, increasing from £105 million to £180 million to £260 million from 2005 to 2007 for a CAGR of 58%.