A Snapshot On FTSE - Alternative Investment Market (AIM)

In the year 1995, the AIM (Alternative Investment Market) was established and is amongst the world’s most successful growth markets. The AIM had more than 3,600 companies listed from all around the world. The AIM helps the smaller companies to raise the required capital for the expansion of business and to grow their operations worldwide. The AIM provides benefits of a public market to the growing companies within a regulatory environment to meet their specific needs.

Various companies at their initial stage join the AIM to easily raise the growth capital by floating its shares. The venture-backed companies are also part of the alternative investment market to raise additional capital for development and growth through relaxed regulatory norms as compared to the main market. FTSE AIM UK 50, FTSE AIM 100, and FTSE AIM All-Share index are the three indices within the Alternative Investment Market maintained by FTSE.

Admission Process

Once the company chooses to seek a quotation on AIM the primary step is to hire a Nomad. A Nomad is a nominated adviser which can be a firm or a company and is approved by the London Stock Exchange as an advisor for the AIM. The Nomad holds a deep understanding of the required needs of the companies and helps them to come to the market. Nomad is highly experienced in guiding companies through the process of flotation.

Nomads are mostly the corporate financial advisors or the boutique investment bank which conducts detailed financial and operational due diligence for the suitability of an AIM candidate. They analyse the company’s business model, financial/operational track record, management capability, projected capital structure, and other crucial documents. As per the requirements from the London Stock Exchange, Nomads must continue to monitor the growth and counsel on the business policies, which the company intends to follow, post admission to AIM.

The company can consult other advisors for the admission process. The advisors include broker, accountants, public relations, investor relations firms and law firm.

After the appointment of 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.

AIM Rulebook

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.

AIM Notices

The AIM issues notice to inform market members related to regulatory change and administrative changes relating to the operation of the market. The London Stock Exchange also issues notice related to the secondary exchange rules and issues related to the regulations that may impact the Alternative Investment Market companies.

Nominated Advisers

The Alternative Investment Market has huge support from its community which includes expert advisers, lawyers, accountants and public relation firms. Nomads are important for the growth of AIM, as the success of exchange is largely due to the professionalism and dedication of their experts which make them an integral part of the market. To safeguard the integrity of the market, the LSE had set a strict criterion with respect to Nomad selection etc.

To become a Nomad the candidate needs to complete the application form, which is reviewed by the regulatory team. The approved Nomad should demonstrate the fulfilment of all the eligibility requirements set by the LSE.

Advantages

Companies which pursue Alternative Investment Market through an initial public offering (IPO) route, intends to raise growth capital up to £50 million. In addition, some companies have raised capital that exceeded £100 million and has the current market capitalization of over £1 billion. Some of them are – Burford Capital, Fevertree Drinks, ASOS, Abcam, Boohoo Group, RWS Holdings, etc. These companies have delivered favourable returns to investors and helped them to maximize their returns.

Many new financial institutions like pension funds, endowment, insurance firms have started investing systematically in AIM, which offers great assistance for the companies to raise capital in large quantum in a regulated manner. Once registered on Alternative Investment Market, the company’s profile gets boosted, easy access to cash facility and improved relations with the external stakeholders such as suppliers, customers to expand business operations.

Listing formalities and fee structure on Alternative Investment Market is considerably less expensive than joining the London Stock Exchange main list.

 Disadvantages

Running a public company has some shortcoming as well. The company must adhere to the compliance of the market regulators and corporate governance norms to meet the shareholder’s expectations. Any negative news or contraction in the business performance can adversely impact the company’s share price performance and can impact the investor’s sentiments from investing perspective. Also, AIM offers lower liquidity and inadequate information about the company as a comparison with the London Stock Exchange due to relaxed norms.

Examples – Stocks Performance Listed on AIM

ASOS Plc – ASOS Plc is a UK based fashion retailer listed on AIM. The stock is currently trading at GBX 3,287.00 (on 11^th June, before the market close, at 9:47 AM GMT). In the last 3 months, the stock had given a decent upside of 11.95 per cent against the Index performance of 7.84 per cent. Stock's average traded volume for 5 days was 449,321.40; 30 days – 413,861.37 and 90 days – 552,863.20. The average traded volume for 5 days was up by 8.57 per cent as compared to the 30 days average traded volume.

Abcam Plc - Abcam Plc is a UK based company into the life science business. The stock is currently trading at GBX 1,463.00 (on 11^th June, before the market close, at 9:47 AM GMT). In the last 1 month, the stock had given a decent upside of 6.86 per cent and for the last 3 months, the stock rose significantly by 23.21 per cent. Stock's average traded volume for 5 days was 397,989.20; 30 days – 369,484.63and 90 days – 408,262.13. The average traded volume for 5 days was up by 7.71 per cent as compared to the 30 days average traded volume.

Conclusion

The alternative investment market route is more speculative as compared to other exchanges mainly because of the relaxed market norms. Institutional investors with high-risk appetite are majorly involved in such market (AIM). It offers lower levels of liquidity and makes it difficult to sell shares at the right time. AIM market offers significant volatility and riskier investment proposition, but they are also more attractive due to tax incentives.