Aiming to float

AIM is the international market for smaller and growing companies. Launched in 1995 by the London Stock Exchange (LSE), it is generally regarded as the second-most important bourse in London behind its sister market, the Main Market of the LSE. AIM gives growing businesses the opportunity to access global capital and widen their public exposure without the same level of expense or ongoing compliance requirements involved in listing on the Main Market.

AIM has been particularly successful in bringing businesses from all corners of the globe to the London market, including many from China and South East Asia.

The LSEs most recent figures show that AIM is now home to 1,691 companies, compared with 1,021 in 2004, an increase of more than 60 per cent. During the same period, an impressive 301 international companies joined AIM. While AIMs attractiveness for international companies can in part be attributed to the impact of the Sarbanes-Oxley Act in the US (see Jargon-buster), the impact of the AIM regulatory system should not be understated.

Lighter touch regulation

AIM is less heavily regulated than the Main Market, a key feature being the role played by the nominated adviser (Nomad) both during the application process itself and subsequently when the company has listed. Nomads are private organisations, typically corporate finance houses or boutique investment banks. A company is obliged to maintain a Nomad at all times while admitted to AIM because, unusually, the Nomad is both the companys corporate finance adviser and its regulator. The Nomad is duty-bound to the exchange to ensure that the company complies at all times with the rules for AIM companies.

The dual role of the Nomad is advantageous to the applicant company. It means that during the admission process as well as post-admission, the Financial Services Authority, which is the statutory regulator of Main Market companies, does not need to be consulted, since the Nomads familiarity with the listed companys business encourages practical and commercial guidance.

AIM also has many other characteristics which make it attractive to smaller companies. For example, AIM is open to new businesses whereas the Main Market requires a company to have three years of historical audited financial information. Indeed, companies holding cash assets only can be admitted to AIM, although in recent years the exchange has been active in reducing the number of such companies. Once admitted, ongoing compliance requirements, including the standards of corporate governance expected by investors, tend to be less stringent on AIM than on the Main Market.

Key advisers
As well as a Nomad, companies listing on AIM are required to maintain a broker, although in practice this role is often also undertaken by the Nomad. The broker will usually arrange the roadshow and placing if the company is seeking to raise fresh capital.

The companys main legal advisers will be its English lawyers, who will coordinate all of the legal work to be carried out on behalf of the company prior to admission, including managing local lawyers in other jurisdictions where appropriate. The companys lawyers also assist closely in the preparation of the admission document to be issued by the company at the time of its application to the exchange. The Nomad and broker will have their own legal advisers who fulfil an oversight and review role in addition to drafting many of the principal English law documents, such as the placing or introduction agreement. Other non-legal advisers to the company include reporting accountants, public relations consultants and share registrars.

The application process
Every admission is different, but a typical timeframe for bringing a company to AIM is three to four months from when the work commences. During the first three to four weeks the companys lawyers undertake in-depth legal due diligence on the company and its business while the reporting accountants carry out a full audit.

Following completion of the due diligence exercise, the Nomad will circulate a first draft of the admission document which will reflect many of the findings of the lawyers due diligence and the accountants investigations as well as the companys story, the admission document also being the main marketing tool. The following month is generally spent negotiating and finalising the admission document and the suite of supporting documentation as well as conducting a verification exercise (see Jargon-buster).

If the company is raising fresh capital through a placing, the next stage is for the directors to hold a pathfinder board meeting at which substantially final form drafts of all key documents, including the admission document itself, will be tabled for approval. Once the pathfinder admission document has been approved, the roadshow can begin which gives the broker an opportunity to gauge investor appetite for the companys shares. The roadshow can take up to four weeks to complete, often dependent on the number of investors to be visited and the jurisdictions in which they present. This involves a presentation to investors by the company's directors which, for legal reasons, is drawn from the verified contents of the admission document.

When the roadshow is complete, new investors are sent placing letters formally offering them shares in the company. Once returned to the broker, admission can proceed and the companys application is submitted to the exchange together with a finalised prospectus. There are then just three days to wait until the exchange announces the arrival of its newest AIM company.

Jargon Buster

Legal due diligence:The work conducted by the companys lawyers on the assets, operations and corporate structure of the company to ensure that there are no irregularities in the companys business before publishing its admission document.

Placing: In the context of an AIM admission, the issuing of new shares of a company conditional on the company being admitted to AIM by a specified time. The placing is often carried out by the companys broker but further sub-brokers or placing agents may be involved depending usually on the amount of cash the company wishes to raise.

Roadshow: Typically a series of meetings held by the company and its brokers with institutional investors to create interest in the companys securities in advance of a placing.

Pathfinder admission document: A draft of the admission document which is undated and contains blanks for the price of the shares and the number to be issued, both of which will be decided once the appetite for the companys shares has been determined after the roadshow.

The Sarbanes-Oxley Act: A US law passed in the wake of the Enron scandal with considerable corporate governance implications for companies, including overseas companies with securities registrations in the US.

Verification: The process by which the admission document is proved to be true and accurate, as required by the Financial Services and Markets Act 2001, which involves various partners giving evidence or confirmation that this is the case on a line-by-line basis.

Peter Bradley is a partner at Stephenson Harwood.