Summary
- AIM has outperformed the UK’s main stock market significantly in the last 10 years.
- It was earlier known as the Alternative Investment Market.
- The AIM index is generally considered the world’s most successful growth market.
In the last ten years, the AIM has outperformed the UK’s main stock market significantly. The index gives a platform to companies from different sectors and countries to tap into wide-ranging investors.
Some experts have, however, pointed out that valuations of several big AIM companies look increasingly stretched.
Here is a guide on the AIM index.
What is AIM?
Earlier known as the Alternative Investment Market, AIM is known as the growth market of the London Stock Exchange to raise capital for scaling operations.
It replaced Unlisted Securities Market and started operations with a total market capitalisation of £82.2 million and 10 companies listed on it. In twenty years, it has grown to include ~1,000 companies that together have a market capitalisation of £90 billion.
The AIM index is generally considered the world’s most successful growth market.
How to list on AIM?
The listing procedure on the AIM is similar to any normal IPO However, the requirements for the same are less strict. Nominee advisors, or nomads, work as a regulatory framework for AIM and advise companies pre-IPO and post that.
While nomads are required to ensure regulatory compliance, they also earn profits through fees from companies they help list and then continuing overseeing their operations post listing, making their role subject of questions.
Why was AIM started?
The main reason behind AIM’s creation was to help smaller companies seeking capital but were unable to afford the costs that were charged to list on the main market of the London Stock Exchange or failed to meet the strict floating norms of the main market.
In order to list on the main market, companies are required to be in operations for three years, should be keen to float at least 25 per cent of their share capital, must have a minimum market value worth £700,000, possess sufficient working capital for a minimum of one year’s trading.
AIM does not require companies to follow these requirements. This lets entrepreneurial companies that are smaller in size to benefit by listing on AIM.
Is AIM self-regulated?
AIM’s less strict norms make it a more speculative investment vehicle in comparison to bigger exchanges. It is essentially self-regulated where nomads are responsible companies adhering to broad guidelines.
Just like no big exchange is immune to frauds, AIM is not either. Because of its risk appetite, the exchange draw attraction of institution investors who have a risk appetite and have enough resources to carry out independent due diligence.
It has also been criticised as a financial wild west that lets companies with questionable ethics to raise money. Though the criticism has been valid in certain cases, like extracting companies of impoverished countries, but the market has also shown that there is value in the presence of a gap market that rewards risk-hungry investors who help small companies on their growth path.
What kind of companies tap AIM?
Those who plan to raise in the range of £1 million and £50 million through IPO, tap this market. Several companies use AIM as a step towards the main market listing, companies with more than £1 billion worth of market capitalisation also exist on AIM, including Fevertree Drinks Plc (LON:FEVR), ABCAM Plc (LON:ABC), and ASOS Plc (LON:ASC), among others. All these companies have given significant return to those who had invested early on.
Companies listed on AIM belong to 37 different sectors and 90 sub sectors from as many as 26 countries. Over 250 companies that are listed on AIM are from countries outside England, making it a diverse exchange.
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