The AIM of the game
10 November 2003
AIM is back in vogue. The Northumbrian Water float this May propelled the junior list into the public spotlight, justifiably highlighting AIM's claims to be a mature market far removed from its old dodgy dotcom image.
But that is the glamorous side. The reality for most of the law firms in The Lawyer AIM survey 2002-03 is demonstrated by the following statistics: in the 18 months covered by the 2001 survey, there were 185 floats; for the 21-month period covered by this survey, there were just 133 floats - and this time we included reverse takeovers by AIM companies and moves across from the full list or OFEX. That is a pretty major deficit. Also, in our last survey, the top performer Memery Crystal got away a whopping 32 floats. This year the most prolific AIM firms, Memery Crystal and Hammonds, secured just 18 apiece.
Inevitably, the firms and brokers we surveyed have suffered from considerable pressure on fees. Adam Heart, a corporate financier at Peel Hunt, says: "Fees at the law firms have fallen. We've certainly seen a lot of people low-balling to keep busy."
This is no great surprise given that brokers have had to adjust their own fee structures to cope with a lighter deal flow. Whereas previously commission might have been charged at 3 per cent, the average is now 5 per cent.
Nicholson Graham & Jones partner Kevin McGuinness sums up the trend, saying candidly: "By April 2002, it was obvious the market was knackered, and rather than being choosy we thought we'd do what we could to keep our guys busy. Having said that, we definitely didn't take a desperate leap downmarket."
Several other firms in the survey admit off the record that their own fees have fallen, but a large majority of those interviewed say they have seen low-balling, suggesting that it is pretty prevalent in the market.
While brokers are increasingly tight on fees, quality is still the crucial factor for a risk-averse group of professionals. Heart says: "We're hearing of law firms asking £50K to do an AIM float [for a company]. You just can't put in the hours when you do that. When we come across a law firm we've been bitten by, we put a stronger firm on our side to police them. It's our client who picks up the bill."
At the top end of the market, average rates are now between £75,000 and £150,000 for a float for the company and between £40,000 and £50,000 when acting for the broker. At the cheaper end, from non-City law firms, the rates are closer to £60,000 for a vanilla IPO for the company and between £15,000 and £25,000 for a nominated adviser (nomad).
However, McGuinness seems convinced that the market has turned the corner. "We've had two years of desperate times, but for the right business there's money around now," he says. "Fees for lawyers are just starting to firm up. We're now north of 75 per cent of capacity, so there's no point doing deals at low rates."
McGuinness is not alone is his view that things are picking up. Berwin Leighton Paisner partner David Collins tentatively agrees, saying: "It's too early to discern a trend in terms of things bottoming out, but since May we've definitely seen more activity."
Hammonds partner Martin Thomas is more enthusiastic. "Things are really flying again now," he says. "Everyone perceives that a window's opened up and there's a rush to get to market."
One of the key trends lawyers talk about openly is the move from straight to contingency fees. Norton Rose partner Richard Sheen says: "There's more pressure on in this market than historically. If people want quality and a fully-staffed transaction, they accept that Norton Rose can't do it at a knockout rate. We're prepared to be flexible in how we structure fees - we're commercial and pragmatic."
Pinsents partner Gareth Edwards is even more open. "We'd do a part contingency fee structure for a float - a lot of firms would do that," he explains. "If you think about it, from the company's point of view, they're going out to raise money, and if they go all the way to the wire a lot them would be bust. Sensible people are not going to enter into that kind of commitment without some fallback."
Another change has been the degree to which the referral flow between law firms and brokers is monitored. McGuinness says: "[Monitoring] used to be much more informal. Five years ago, you didn't need to ask; now we monitor very closely what work we give out and what comes in."
McGuinness's claim is backed up by other lawyers interviewed and the system is one which smaller firms could use to their advantage. "Will the bigger law firms continue to refer work to the smaller corporate finance houses when things pick up? I think not," quips one non-City lawyer.
So, it is clear that pretty much everyone has been playing the fees game to some degree, but some firms have made a better fist of the tough times. Hammonds' performance, coming on top of its excellent showing in last year's survey, puts the firm ahead of its competition.
The firm has a practice that is well balanced between issuers and nomads and which can offer the advantage of non-City rates for work done outside London. It withstood the loss of one of its biggest stars, head of private equity and AIM partner Robert Hamill, who defected to Mayer Brown Rowe & Maw in February. Hammonds' loss has been Mayer Brown's gain and the US firm got a foothold in The Lawyer's survey for the first time this year.
Although Memery Crystal also performed well in terms of outright numbers, the firm is still very reliant on Seymour Pierce, a broker which has been less active in the market since its own takeover. The firm has recognised that partner Lesley Gregory's strong ties to Seymour Pierce are not enough and so it is trying to expand its horizons to other brokers and to corporates. However, in trying to expand its client base, the firm has obtained something of a reputation among its competitors for low-balling. Of the top City firms that dabble on AIM, Norton Rose is notable for its continued success. However, competitors might justifiably question whether the firm will be happy to do floats in the £10m-£15m range when the M&A market picks up.
All of the law firms surveyed are full of praise for the London Stock Exchange team's ambassadorial efforts in promoting AIM worldwide. Consequently, the last two years have seen an influx of foreign companies, particularly resources businesses, on to the list.
Memery Crystal partner Greg Scott identifies a slimline procedure introduced in May 2002 as a key incentive to foreign companies. The procedure provides an expedited route for law firms already credited on other approved markets to list to AIM. Many lawyers also identify the collapse of the NeurMarkt as giving AIM an added advantage.
Those that work in the market defend its money-raising potential, albeit with some caveats. Heart says: "The AIM market has proven extremely robust. It's very successful for raising up to £10m for companies valued at less than £200m. It's proved less successful for raising larger funds."
However, it is a large deal - the Northumbrian Water float, which is easily the biggest deal on AIM since 2002 - that has really put the list under the spotlight. The deal saw Linklaters' struggling client Northumbrian Water become a target for three rival bidders: a consortium of Collins Stewart, Eco- fin and Deutsche Bank; CVC Capital Partners; and Morgan Stanley Private Equity.
The option of a quick AIM listing allowed Deutsche to offer equity investment where the others could only offer highly leveraged financings - a big selling point with water regulator Ofwat. Simmons & Simmons partner Steve Bryan, who advised Deutsche on the deal, says: "[Ofwat] were supportive of our bid. They were happy to see we were offering to bring equity back into the water sector. AIM offered us a lot more flexibility during the auction."
Northumbrian Water has now been moved up to the full list and Collins Stewart, with a little help from Simmons, looks set to repeat the success using a very similar deal structure on its bid for Center Parcs.
"Lots of banks are really interested to know how it was done and how it can be replicated," says Bryan.
It seems that an AIM listing can be used to fox those crafty private equity boys who have been snapping up all the best bargains recently. Publicity like that can only be good news for AIM and the lawyers who rely on it.
|AIM - a firm overview|
=1 Memery Crystal
3 Berwin Leighton Paisner
4 Addleshaw Goddard
5 Norton Rose
=6 Halliwell Landau
=6 Lawrence Graham
8 Taylor Wessing
9 Wragge & Co
=10 Ashurst Morris Crisp
=10 Osborne Clarke
=12 Howard Kennedy
=12 Mayer Brown Rowe & Maw
=12 Nabarro Nathanson
=12 Nicholson Graham & Jones
18 Jones Day Gouldens
|Advisers to issuers|
|Law firm||Company||Market cap (£m)||Date|
|Addleshaw Goddard||Densitron Technologies||9.0||Jul 2003|
|Addleshaw Goddard||Parkdean Holidays||35.0||May 2002|
|Addleshaw Goddard||Property Fund Management||5.0||May 2002|
|Addleshaw Goddard||Cyprotex||26.2||Feb 2002|
|Ashurst Morris Crisp||Osmetech||5.4||Oct 2002|
|Ashurst Morris Crisp||NeuTec Pharma||35.4||Jan 2002|
|Berwin Leighton Paisner||Monsoon||Oct 2003|
|Berwin Leighton Paisner||Orad Hi-Tec Systems||10.6||Jun 2003|
|Berwin Leighton Paisner||Innobox||0.9||Jun 2003|
|Berwin Leighton Paisner||Bradstock||1.2||Mar 2003|
|Berwin Leighton Paisner||PNC Telecom||Dec 2002|
|Berwin Leighton Paisner||Tornado Virtue||11.3||Jun 2002|
|Berwin Leighton Paisner||Bid Times||0.5||Jun 2002|
|Berwin Leighton Paisner||Chorion||29.1||May 2002|
|Berwin Leighton Paisner||Urbium||May 2002|
|Charles Russell||Bema Gold Corporation||Sep 2003|
|DLA||Excel Aviation||150.0||Dec 2002|
|DLA||Excel Aviation||150.0||Nov 2002|
|Eversheds||2 Travel Group||3.6||Jan 2003|
|Eversheds||Debt Free Direct Group||9.0||Dec 2002|
|Eversheds||Intrum Justitia||140.0||Jul 2002|
|Fox Brooks Marshall||Highland Gold Mining||Dec 2002|
|Fox Brooks Marshall||St Barbara Mines||Jul 2002|
|Halliwell Landau||Cardpoint||8.0||Jun 2002|
|Halliwell Landau||1st Dental Laboratories||2.9||Apr 2002|
|Halliwell Landau||Leisure Ventures||1.1||Apr 2002|
|Halliwell Landau||Galileo Innovation||15.0||Jan 2002|
|Hammonds||Surface Transforms||8.3||Sep 2002|
|Hammonds||Dream Direct||7.6||May 2002|
|Hammonds||Park Row Group (readmission)||26.3||May 2002|
|Hammonds||PM Group||12.5||May 2002|
|Hammonds||Reefton Mining||May 2002|
|Hammonds||Leicester City FC||Feb 2002|
|Hammonds||World Sports Solutions||11.5||Jan 2002|
|Howard Kennedy||Prezzo||9.0||Mar 2002|
|Howard Kennedy||Wigmore Group||1.1||Jul 2003|
|Howard Kennedy||Wigmore Group||4.0||Jan 2002|
|Jones Day Gouldens||Smart Approach||2.5||Oct 2002|
|Jones Day Gouldens||Smart Approach||9.9||Feb 2002|
|Lawrence Graham||Vietnam Opportunity Fund||Sep 2003|
|Lawrence Graham||Archipelago Resources||8.2||Aug 2003|
|Lawrence Graham||Milestone Group||21.6||Jul 2003|
|Lawrence Graham||HPD Exploration||2.1||Feb 2003|
|Mayer Brown Rowe & Maw||GW Pharmaceuticals||19.0||Jul 2003|
|Mayer Brown Rowe & Maw||Trading Sports||12.0||May 2003|
|Mayer Brown Rowe & Maw||Vantis||May 2002|
|Memery Crystal||Futura Medical||1.7||Sep 2003|
|Memery Crystal||Centurion Energy||80.0||Jun 2003|
|Memery Crystal||Cobra Biomanufacturing||7.0||Jun 2002|
|Nabarro Nathanson||Medal Entertainment & Media||Aug 2002|
|Nabarro Nathanson||SectorGuard||3.0||Mar 2002|
|Nicholson Graham & Jones||Galahad Capital||18.8||Oct 2003|
|Nicholson Graham & Jones||Sky Capital||31.0||Jul 2002|
|Nicholson Graham & Jones||Sports Network||10.0||Mar 2002|
|Norton Rose||Peter Hambro Mining||Apr 2002|
|Norton Rose||DDD Group||Jan 2002|
|Osborne Clarke||Regal Petroleum||34.0||Sep 2002|
|Osborne Clarke||Kuju||8.0||May 2002|
|Osborne Clarke||Compact Power Holdings||20.0||Apr 2002|
|Pinsents||West Bromwich Albion||3.9||May 2003|
|Pinsents||Acquisitor Holdings||4.2||Oct 2002|
|Simmons & Simmons||Northumbrian Water||May 2003|
|Taylor Wessing||Chicago Climate Exchange||15.0||2002|
|Wragge & Co||Advanced Medical Solutions||4.0||May 2002|
|Wragge & Co||Advanced Medical Solutions||4.0||May 2002|
|Wragge & Co||Campus Media||5.3||Feb 2002|
|Source: The Lawyer AIM Survey 2003|
|Advisers to nomads|
|Law firm||Nomad||Company||Market cap (£m)||Date|
|Addleshaw Goddard||KBC Peel Hunt||Sunbeach Communications||8.0||Aug 2002|
|Addleshaw Goddard||Williams de Broe||PM Group||12.5||May 2002|
|Addleshaw Goddard||KBC Peel Hunt||Marshall Edwards||140.0||May 2002|
|Addleshaw Goddard||Insinger English Trust||Xecutive Research Group||5.0||May 2002|
|Addleshaw Goddard||Williams de Broe||PM Group||13.0||May 2002|
|Ashurst Morris Crisp||Investec||Hartford Group||1.4||Aug 2002|
|Ashurst Morris Crisp||Brown Shipley & Co||Oxus Mining||5.0||May 2002|
|Ashurst Morris Crisp||Old Mutual Securities||DDD Group||Jan 2002|
|Berwin Leighton Paisner||Canaccord Capital||CryptoLogic||Oct 2003|
|Berwin Leighton Paisner||Canaccord Capital||CES Software||Oct 2003|
|Berwin Leighton Paisner||Canaccord Capital||Thistle Mining||71.2||Aug 2002|
|Charles Russell||Williams de Broe||Campus Media||5.3||Feb 2002|
|Eversheds||Peel Hunt||Dream Direct||7.6||May 2002|
|Halliwell Landau||Brewin Dolphin Securities||Surface Transforms||8.3||Sep 2002|
|Halliwell Landau||Brewin Dolphin Securities||Ceramic Breaks||7.5||Sep 2002|
|Halliwell Landau||Sports & Leisure Group||Sports Network||10.0||Mar 2002|
|Halliwell Landau||Altium Capital||Cyprotex||26.2||Feb 2002|
|Hammonds||Evolution Beeson Gregory||Ocean Power Technologies||70.0||Sep 2003|
|Hammonds||Collins Stewart||GW Pharmaceuticals||19.0||Jul 2003|
|Hammonds||KBC Peel Hunt||Acquisitor plc||Jul 2003|
|Hammonds||Evolution Beeson Gregory||Trading Sports||12.0||May 2003|
|Hammonds||Nabarro Wells & Co||Lloyds British Testing||10.0||Jul 2002|
|Hammonds||Beeson Gregory||Cardpoint||8.0||Jun 2002|
|Hammonds||Seymour Pierce||Akers Biosciences||51.0||May 2002|
|Hammonds||Seymour Pierce||SectorGuard||3.0||Mar 2002|
|Howard Kennedy||Beaumont Cornish||Incite Holdings||7.3||Sep 2003|
|Lawrence Graham||Teather & Greenwood||Volvere||3.6||Dec 2002|
|Lawrence Graham||Collins Stewart||EPIC Brand Investments||50.0||Dec 2002|
|Lawrence Graham||Nabarro Wells||Southern Era Resources||108.3||Aug 2002|
|Lawrence Graham||Matrix Securities||London & Boston Investments||3.8||Apr 2002|
|Mayer Brown Rowe & Maw||Collins Stewart||CustomVis||31.0||Jul 2003|
|Memery Crystal||City Financial||Designer Vision Group||7.4||Aug 2003|
|Memery Crystal||Seymour Pierce||Wigmore Group||1.1||Jul 2003|
|Memery Crystal||Seymour Pierce||Symphony Plastic Technologies||2.0||Apr 2003|
|Memery Crystal||Collins Stewart||GX Networks||5.0||Mar 2003|
|Memery Crystal||Seymour Pierce||HPD Exploration||2.1||Feb 2003|
|Memery Crystal||City Financial||2 Travel Group||3.6||Jan 2003|
|Memery Crystal||Daniel Stewart & Co||Centurion Electronics||2.3||Dec 2002|
|Memery Crystal||Seymour Pierce||Central African Mining & Exploration||Oct 2002|
|Memery Crystal||Seymour Pierce||Owl Technologies||1.8||Jul 2002|
|Memery Crystal||Seymour Pierce||Perthshire Leisure||Jul 2002|
|Memery Crystal||Noble & Co||Avionic Services||2.0||Jun 2002|
|Memery Crystal||Seymour Pierce||BioProjects International||4.5||May 2002|
|Memery Crystal||Seymour Pierce||Prezzo||9.0||Mar 2002|
|Memery Crystal||Seymour Pierce||Wigmore Group||4.0||Jan 2002|
|Memery Crystal||Arbuthnot||West Bromwich Albion||3.9||May 2003|
|Nabarro Nathanson||Collins Stewart||Chicago Environmental||15.0||Jul 2003|
|Nabarro Nathanson||Collins Stewart||PRI Group||Jun 2002|
|Nicholson Graham & Jones||WH Ireland||Bionex Investments||1.9||Jan 2003|
|Norton Rose||Collins Stewart||Milestone Group||21.6||Jul 2003|
|Norton Rose||Collins Stewart||BioProgress||May 2003|
|Norton Rose||Williams de Broe||Celtic Resources||Oct 2002|
|Norton Rose||Charles Stanley||Glisten||6.8||Jun 2002|
|Norton Rose||Charles Stanley||Parkdean Holidays||35.0||May 2002|
|Norton Rose||Hoare Govett||NeuTec Pharma||35.4||Jan 2002|
|Norton Rose||Evolution Beeson Gregory||St Barbara Mines||Jul 2002|
|Osborne Clarke||Evolution Beeson Gregory||Vianet||Jul 2002|
|Pinsents||Evolution Beeson Gregory||Osmetech||5.4||Oct 2002|
|Source: The Lawyer AIM Survey 2003|