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The New 20% Exemption Rule Levels The Playing Field

04/07/2017

At a glance

Traditionally there has been a common distinction between the types of companies that were attracted to an AIM listing over a Main Market listing, with AIM appealing more to development and growth companies, whilst more mature businesses gravitated towards the Main Market.  Much of this thinking has been based on the ease of fundraising post IPO, where historically, a major advantage of AIM is that it allowed companies that regularly required capital injections an easy way to raise money without having to publish a prospectus each time.

For many, the Main Market has been considered the ‘step-up’ and a home for businesses with comfortable, established and long-term revenue earnings.

From 20 July, the existing exemption from the requirement to publish a prospectus where the annual increase of shares is less than 10% will be increased to a higher threshold of 20% –  a step which significantly levels the playing field.

By increasing this exemption threshold, the Main Market and in particular a Standard Listing, has removed one of the key hurdles for early stage companies and now becomes a far more viable option, especially for those businesses looking to raise capital quickly/frequently and without needing to prepare any costly documentation post IPO.

Whilst AIM still effectively permits ‘infinite’ fundraisings, the reality is that in all but a few extreme cases (i.e. a rescue financing etc.) an AIM company is unlikely to issue more than 20% of its share capital in a 12-month period. In fact, the clear majority of companies on AIM who have raised capital in the last 12 months have issued less than 20%.

For many businesses looking to IPO, with a specific focus on regular fundraising over the next few years, this is a game changer. This regulation markedly closes the gap between AIM and the Main Market, making the latter a far more interesting proposition to a wider selection of companies.

To see if your business is eligible for the Main Market, read our guide here.

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