No gain to being listed on AIM

THE Alternative Investment Market (AIM) has seen activity slump to its lowest level in four years.

According to analysis by business advisory firm Deloitte, total fundraising on AIM was £826m in quarter three – the lowest total since the onset of the credit crisis in the same quarter last year.

The current market value of AIM stands at £61.5bn (30 June 2008: £91.3bn). The total capitalisation of the market has therefore fallen by 33% in Q3 2008.

During Q3 there were 23 new admissions (Q3 2007 – 79) of which only 15 raised new money (Q3 2007 – 59).

Fundraising tailed off significantly month by month as the quarter progressed with just £13m of new money being raised on the market in the month of September, and £83m of secondary funds.

Roger Esler, corporate finance partner at Deloitte in Leeds said: “The wider economic turmoil that we are all aware of has stymied almost all attempts to raise new money on the AIM market.”

“There remains a pipeline of companies seeking an admission to AIM, but these are currently playing a waiting game; even if they found investors willing to provide the funds, the severe risk aversion in the marketplace means valuation expectations are difficult, if not impossible, to meet.”

He added: “For businesses that have an immediate need of capital, they should certainly be considering other options.”

Mr Esler said because of the economic turbulence smaller fast growing companies that tended to gravitate to AIM were holding back from admission.

He warned that recovery was likely to be preceded by a wider improvement in the world’s major equity markets, which would signal a general increase in enthusiasm for equities.

The report also suggests that institutional shareholders in AIM are questioning whether small cap list firms will return to favour however – even in the medium term.

“About 80% of our local plcs are smallcap and valuation falls in this part of the market are twice the falls in largecap due to higher perceived business risk and less stock liquidity,” said Mr Esler.

“The crunch has only exacerbated liquidity issues for investors at the low end of the market and the flight of institutional money to larger plcs. The timing of any upswing in activity remains extremely uncertain.

He continued: “When it comes it will be led by stronger companies with compelling stories and good management, and we expect significantly reduced opportunity for some of the smaller more speculative plays that have driven volumes in the past.”

Q4 according to Deloitte is also likely to bring “further deterioration” with no new money raised by companies gaining admission during October.

Total fundraising in the month was £82m, all of which was secondary fundraising from companies already listed on the market principally in the oil, gas and the natural resources sectors.

Seven companies gained admission to AIM in the month but none of these raised any new money.

The companies gaining admission were in a variety of sectors including transportation, building materials and heavy construction.

“It will be interesting to see whether the market for new money on AIM is essentially closed until the New Year,” added Mr Esler.

“Companies need to be reassessing their business plans in the current environment and those with a need for capital should be evaluating all their options. Funding markets won’t be shut forever and careful planning is fundamental.”