Should cash shells ‘AIM’ for the Main Market?

AIM has traditionally been seen as the ‘home’ for cash shells so do these proposals represent a coup de grâce for these vehicles? In short, the answer is no! While the proposed changes may detract from the viability of listing on AIM, there is, as evidenced by their success, an unlikely haven for cash shells on the Main Market.

Since the inception of the ‘Standard’ segment of the Main Market in 2010 there have been a number of ‘marquee’ cash shell listings on the Main Market (Horizon Acquisition, Vallares and Justice Holdings) but there have also been a significant number listings for relatively modest sums, all of which initially listed with a market capital less than the current and proposed minimum for AIM and which benefited from the Main Market’s reduced eligibility and ongoing requirements for standard listed companies.  It is easy to envisage that the LSE’s proposed changes could result in this trend being exaggerated.

While a company proposing to list on the Standard market must still:

• prepare a prospectus which must be vetted and approved by the UKLA;
• have a market capitalisation of at least £700,000; and
• have a free-float of at least 25% in public hands,

it will otherwise benefit from the from the relaxation of a number of rules that are applicable to Premium listed and/or AIM companies.  A Standard listed cash shell is not:

• required to have a minimum trading history;
• required to appoint a sponsor on IPO or on a continuing basis;
• required to comply with any corporate governance codes;
• required to obtain shareholder approval for a reverse takeover (an AIM cash shell does);
• required to offer new shares for cash on a pre-emptive basis to shareholders (subject to the statutory requirements); or
• subject to the “Premium Listing Principles” set out in the UKLA Listing Rules.

Whilst there are a myriad of factors which need to be taken into account when determining the most suitable market to list on; given the pending changes to the regulatory environment of cash shell companies on AIM, it is becoming clear that the Standard segment is an increasingly viable and successful alternative to listing on AIM.

Key Considerations

In addition to the points discussed above, the founders/management team thinking of listing a cash shell in London, should consider the following:

• While the minimum required market capitalisation for a Standard listed company is only £700,000, the company will be required to illustrate to the UKLA that it can achieve its investment policy with such a limited working capital; however, even if a small shell listing is envisaged, this figure is likely to be less than the current and proposed requirement for AIM;
• The Main Market admission process can take longer than for AIM. In the absence of a nominated adviser, the cash shell (or its legal adviser) will be solely responsible for liaising with the UKLA.  Whilst Standard listed companies are not prohibited from appointing a financial adviser to assist in the listing process, many choose not to, viewing the benefit of the attendant costs savings as outweighing the demands on management time etc.;
• Standard listings allow shell companies the flexibility to appoint advisors as and when they are needed as opposed to a continuing obligation to retain an adviser (such as a nomad for an AIM company). This allows the shell company to limit its initial overheads until its acquisition programme is underway;
• The Standard listing can be used as an interim step with a view to moving to a Premium listing after it completes its investment policy;
• A Standard listed company will be required to prepare a prospectus if it wishes to issue more than 10% of its shares. However, as any issue of new shares is likely to be in connection with an acquisition resulting in a reverse takeover (itself requiring a prospectus), this requirement is not likely to create extra work.