The Alternative Investment Market had a lousy 2010. Only 65 new companies joined the index while 158 decided to leave. The AIM needed a healthy 2011 to lift investors’ spirits and get trading up once again. Alas, it just was not meant to be.
Research by accountants UHY Hacker Young out today shows that 116 companies left AIM in 2011, 24 during Q4 alone. And while the number of departures keeps going up, new listings are down, dropping 38% from 26 in Q3 2011 to just 16 in Q4.
Why the mass exodus? Seven out of the 24 companies that came off the index in the last quarter cited financial stress as the key factor behind the decision to go private. But the overwhelming number – 38% - dropped off the AIM grid through mergers or acquisitions, indicative of further financial turmoil. It’s the only way for many of these firms to grow as they spurn secondary listings or further outside investment.
‘Anaemic economic growth has meant worsening trading conditions for many domestically focused AIM companies,’ explains Laurence Sacker, partner at UHY Hacker Young. ‘Unfortunately that has led to a rise in the number of AIM companies being forced off the AIM market because of weak finances.’
On the surface, the outlook is bleak for AIM: the total number of listings on the junior market has been steadily dwindling over the past five years, from around 1,600 in 2006 to 1,150 in 2011. But it’s not all doom and gloom. Money raised through secondary fundraisings and class transactions (placing and Rights Issues etc) remains relatively high, reaching £3.4bn to the end of November 2011 (but down 25% on the £4.5bn raised over the same period last year).
The sums of cash involved are also shrinking, alas; the amount raised through IPOs in 2011 just hit £513m, down from £903m in 2010.
‘In the short term, a full recovery in the IPO market seems unlikely,’ says sceptical Sacker. ‘Investors have retrenched into defensive assets and until they have confidence that politicians have fixed the eurozone crisis once and for all, they are unlikely to return to the AIM market en masse.’
That’s not to say they won’t ever return, of course. Many firms are simply delaying their IPOs until the current financial storm has passed. And revenue forecasts at AIM-listed firms are set at around 24% - twice as high as their FTSE 250 colleagues (according to PwC).
Don't let the comparison to the FTSE fool you, however. The fact is that stock markets across the board aren’t really working for listed firms at the moment. There is insufficient liquidity to provide a decent source of capital, while regulations have become more and more onerous – not to mention expensive. But one thing’s for sure, relying on the politicians to clean up the eurozone mess seems like a far riskier proposition than betting on the AIM…