AIM takes small steps to recovery as rivals remain dogged by slump

Recent deals coupled with Plus’s poor performance show AIM is holding its own. By Gavriel Hollander

The first three months of the year have already proved that end of downturn or otherwise, we have yet to see the last of the volatility in the capital markets. While the turn of the year brought about talk of the return in force of the IPO ­market, subsequent events have already seen the reapplication of the recessionary handbrake.

While the consequences for the market of the scrapping of some of the more high-profile fundraisings – the listings of New Look and Merlin Entertainments among them – have been well documented, the impact further down the food chain in the still-struggling AIM market could be much worse.

That said, after 18 months of tumbleweed, a few small deals show that there is life in the old dog yet. And two other developments could mean there is light at the end of the tunnel for the fleet of law firms that cashed in when AIM was the toast of the City.

The first of these is the poor ­performance, even on relative terms, of the rival Plus market. Heralded as a cheaper alternative to AIM for ambitious small
to mid-cap companies, it has ­struggled to match its bigger brother in recent months.

“Plus is almost an irrelevance now,” says Richie Clark, head of capital markets at Fox Williams. “No serious player in AIM wants to be doing Plus. The fees you can earn are a tenth or less, so it would have to be for a long-term client.”

The implication being that a long-term client will graduate to AIM. Last year’s listing of Avia Health Informatics is a case in point. Having joined Plus in 2007, Avia attempted to list on AIM in January 2009 before a successful admission last November. Collyer Bristow partner Gary Withey – one of a clutch of lawyers with a foot in both camps – won both mandates.

“Plus hasn’t turned out to be the force that people thought it might be,” admits Farrer & Co corporate chief Adam Walker. “It’s not done anything wrong; in theory Plus should have gone toe-to-toe with AIM, but it never built up a head of steam.”

The simple reality is that there might not be space for both ­markets.

“There would have been in boom times,” says Walker, “but now, if you’re thinking of listing, AIM’s got the higher value.”

The second factor, and the one that could have a longer-lasting impact, is the imminent split of the London Stock Exchange main listing into a two-tier system, with companies featuring in either the premium or standard list.

This split could see AIM squeezed as companies look to get a foothold on the main listing. But with standard listed entities not qualifying for FTSE indices and the price still significantly higher than for a junior market listing, many in the City believe the ­opposite is true.

“It can’t do it any harm,” says one City corporate partner. “If you’re a smaller quoted entity it’s much cheaper still [to list on AIM] and there’s still a lighter touch in terms of regulation.”

But with the number of listed companies on AIM falling from a peak of around 1,800 to roughly 1,300, is there a danger of more birds flying the coop?
“I don’t think so,” says Clark at Fox Williams. “AIM is tried and tested, while the standard listing is a bit of a halfway house.”

However, simply being well positioned compared with its ­larger and smaller rivals does not guarantee that action on AIM will heat up any time soon, which could be a problem for corporate teams in a fair few mid-size firms.

Firms such as Charles Russell, Field Fisher Waterhouse (FFW), LG and Memery Crystal are all now competing in a massively reduced market. There may not be space for all.

The City corporate partner makes a comparison with the swarm of nominated advisers that arrived during the boom times.

“There were 100 registered nomads for 1,800 companies, and that’s never going to work. It was overadvised and the lawyers just piled in behind,” he argues. “The speed with which the market fell away isn’t going to match the speed it comes back at. Whether all the same firms are there again is the big question.”

Even if they are the market is unlikely to reach the lucrative heights of yesteryear.

“There’s more fee pressure,” admits Clark. “There are just more firms chasing the same work. There’s also a perception that it’s commoditised and that fees should reflect that.”

Unsurprisingly, those firms with most to lose are talking up a ­recovery. And in certain sectors – oil and gas and minerals in particular – there has been an uptick.

Both Kea Petroleum (The Lawyer, 8 March 2010) and Stellar Diamonds have successfully launched IPOs, with AIM stalwarts Fasken Martineau and FFW claiming mandates. FFW partner Dominic Gurney-­Champion is one of those in the ’cautiously optimistic’ camp.

“It’s very easy to come to the conclusion that AIM’s days are over, but there’s still activity in the market,” he insists. “It might be too strong to say it’s recovered, but there are good signs.”

A more sobering perspective comes from a corporate finance partner at a top 50 firm who has clients across the capital markets spectrum.
“I have a few AIM clients who are looking at delisting,” he reveals. “I don’t think AIM will completely die, but it’s still pretty sick.”

gavriel.hollander@thelawyer.com