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The Alternative Investment Market - flotation without tears

The first of a two part look at the Growth of AIM by Keith Hatchick (I)

Qualification for admission can be simply stated: to gain admission to AIM, companies need articles of Association (or the equivalent for foreign companies) compatible with offering shares or other securities to members of the public. An English company would need to be registered as a plc (requiring a minimum issued share capital of £50,000 of which at least a quarter is paid up ). in theory it is possible for a company to gain admission to AIM without a trading history, but this in practice is unlikely.

The most normal situation is that of a company with a trading history of at least three years showing recurring profits before tax of upwards of, say, £250,000 (there is no minimum though). A company is unlikely to he attractive to a nomad unless it can procure a market capitalisation of at least £3m and from a nombro's stance there is likely to be little institutional interest with one of less than £7m. Indeed there are a number of nomads and nombros who will not take an issuer to AIM without a minimum market capitalisation of £10m. Since the p/e of most companies listed on AIM is between 10 and 14 this would require annual profits of at least £700,000.

The candidate or members of its group should not have any recent insolvency history and its directors similarly should not been directors of any such troubled companies. The record of directors, both executive and non executive, is frequently taken as an indication of the past health and prognosis of a candidate. Chapter 16 does have rules relating both to disclosure and suitability, but it is more frequently a concern of the nomad and nombro since the marketing of a share may be tainted when such disclosures are made.

"It is important that the nomad takes
an active interest in the company after
the float, but this should not involve
interference in it's day-to-day running."

A frequent question clients ask their advisers is what type of concerns best lend themselves to AIM Admission. There is no quick answer, but the following categories can be cited with confidence: - companies in fast growing businesses such as computer technology or telecommunications (i.e. the 'expand or die' philosophy).

• Companies where investors or shareholders are looking for an exit route where they may otherwise be locked in for a particular time or until an event occurs (such as BES concerns, MB0s etc).



• Family companies seeking external finance without losing control to a market competitor.



• Former USM or fully listed concerns wishing to move into a less regulated environment.



• Overseas enterprises wishing to establish a foothold in the UK (there are a number of companies for example Successfully founded in the Middle and Far East which have successfully established businesses in the UK through admission to AIM).

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