Fighting fit

Coming at a period when the Official List fell on its face, these latest results are good news. Good news for the London Stock Exchange (LSE), great news for the fledgling issuers trying to raise money and excellent news for the advisers, especially the brokers, the nominated advisers (nomads) and the lawyers.

Despite the apparent buoyancy throughout 2000 and 2001, there are some real differences between this current period and the boom of 1999. Since the last survey by The Lawyer, the types of companies arriving to float on AIM have altered significantly. During 1999 and the first part of 2000, it was the period of the technology, media and telecoms (TMT) sector. Stocks on the Official List were riding high, as was investor faith in the TMT market. AIM followed suit, and the TMT sector took the markets by storm. AIM was a natural marriage partner for small, entrepreneurial companies that wanted to raise money quickly, without the heavy regulations demanded by the Official List. And this has not changed. But then the technology sector went under.

“There are more life sciences companies than ever before,” says Gouldens corporate finance partner Hilary Winter. “There’s been a move away from the high-tech companies and now there are decent management teams in place, something which wasn’t high on the agenda the year before.”

Gouldens acted on a total of 12 flotations in The Lawyer‘s 2001 survey, turning itself around from the last survey when it acted on only 10 AIM floats, mostly for the nomads. Out of 185 floats on AIM between July 2000 and December 2001, there were only in the region of 25 software and internet-related companies that made it to market. As with the Official List, AIM has taken comfort in the old economy sector – retail, engineering and mining.

AIM did take a while to establish itself, and there were many companies that were not suitable to come to market that ultimately did, especially in 1999. “There were some crazy companies,” says Eversheds corporate finance partner Neil Matthews. “Companies with extremely high valuations, but there aren’t many of those still around.” AIM is now a very interesting prospect for many small companies. Lesley Gregory, corporate finance partner at Memery Crystal, says: “There are attractive tax breaks still available on AIM and a lot of VCTs [venture capital trusts] are sitting on money that needs to be invested.”

As with the Official List and investment trusts, AIM has companies that sit on its market that are not really perceived as true floats by most, yet which are still valuable in their own right. DLA partner Andrew Sherratt says: “AIM is increasingly becoming a market where non-traditional companies are coming in.” Shell companies are becoming increasingly prominent on AIM. “AIM used to be a quick and dirty way of getting flotations,” says Sherratt. “And some shell companies have a lot of contingent liabilities – it’s rare that they have £10m-£12m sitting in them waiting to be used, although that does exist.” The objective is to set up a shell in order to attract the attention of real investors. “It’s what AIM’s all about,” says Simon Griffiths, corporate finance partner at Theodore Goddard. “It’s there to help people raise money.”

Foreign companies also make an appearance on the AIM list – from Ireland, the Netherlands and even Australia. The LSE is very keen to attract foreign companies to the market.
Over the last 18 months it has begun to view itself for what it is – a commercial institution.

It is, for example, susceptible to potential takeovers (the Swedish company OM Gruppen in October 2000, as well as the current talks with the German stock market operator Deutsche Borse). Any merger or takeover would place the future of AIM and small-cap companies into disarray. DLA has done a series of roadshows with the LSE in order to promote it as a viable option to other domestic markets. In the last month, Sherratt, together with representatives from Deloitte & Touche and the LSE, has been out on the road to Sweden and Amsterdam to sell the market and raise its profile.

So which firms made it into the AIM survey? The market is not the domain of the magic circle, or even the top 10. It is often home to firms that mirror the companies that float.
There is still the problem that the bigger a company becomes, the more it will consider changing its legal advisers, especially if the brokers and nominated advisers have anything to do with the decision. Jonathan Wright, director of corporate finance at Seymour Pierce (and an ex-Memery Crystal lawyer), highlights the problem of when a law firm he doesn’t know turns up on the other side. “We often instruct City firms. There’s no guarantee that you’re going to get the equivalent sort of firm acting on the other side,” he says. “If we don’t feel comfortable, we’d expect the lawyers acting for us to be more hands-on, rather than just doing the placing and underwriting agreement and coming to a couple of drafting meetings.”
Which is something that would ultimately bump up the fees.

Memery Crystal topped the AIM chart once again with a series of floats, acting mainly for nomads and gaining itself a market share of 14.7% overall. The firm’s steady relationship with Seymour Pierce shone through, although the relationship is not as exclusive as was once believed.
Admittedly, it did act on 20 AIM floats for the broker, but it also managed to get two AIM instructions from Collins Stewart. These included the placing of engineering fabricators Oystertec, which raised £7m in February 2001.
It then went on to raise £30.6m in November of the same year for its acquisition of IBP from Delta, and hopefully it will continue. “One of our aims is to widen our referrer base,” says Gregory.

Greg Scott, another corporate finance partner at Memery Crystal, says that it is genuinely not the case that the firm acts exclusively for Seymour Pierce. He cites Old Mutual Securities, Dawney Day Corporate Finance and Peel Hunt as other referrers of current work.

The firm maintains its position by capturing the market in smaller-sized floats, usually between £1m and £4m. It also made the break into acting for seven issuers, the largest ones being for Propan Homes on its £3m float in March 2001, and i-documentsystems group on its £3.4m float in December 2000. Most floats on AIM continue to be of this size, although there are a few larger ones that creep in.

Two national contenders also made the grade. DLA and Hammond Suddards Edge racked up 12 and 19 deals respectively. The firms, though, took different approaches, with Hammonds acting predominantly for nomads on 13 deals and DLA for the issuer on 8. For both firms, the result is particularly impressive, as neither made it into The Lawyer‘s previous survey. Hammonds partners Robert Hamill and Martin Thomas do most of the AIM work out of the London office. The firm got in on acting on some of the larger AIM deals, for example on the £14.9m float in August 2000 of IQ-Ludorum (with CMS Cameron Mckenna acting for Peel Hunt) and on the £25m float of GW Pharmaceuticals in June 2001, where the firm won the work as a referral from Collins Stewart.

Berwin Leighton Paisner (BLP) also had a stellar 18 months compared with 1999. The firm celebrates its first-year anniversary of the merger between Paisner & Co and Berwin Leighton on 1 May. The news will silence those critics who believed that the merger was essentially a property-based deal. The old Paisner & Co was always seen on AIM IPOs, but the statistics show that, for the merged corporate finance team, the marriage has paid off. David Collins and his team of around 10 AIM lawyers achieved their objective of raising the profile of the corporate finance team, acting on 18 AIM IPOs for the issuer. BLP also acted on some vast deals for AIM, including the £30m flotation of Numerica Group in October 2001.

The losers in the 2001 survey were Taylor Joynson Garrett and Lawrence Graham. In the 2000 survey, Taylor Joynson pulled off 12 IPOs for issuers, whereas this year it managed only six (five for the issuers and one for a nomad). The firm’s decline must have something to do with the state of the TMT market, as it had carved a niche for itself in this area in 1999. Similarly, Lawrence Graham in 1999 acted on a total of 10 AIM IPOs but in 2001 slipped to just five.

AIM attracts some gem businesses (the old cliché that everyone is looking for the next Microsoft still rings true); there are also some hugely innovative companies on AIM. Tissue Science Laboratories, which floated in December 2001 with the help of Gouldens (with Norton Rose advising West LB) uses pigs collagen to heal human trauma wounds.
Patientline, which floated in March 2001, was a surprise to many as it came at a time when there was huge investor distrust of TMT stock in the market. It still managed to raise a mammoth £44.4m and is the market leader in bedside terminals in hospitals that provide entertainment, communication and information services for acute hospital patients in the UK and the Netherlands. Bird & Bird acted for the company and Camerons for the brokers (ING Barings) and the nomads (Hawkpoint).

The lure of AIM floats is that ultimately they can lead to follow-on work for lawyers acting for the issuers. The process is stressful for fledgling companies, some of which resent having their innermost company secrets pored over by advisers on all sides, but strong bonds can be forged after a float.

Taylor Joynson, although having a dud time compared with 1999 (completing just six floats compared with 12 in 1999) acted for Synergy Healthcare Group on its £9.5m IPO in August 2001. The company at the time of the float was worth £28m and is now worth £42m. In March 2002, Synergy agreed to acquire the clinical services division of Hays Commercial Services, with Taylor Joynson continuing to act for its client.

Similarly, Lawrence Graham, which again had a bad year with only five floats compared with 10 the previous year, still managed to get in on some of the bigger AIM deals. It acted for consumer finance company Millfield Group on its £18.54m placing (with a market capitalisation of £55.6m) and then went on to act for the company on its £10m acquisition of Heritage Group in September 2001. The firm has also recently acted on Millfield’s £2.2m purchase of Moncur Jackson & Associates.

“We tend to act for most of our AIM companies on a day-to-day basis,” says Lawrence Graham corporate finance partner Hugh Maule. Both Lawrence Graham and Taylor Joynson cite the fact that their radars are at the top end of AIM, and that there have been less of these IPOs around in the last two years.

Ashurst Morris Crisp’s, BLP’s and Norton Rose’s appearances on the AIM list is considered an anomaly by many other firms. “It’s surprising to see firms like Ashurst Morris Crisp,” said one partner from a smaller firm. “If they can get the fees that make it worthwhile them doing it, then fine.”

Steven Fox, corporate finance partner at Ashursts, says that his firm traditionally does big deals but is not one to turn its nose up at the smaller deals either. The firm acted on seven deals for financial advisers and only one for the issuer. “The banks know us and know that we’re not rapacious about our fees,” says Fox. All three firms – Ashursts, BLP and Norton Rose – tended to act on the higher end AIM floats.

Fees on AIM floats are certainly not as lucrative as the Official List. But firms will still make a decent wage and if small companies go on the acquisition trail the rewards can be great.

Most firms gave varied responses to the fees they would charge, but the average is between £50,000 and £100,000 if acting for the issuer and between £20,000 and £30,000 if acting for the nominated adviser. Fees, though, can vary, and if the deal is particularly complex, some firms will make up to £150,000 if acting for a floating company.
Usually the nomads’ lawyers fees are capped with the company, but according to Wright at Seymour Pierce, this may change if his lawyers are doing all the work.

There were not that many deals that failed to come off on AIM in the 18-month period. Most firms are speaking of a very active first quarter for 2002. Now that more traditional floats are coming forward and investors feel more confident, the risk that AIM will once again be dubbed the ‘sick man of Europe’ is fading fast.

AIM floats – potential maximum fees earned by firms
Firm Issuer (£) Adviser (£) Total (£)
Addleshaw Booth & Co 300K 30K 330K
Ashurst Morris Crisp 150K 210K 360K
Berwin Leighton Paisner 2.7m 60K 2.76m
CMS Cameron McKenna 300K 240K 540K
DLA 1.2m 120K 1.32m
Eversheds 750K 270K 1.02m
Gouldens 600K 240K 840K
Halliwell Landau 900K 90K 990K
Hammond Suddards Edge 900K 390K 1.29m
Howard Kennedy 600K 30K 630K
Lawrence Graham 600K 30K 630K
Memery Crystal 1.05m 810K 1.86m
Nabarro Nathanson 900K 210K 1.11m
Nicholson Graham & Jones 750K 0 750K
Norton Rose 1.05m 210K 1.26m
Osborne Clarke 150K 120K 270K
Pinsent Curtis Biddle 1.05m 120K 1.17m
Taylor Joynson Garrett 750K 30K 7.8m
Theodore Goddard 600K 270K 870K
Wragge & Co 600K 60K 660K
Source: The Lawyer AIM Survey 2001

Market share by volume-AIM
Firm Adviser to issuer (%) Adviser to banks (%) Total (%)
Addleshaw Booth & Co 1.8 0.9 1.3
Ashurst Morris Crisp 0.9 6.0 3.5
Berwin Leighton Paisner 15.9 1.7 9.1
CMS Cameron McKenna 1.8 6.8 4.3
Dla 12.4 3.4 7.8
Eversheds 4.4 7.7 6.1
Gouldens 3.5 6.8 5.2
Halliwell Landau 6.2 2.6 3.9
Hammond Suddards Edge 5.3 11.1 8.2
Howard Kennedy 3.5 0.9 2.2
Lawrence Graham 3.5 0.9 2.2
Memery Crystal 6.2 23.1 14.7
Nabarro Nathanson 5.3 6.0 5.6
Nicholson Graham & Jones 4.4 0 2.2
Norton Rose 6.2 6.0 6.1
Osborne Clarke 0.9 3.4 2.2
Pinsent Curtis Biddle 6.2 3.4 4.8
Taylor Joynson Garrett 4.4 0.9 2.6
Theodore Goddard 3.5 7.7 5.6
Wragge & Co 3.5 1.7 2.6
Source: The Lawyer AIM Survey 2001