Take AIM

Since its inception in 1995, the Alternative Investment Market (AIM) has changed beyond all recognition and is now one of the busiest and fastest-growing global markets with over 1,500 companies listed. It attracted over 121 new entrants in the first quarter of this year alone – that's more than one new company every day.

NON-UK INVESTORS

Many of these are traditional UK home-grown companies looking to take that extra leap and open their shareholding structure to professional investors and the public, but as AIM has grown in size and stature it is increasingly attracting companies, advisers and even investors from outside the UK.

We are aware of significant numbers of companies preparing to launch themselves onto AIM from countries including Australia, the USA, Canada, Poland, Hungary, the Czech Republic, France, Germany, Italy and Spain.

What's wrong with their own stockmarkets? Put simply, there isn't an exchange for companies of their size, type or stage of development, despite some half-hearted attempts in Germany and France to copy AIM, resulting in exchanges with less than 5% of the companies that AIM has. These foreign companies have no credible alternative but to list on AIM and so far this year, 41 overseas companies have joined.

BUSINESS-FRIENDLY REGULATION

One key attraction is AIM's simplified regulatory environment, which has been specifically designed for the needs of smaller growing companies.

Regulation is, of course, vital – to ensure all companies operate on a level playing field, to avoid Enron-style disasters and to give confidence to investors that companies are being operated to appropriate 'public company' standards.

US companies are particularly interested in AIM as the very high costs imposed by Sabarnes-Oxley compliance start to take effect. The costs of joining AIM are a basic £4,340 compared to £14,300 to list on Nasdaq, with a further £10,000 of annual fees on top.

The cost of an AIM IPO for a company capitalised at $50m can be around 50% of the cost of listing on Nasdaq – in other words, very attractive when combined with a significantly reduced ongoing compliance burden.

It is also easy for UK investors to forget the lures of AIM's established market-making system to foreign players. Market-makers provide a guaranteed bid and offer price that increases trading efficiency and pricing power – a facility that just isn't available in many native stock exchanges, which are generally order-driven. This guaranteed price in turn ensures liquidity, which is vital for smaller companies.

MASSIVE EUROPEAN POTENTIAL

A study carried out by Oxford Analytica last year claims that in some European countries up to 5% of medium-sized companies are potential candidates for an AIM listing. This implies that there could be up to 2,600 entrepreneurial companies joining AIM over the next few years, trebling the size of the market. The study claims this would boost the EU's GDP by up to €50bn (£34bn) a year.

However, while AIM is welcoming new companies from abroad, some London-based investors are not quite so open-armed. Many major investors are still wary of investing outside the UK as the risk profile and differences can be pronounced.

To combat this concern and ensure AIM continues to grow and attract investment outside London, AIM has begun setting up a European network of nominated advisers – known as nomads – charged with guiding companies to market and supporting them afterwards.

Of the 80 or so AIM nomads, only nine are non-UK based, and six of these are Irish. There are just two European nomads: KBC Bank in Belgium, parent company of nomad and stockbroker KBC Peel Hunt, and Thenberg & Kinde Fondkommission in Sweden.

TAKEOVERS INEVITABLE

IPOs have only slowed recently. Now we are expecting to see more small and mid-cap M&A. Pressure from fund managers looking to consolidate their holdings will come to the fore and the drive to corporate takeover activity on the AIM market looks inevitable.

'Sell in May and come back in St Leger's Day' has long been a City saying – the implication being that according to historical performance the markets fell in May and recovered in September.

Those were the good old days when all results announcements fell neatly into a fortnightly period twice a year, but we can no longer be that prescriptive. Corporate finance teams are busy all year round and, even though the IPO markets have slowed down, if you sell in May and go away for another four months, you could be missing something big.

MORE CAPITAL NEEDED

Institutions have a limited supply of cash to invest in overseas companies and fund managers simply don't have enough hours in the day to meet all the new investment opportunities out there, as well as monitor their existing portfolios. Neither can corporate advisers take on every interesting client they see.

In the City, many nomads are having to turn away interesting new business simply because their hands are too full. For the European finance director looking to take a business public, the case for listing on AIM is strong. As long as the investment story is healthy, there is still appetite for new companies on AIM.