AIM was launched in 1995 as a subset of the London Stock Exchange to offer a market place for smaller emerging companies to raise capital. Compared to the Main Market, AIM demands fewer regulatory obligations to companies wishing to raise finance. This junior market has had its ups and downs over the years but recent history has been relatively positive. So where is AIM headed next?
Recent trends in AIM?
2014 proved to be a bullish year for AIM. The value of IPOs on AIM reached £2.4 billion according to Thompson Reuters, the highest since 2007 and twice the figure raised in 2013. Overall, £5.9 billion was raised on both the Primary and Secondary AIM platforms; representing a 48 per cent increase on 2013’s total. Another trend has been the admission of larger companies to AIM. Boohoo.com plc, admitted to AIM in 2014, had a market cap of over £784 million, while three more companies also admitted in 2014 had market caps within the £300-400 million range.
Both trends can be attributed to increased business and investor confidence coinciding with gradual improvement in general macroeconomic conditions. In particular, the UK economy has impressed with its growth. A second factor may also have encouraged companies to seek admission to AIM specifically. From April 2014, the Government abolished stamp duty and stamp duty reserve tax on transactions in shares listed on AIM. The decreased transaction costs for investors trading on AIM may have resulted in greater investor appetite for extending capital to growth companies.
January 2015 proved to be a caveat to the above trends. During this period, £189 million was raised on AIM, compared to a January average of £198 million from 2012 to 2014. A contributory event behind this slowdown may well be the recent slump in the oil industry. The energy sector has traditionally been a major source of AIM listings, accounting for 121 of the 845 companies currently listed on AIM. As the oil price has plummeted, energy companies have had to deal with falling profits. Therefore, the demand for expansion in the sector – and crucially, for the capital needed to fund this expansion – has dissipated with it.
What is the current outlook for AIM?
As the oil and gas industry continues to come to terms with the recent fall in oil prices, demand for AIM admission from the sector is likely to remain weak. By contrast, TMT and Retail are expected to continue to grow in importance for AIM – the TMT sector accounted for the highest number of IPOs on AIM (15) from the final quarter of 2013 through to the third quarter of 2014.
To the extent that there is any slowdown in the macroeconomic conditions that have been identified as facilitating recent growth in AIM activity, such growth is likely to be impacted. While the Scottish referendum and the UK general election are no longer playing in the minds of investors and businesses alike, several geopolitical and economic risks remain. Weaker demand from China, the crisis in Ukraine and the rise of IS in the middle east are just some of the difficulties that may negatively affect companies as they seek to commit finance raised from risk-hungry investors.
In conclusion, growth in UK-based companies may help support AIM activity in the coming months, but for the time being the wider picture remains uncertain.