Tom Nicholls, a partner in the capital markets group at Stephenson Hardwood, reviews market activity on AIM in 2013 – highlighting his views on the effect the Government's tax policy changes will have on the market, whether there has been any impact from the widening of the application of the Takeover Code, and whether the revamped ISDX Growth Market is trying to be the new AIM.
What activity did you see on AIM last year?
It took a while for activity to pick up on AIM last year but there is no doubt that there was an uptick in activity in the second half of the year. December was the strongest month of the year, with the highest total of monies raised in a single month since March 2011. November and July were also exceptionally strong months. Activity eased over August but September was a strong month by number of admissions with 12. October was again a very strong month by reference to monies raised, with Tungsten Corporation's IPO being the largest trading company IPO on AIM since 2008. As a result, Q3 was the first quarter in two years to see a net increase in the number of companies on AIM, although December saw 16 de-listings, the highest number since January 2012. With 99 new admissions on AIM during the year, 2013 represented an improvement over 2012 both in terms of money raised (2012: £3,116m; 2013: £3,915m) and total number of new admissions (2012: 71; 2013: 99).
In terms of sectors, fund transactions continued to be strong and technology companies saw renewed interest. Stephenson Harwood has advised on six IPOs over the past 12 months, including acting for Weiss Korea Opportunity Fund Ltd on its IPO, the second largest on AIM in 2013 raising £105 million. In June we advised on IBEX Global Solutions PLC's admission, acting for IBEX's nominated adviser and joint broker Liberum Capital Limited and joint broker Cenkos Securities PLC. We also advised on the AIM IPO for Kalibrate Technologies.
Do you think the tax policy changes affecting AIM shares will have any impact on the desirability of AIM as a market choice?
Shares traded on AIM can now be included in individual savings accounts (ISAs), a move by the government intended to encourage investment and expand the investment pool for AIM companies. With the abolition of stamp duty on AIM shares from the end of April and the existing inheritance tax breaks, AIM shares have become increasingly attractive from a tax perspective.
There was a marked increase in trading volumes in August (continuing through the rest of the year, until a drop in December) which would have been in part a reflection of the positive impact of AIM share eligibility for ISAs. This will in turn have a beneficial impact on liquidity. With the abolition of stamp duty this year, it is possible we may see an increase in some of the smaller Main Market listed companies considering moving off the primary market onto AIM. 7 companies made this move in 2013 and the process is relatively simple using AIM's Designated Market Route or 'fast track' procedure.
Another regulatory change last year affecting AIM companies was the wider application of the Takeover Code. Are you seeing any further impact from this?
Back in September, we saw the removal of the residency test in the Takeover Code for companies with securities admitted to trading on a multilateral trading facility, which includes AIM. This means that the Code now applies to all AIM companies with their registered offices in the UK, the Channel Islands or the Isle of Man, regardless of the company’s place of central management and control.
The wider application of the Code is good news for shareholders and most companies have taken the change in their stride. Some companies with significant holders of convertible securities have had to consider the effect of exercise of those securities and the potential application of rule 9 mandatory offer obligations.
One point to keep an eye on is whether the abolition of stamp duty on AIM shares this year will have any impact on the choice of structure on any takeover of AIM companies. In recent years, schemes of arrangement have been the favoured route. Whilst schemes offer a number of advantages, one of the significant attractions was the ability to use a cancellation scheme meaning that no stamp duty was payable. This advantage will disappear after April and whilst I suspect the other advantages of using a scheme will mean that they remain popular, we may see a shift back towards using the formal takeover route.
There has been an attempted expansion in market options over the last 12 months with the revamp of the ISDX Growth Market and the launch of the new High Growth Segment of the Main Market. Do you think the changes to the ISDX Growth Market will reinvigorate it as a market? Is it trying to be the new AIM?
Last year ISDX revised the regulatory framework for its Growth Market quite extensively, launching new rulebooks which arguably leave it looking quite similar to AIM from a regulatory perspective, although applying different points based system admission criteria.
It will be interesting to see if ISDX itself expands on how it envisages the role of the Growth Market to be in the future and whether it is still looking to attract small to medium cap equity admissions. It has publicly said that it is targeting entrepreneurial companies typically seeking access to equity capital of between £150,000 and £5 million.
If it is trying to position itself as the new AIM, it will not be easy to compete with an already established market but I think that is unlikely to be the case. I would expect to see ISDX looking to attract derivatives for admission. The removal of its lighter touch with more stringent and costly admission criteria may well deter some equity applicants. There have been more de-listings from ISDX than new admissions, with 40 de-listings and 7 new admissions since its launch and rebranding at the end of October 2012, including 11 de-listings and no new admissions since the launch of its new rulebooks in July last year and this is likely to continue. With its stated target market there is some cross-over with the smaller end of AIM, so you could argue if you need to comply with this stricter criteria why not go straight onto AIM?
Are you seeing any activity around the High Growth Segment?
The new High Growth Segment was launched by the London Stock Exchange to be a stepping stone, particularly for technology businesses, to a premium listing. The short answer is no, we simply haven’t seen any interest in the segment to date. I suspect it may be that potential candidates are either of a size and have a track record that qualifies them to go straight on to the Main Market or that others are happy to initially list on AIM.
This briefing was prepared by Stephenson Harwood with Tom Nicholls. For more information, please contact Tom Nicholls.