A snapshot of the Alternative Investment Market

Summary 

• The AIM is a sub-market of the LSE that was launched with the aim to help small and medium-sized companies.
• Initially in 1995, only 10 companies were listed on the AIM with approximately £82 million of market capitalisation.
• At present, around 850 companies are listed on the AIM with £104 billion of market capitalisation.

Established on 19 June 1995, the Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange that was launched with the aim to help small and medium sized companies to raise capital from the public markets for their growth and expansion. AIM has a very supportive advisory community and a diverse set of investors, who support the companies across sectors and countries, making it the most thriving and well-established global market. Initially in 1995, only 10 companies were listed on the AIM with approximately £82 million (US $116 million) of market capitalisation. It has grown drastically over the years, and at present, around 850 companies are listed on the AIM with £104bn market capitalisation. Around £115 billion has been raised by more than 3,865 companies on the AIM since its inception. It has contributed a significant share of approximately two-thirds of European growth market funding in 2019. From a total amount of £2.8 million raised by the companies in the initial five years of its launch, the AIM has grown substantially, and around £21.4 million has been raised in the market since the past 5 years. Also, the daily volume of trades has significantly increased from the first year of trading averaging 21.9 million, to 2019 averaging 2.4 billion. For tracking the AIM, the FTSE group provides 3 real time indexes, which include the FTSE AIM UK 50 Index, the FTSE AIM 100 Index, and the FTSE AIM All-Share Index.

Also read: What are the top FTSE AIM companies?

AIM: A diverse market

The AIM is a very diverse market, and over one-third of AIM’s companies are now headquartered or a major proportion of their operations are run outside the United Kingdom. There are many benefits for smaller companies, which are more risky and highly speculative, to join the AIM. The AIM offers a wide support network to these companies, which consists of nominated advisers, brokers, accountants, lawyers, analysts, media, and financial PR/IR. AIM helps in enhancement of the corporate profiles of the companies, by increasing their visibility as a public company, increasing their credibility with suppliers and customers, improving their accessibility to research coverage, and enhancing the marketability of their stocks with a supportive global peer group. With strong institutional support, the AIM also offers a diverse pool of capital to the companies for funding their expansions into the new markets as well as for the purpose of acquisition. Most importantly, AIM provides a balanced regulatory approach which helps in building the confidence of local and international investors in the market regulations. The listing requirements and regulatory framework is more flexible in the AIM as compared to larger exchanges, like the LSE main market. AIM is basically a self-regulated market, where the nomads are assigned the task to ensure compliance with the broad guidelines.

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Hiring a nomad, or nominee adviser, is the primary step after a company chooses to seek a quotation on AIM. A nomad may be a firm or a company that is approved by the LSE as an advisor for the AIM, for providing advices pre-IPO as well as monitoring the growth and counsel on the business policies post admission to AIM. Nomads use their expertise and deep understanding to support companies entering the AIM, and they get their share of profits in the form of fees from these companies. Nomads are mainly corporate financial advisors or the boutique investment banks, which conduct a meticulous financial and operational due diligence to assess to the suitability of an AIM candidate, and guide the companies through the process of flotation of shares. They analyse the business model of the companies, management capabilities, financial track records, capital structure, and other factors that would influence the market value of the companies.

Also read: Top 10 AIM stocks for the month of July 2021

The company can consult other advisors for the admission process. The advisors include brokers, accountants, public relations, investor relations firms as well as law firms. After the appointment of the advisor, the company is required to prepare a document for admission which will include the details about the company including its board of directors, business operations, financial position and the business strategy. The document is prepared in consultation with the Nomad.

The Alternative Investment Market has its own set for rules for both the companies and the Nomad. The AIM rules are made clear and transparent so that they can be easily understood by all market members. The rules are constantly updated after consultation between the exchange and the community. Like the LSE main market, the AIM also issues notices to inform market members about regulatory changes and administrative changes relating to the operations of the market.

Also read: 10 AIM stocks that may break out in future

There are disadvantages associated with being listed on the AIM too. Any negative news or contraction in the business performance can adversely impact the share price performance of the company, and can impact the sentiments of the investors. Also, AIM offers lower liquidity and inadequate information about the company in comparison with the LSE due to relaxed norms. The nomads also sometimes are unable to accomplish their duties, and thus AIM shows a tendency to attract the investors who are less risk averse and have the necessary resources for independent due diligence.

The top FTSE AIM companies are:

Greatland Gold Plc (LON:GGP),

Eurasia Mining Plc (LON:EUA),

Boohoo Group plc (LON: BOO),

Learning Technologies Group plc (LON:LTG),

AFC Energy plc (LON:AFC),

Pan African Resources PLC (LON:PAF),

Breedon Group Plc (LON:BREE),

Seeing Machines Limited (LON:SEE),

Warehouse REIT plc (LON:WHR)

 ITM Power Plc (LON:ITM)

With an exceptional pool of capital, the AIM promotes the image and brand of growing companies on a global scale. It provides the companies with a market where shares can be used for organic growth as well as acquisitions, and it supports their entire journey as public companies. AIM market offers significant volatility and riskier investment propositions, but they are also more attractive due to tax incentives, such as inheritance tax relief, income tax relief and no capital gains tax while holding AIM shares in an ISA.

Also read: What companies are listed on the FTSE 100?