AIM – a changing market

Background

When the Alternative Investment Market of the London Stock Exchange (“AIM”) first launched in 1995, it was home to just 10 small to medium-sized companies. Today, nearly 100 times as many companies trade on the market, with over £100 billion raised so far by companies listed on AIM during its impressive history.

The London Stock Exchange (“LSE”) is now seeking feedback on proposals to adapt the AIM Rules to reflect shifting market trends and to strengthen the perception of AIM as a robust, well-maintained and sensibly regulated market.

Minimum fundraising requirement

Currently, the majority of issuers are not required to meet a minimum fundraising requirement when they are admitted to AIM. The LSE is proposing to introduce a minimum fundraising threshold for all companies of between £2 million and £6 million through an equity fundraise of independent (non-related) investors immediately prior to or on admission. There would, nevertheless, be some limited exceptions to this requirement, such as where an issuer was already listed on another market and already has a track record as a public company.

This requirement is intended to weed out those companies that would otherwise not be considered ‘viable’ and will reinforce the perception of AIM as a market that supports a strong trading environment. It would also help ensure that issuers had sufficient working capital to survive, boosting investor confidence. The higher the number of thriving issuers that are listed on AIM with good liquidity and working capital, the stronger the reputational benefits of being listed on the market will continue to be.

However, while for the majority of issuers this minimum requirement should not be prohibitive, it will build in a degree of cost and expense that is likely to dissuade some companies, particularly those that have no practical requirement to undertake such a fundraise.

Free float

The term ‘free float’ refers to the proportion of an issuer’s shares that are publicly traded. Currently there is no prescribed free float threshold for companies listed on AIM, but Nomads must consider factors such as the nature and spread of an issuer’s investor base when assessing appropriateness for admission. Limited free float, for instance, should give rise to questions about the suitability of a company seeking admission.

The LSE considers a non-prescriptive approach is the best way for Nomads to consider such factors, but have asked for feedback on whether specific free float requirements should be introduced (as with the Main Market), so watch this space.

In our experience, it can be hard for junior and developing companies, and in particular those that are based offshore, to meet strict free float requirements. While a liquid shareholder base is obviously desirable, the market must be cognisant of creating a bar to admission for the very companies it is seeking to attract.

Early notification and assessment process

Each company that wishes to apply for admission to, and remain trading on, AIM must appoint a nominated adviser (“Nomad”) to guide issuers to help ensure compliance with the AIM Rules and corporate governance standards. Where a Nomad considers a prospective application to AIM to be atypical or potentially problematic, it is required to approach the LSE at an early stage of the application process. The LSE is proposing to formalise the early discussion process in relation to all proposed admissions – not just those that the Nomad considers to be atypical.

Formalising the process and setting out a non-exhaustive list of factors for assessing appropriateness for admission is a step that reflects the eligibility criteria which Main Market listed companies must fulfil and is likely to create more certainty at an earlier stage that applications for admission to AIM will proceed to completion. Crucially, this proposal should give issuers and their advisers a clear view, early in the process, as to whether admission will be possible, thereby avoiding incurring significant costs and any last minute issues that may affect the fundraising timetable.

Corporate governance

AIM issuers are not currently required to report that they have complied with any corporate governance code(s). The LSE is seeking feedback on whether such a requirement should be introduced on an annual basis. Corporate governance is key to ensuring that issuers are well run and act in a way that is fair for their shareholders as a whole. Although reporting that corporate governance standards have been satisfied may constitute a further administrative burden for issuers, the importance of strong corporate governance underpins the success of an issuer and of AIM, and therefore it is vital that investors know that issuers are satisfying corporate governance expectations.

A changing market

The proposed changes to the AIM Rules are grounded in a desire to maintain the market’s competitive edge, enhance its international reputation as a bellwether of global corporate appetite and reflect the changing regulatory expectations and standards of the corporate world. In so doing, however, the market must strive not to rule out the very companies it was designed to service.

We will provide updates on the feedback received by the LSE once the consultation period is over and information regarding the results is announced.

For more information about AIM, the admission process or the LSE’s proposals for reform, please contact our Head of Corporate Michael Dawes or Corporate Partner Kieran Stone.