London's AIM - Secondary Offering Activity - H1 2010

Secondary offering activity on the London Stock Exchange's AIM remains strong with $3.4 billion raised during the first half of 2010.  The average size of secondary offerings on London's AIM for operating companies increased 86%.

This post provides additional insight into the current trends and future outlook for London's AIM.

Highlights

• Secondary offerings on the London Stock Exchange's AIM remain strong
• £2.1 billion ($3.4 billion) raised in secondary offerings on London's AIM in H1 2010, six fold more than raised in London AIM IPOs

• ‘Operating companies’ listed on London's AIM again capture ~85% of secondary offering funds raised on London's AIM

• Average size of ‘operating company’ secondary offerings on London's AIM continues upward trend

                H1 ‘09 - £3.68m ($5.89m)     H2 ‘09 - £5.26m ($8.42m)     H1 ‘10 - £6.84m ($10.94m)

• Noticeable trend developing between London Stock Exchange AIM secondaries raising < £5m and the £5 - £30m range

< £5m              H1 ’09 - 81%                    H2 ’09 - 77%                    H1 ’10 - 75%

£5 - £30m        H1 ’09 - 15%                    H2 ’09 - 18%                    H1 ’10 - 21%

• Relative number of London AIM-listed companies completing secondary offerings on London's AIM normalizes

                H1 ’09 - 23%                         H2 ’09 - 32%                          H1 ’10 - 24% 

• 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.  Since 2007, secondary offerings on London's AIM have outpaced London Stock Exchange AIM IPOs.  This is expected to continue for the foreseeable future given the current macroeconomic situation and the relatively attractive valuations of companies currently listed on London's AIM.  Over the medium to longer term, the expectation is that secondary offerings on London's AIM will abate somewhat as investors’ risk profiles gradually shift towards London Stock Exchange AIM IPOs.

When reviewing the “All Companies” tables below, one anomaly should be adjusted for in order to arrive at a fair comparison.  During the second half of 2009, there were three large London AIM Placing & Open Offers which raised an aggregate of £1.0 billion for real estate investment, development and management companies listed on the London Stock Exchange's AIM.  Historically, the vast majority of secondary offerings on London's AIM take the form of Placings and are much smaller in size.  When the adjustments are made, the aggregate secondary offering funds raised on the London Stock Exchange's AIM during the second half of 2009 drops from £3.4 billion to £2.4 billion and the average drops from £7.93 million to £5.63 million.

All Companies	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
H1 2009	222	1,433
H2 2009	388	3,387
H1 2010	350	2,107
Total	960	6,927

Exclusive of Investment and Real Estate Funds:

‘Operating Companies’	London AIM IPO Funds Raised (in £ millions)	London AIM Secondary Offering Funds Raised (in £ millions)
H1 2009	-	1,108
H2 2009	16	2,005
H1 2010	211	1,819
Total	227	4,932

The key takeaways from the tables above are that secondary offerings on London's AIM have remained strong and ~85% of the funds raised from secondary offerings on London's AIM were for ‘operating companies’ listed on the London Stock Exchange's AIM, after adjusting for the previously mentioned anomaly during the second half of 2009.

All Companies	Number of London AIM Secondaries	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2009	335	1,433	4.28
H2 2009	427	3,387	7.93
H1 2010	308	2,107	6.84
Total	1,070	6,927	6.47

Exclusive of Investment and Real Estate Funds:

‘Operating Companies’	Number of London AIM Secondaries	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2009	301	1,108	3.68
H2 2009	381	2,005	5.26
H1 2010	266	1,819	6.84
Total	948	4,932	5.20

The key takeaway from the tables above is that the average size of secondary offerings on London's AIM continues to trend upward, even for the London Stock Exchange's AIM as a whole after adjusting for the previously mentioned anomaly during the second half of 2009.  The average size of secondary offerings on London's AIM for ‘operating companies’ listed on London's AIM increased 86% from £3.68 million ($5.89 million) during the first half of 2009 to £6.84 million ($10.94 million) during the first half of 2010.

Consistent with the above (see chart below), there is a slight, but noticeable, secondary offering trend developing on the London Stock Exchange's AIM with the breakpoint being £5 million ($8 million).  The relative number of secondary offerings on London's AIM raising less than this amount has decreased from 81% during the first half of 2009 to 75% during the first half of 2010 whereas the relative number of secondary offerings on the London Stock Exchange's AIM raising between £5 million ($8 million) and £30 million ($48 million) has increased from 15% to 21% over this same period.  Secondary offerings on London's AIM raising greater than £30 million ($48 million) have consistently accounted for 4% of the total.

This trend has developed because, in 2009, London Stock Exchange AIM investors were willing to deploy relatively small amounts of capital to continue to assess the viability of certain companies listed on London's AIM whereas capital being deployed on London's AIM in 2010 is more for executing on organic and/or acquisitive growth opportunities.

 

The relative number of companies listed on London's AIM that were able to complete secondary offerings on London's AIM during the first half of 2010 normalized at 24%.  The chart below illustrates a frothy market in 2007, the ‘crash’ of 2008 and a wave of relatively small ‘rescue financings’ during the second half of 2009.  Looking back to 2005 and 2006, the relative number of London AIM-listed companies that completed secondary offerings on the London Stock Exchange's AIM was 48% and 50% per annum, respectively, which is consistent with the 24% that completed secondary offerings on London's AIM during the first half of 2010.  As previously mentioned, the breadth and depth of secondary offering activity on London's AIM is the defining characteristic of a mature market.

 

The vast majority of weak companies were expelled from the London Stock Exchange's AIM during 2009 as investors selected those companies that would remain listed on London's AIM by providing access to secondary offering funds on London's AIM.

London's AIM - IPO Activity - H1 2010

16 IPOs completed on London's AIM during the first half of 2010 compared to only 13 London AIM IPOs for all of 2009.

This post provides the outlook for London Stock Exchange AIM IPOs and the key listing, financial and operating metrics for the 16 London AIM IPOs that completed during the first half of 2010.

Highlights

• London AIM IPO activity accelerates, H1 2010 (16 London AIM IPOs) exceeds the full year 2009 (13 London AIM IPOs)
• ‘Operating companies’ listing on London's AIM return, account for 75% of H1 2010 London AIM IPOs, mirror image of 2009
• However, London's AIM remains fragile and below trend (50 - 150 yearly) for foreseeable future
• Given market conditions, prospective issuers should carefully consider:
• Suitability before embarking on the process of listing on London's AIM
• Key advisers, most notably AIM Nominated Advisers (Nomads) and AIM Nominated Brokers

• Surprisingly, only 4 of the 16 companies listing on the London Stock Exchange's AIM had revenues > £1 million (range £1m - £58m)
• Those 4 broadly in the tech space (computing and cleantech)
• Other 12 broadly in the natural resources space or ‘investment vehicles’ 

• Key listing metrics for the 16 London Stock Exchange AIM IPOs are as follows:
• Aggregate capital raised on London's AIM of £350 million ($560 million)
• 90% of the capital raised for the companies listing on London's AIM and 10% for selling shareholders
• Average and median capital raised on London's AIM of £22m ($35m) and £12m ($19m)
• Average and median offering costs on London's AIM both 10% of gross capital raised
• Average and median opening market cap upon listing on London's AIM of £59m ($94m) and £38m ($61m)
• Average and median share price gain since listing on London's AIM of 47% and 20%
• Average and median dilution to existing shareholders of 43% and 26%
• Average and median free float on London's AIM of 49% and 46%

• Key financial and operating metrics for the 16 companies listing on the London Stock Exchange's AIM are as follows:
• Revenue and income/loss figures for most AIM-listed companies not meaningful given early stage profile
• Average and median assets of £16m ($26m) and £8m ($13m)
• Of the 4 companies listing on London's AIM with revenue > £1 million, 3 were profitable
• Of those 3, 2 had small profits, therefore, PE & EBITDA multiples not meaningful
• The 1 with ‘normal profits’ had trailing PE of 18 and trailing EBITDA of 9
• Country of operation for companies listing on the London Stock Exchange's AIM is UK/Scotland for 7 with the others in 9 different countries
• 2 are dual listed on the ASX with 1 utilizing the Designated Markets Route to London's AIM
• 13 different AIM Nominated Advisers (Nomads) and 13 different AIM Nominated Brokers with 3 acting for 2 companies each
• Only 3 companies appointed a Joint Nominated Broker

All Companies	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2009	2	222	111
H2 2009	11	388	35
H1 2010	16	350	22
Total	29	960	33

Exclusive of Investment and Real Estate Funds:

‘Operating Companies’	Number of London AIM IPOs	Gross Funds Raised (in £ millions)	Average Funds Raised (in £ millions)
H1 2009	-	-	N/A
H2 2009	3	16	5
H1 2010	12	211	18
Total	15	227	15

The key takeaway from comparing the tables above is the return of ‘operating companies’ listing on the London Stock Exchange's AIM.  The £18 million ($29 million) average raised on London's AIM by these ‘operating companies’ is consistent with 2007 and 2008 when 111 and 26 ‘operating companies’ listed on London's AIM and raised an average of £18 million ($29 million) and £20 million ($32 million), respectively.

While the return of ‘operating companies’ to the London Stock Exchange's AIM is a positive sign, the London AIM IPO market remains below trend (50 - 150 yearly) and is expected to remain so for the foreseeable future.  In addition to the current macroeconomic situation, the Secondary Offering market on London's AIM has been booming (£2.1 billion or $3.4 billion raised during the first half of 2010) as a result of attractive valuations for companies listed on London's AIM that are ‘known quantities’.  The strength of the Secondary Offering market on London's is a positive sign for London Stock Exchange AIM IPOs over the medium to longer term as London AIM investors remain confident in the market; however, the shifting of their risk profiles towards London AIM IPOs is sure to be gradual.

It was surprising that the types of ‘operating companies’ listing on the London Stock Exchange's AIM during the first half of 2010 fell into two very distinct categories; those with revenue traction and profits, or very close to profitability, and natural resource plays (mining and oil and gas) at a very nascent stage.  The latter all had owned or identifiable assets, solid geological studies and exceptional management teams with demonstrable track records of success.

The first chart below provides the distribution of gross funds raised from London Stock Exchange AIM IPOs during 2009 and the first half of 2010.  The sweetspot for London AIM IPOs is between £5 million ($8 million) and £50 million ($80 million).

The second chart below highlights an interesting shift on the London Stock Exchange's AIM that occurred during 2008, a substantial decrease in London AIM IPO dilution of existing shareholders.  2009 is viewed as an anomaly given the lack of activity.

There are two main reasons for this shift.  First, the London Stock Exchange codified the AIM Nominated Advisers (Nomads) Rules in early 2007 which has increased the scrutiny of prospective companies listing on London's AIM by Nominated Advisers (Nomads) since the Nominated Adviser (Nomad) vouches to the London Stock Exchange (LSE) as to a company’s suitability for admission to London's AIM.  Second, London AIM investors have become more risk adverse.  Consequently, the quality of the companies listing on the London Stock Exchange's AIM has increased and, as a result, the London AIM IPO dilution of existing shareholders has decreased.