Print this article
 View as PDF
Send us your comments

U.S. companies looking for alternative methods of funding may need only to look across the pond to the AIM. Formerly known as the Alternative Investment Market, the AIM is the second market in the United Kingdom with over 1,700 companies. And, despite its location, AIM has emerged as an increasingly credible alternative for growing U.S. companies seeking public equity with over 80 U.S. companies now listed on AIM, 40 of those occurring in 2006 and 2007.

There are many advantages and benefits of listing on AIM as opposed to other markets, including:

• Institutional investors willing to invest below the NASDAQ radar;
• Self-regulated environment that is oriented to the needs of younger/junior companies;
• Lower IPO costs than on U.S. markets due to lower underwriting and professional fees;
• No Sarbanes Oxley type requirements;
• No prescribed size;
• No minimum track record of financial history;
• No minimum free float; and
• Does not usually require shareholder approval of transactions.

AIM is therefore particularly appropriate for companies that seek to grow not only organically but also by acquisition.

AIM Listing Process
Commencing the process of an AIM flotation is a major step for any business. To ensure that the transaction proceeds smoothly and efficiently, there are some key steps to flotation that any prospective AIM company should consider carefully:

1. Preparation and Suitability
There are a number of key drivers behind a successful AIM company: a strong management team; good growth prospects; blue chip customers; unique products and services and good governance and internal controls.

Not only should a company aspiring to an AIM listing be suitable but it is also important to be prepared. Early consideration should be given to matters including financial systems, accounting policies and reporting GAAP, corporate and board structure and the most appropriate time for the company to float to maximise the fund raising potential.

AIM advisers will critically assess the company's strategic or business plan, which should cover all of the above areas, prior to considering an IPO . The management team must have a clear vision of the company's direction and business aspirations.

2. Appointment of Advisers
The next step is to appoint professional advisers to assist with all aspects of flotation. AIM is market-owned, operated and regulated by the London Stock Exchange and much of the regulatory process is delegated to the Nominated Advisor (nomad). The nomad's role is to determine the suitability of a company for the market, project manage the flotation process and help ensure that the AIM rules are followed. Firms may also act as the company's broker. It is a requirement of AIM that the company retains a nomad at all times. A nomad must be authorized by the London Stock Exchange and a list is available at www.londonstockexchange.com/aim.

The broker is responsible for raising funds from institutional and other investors for the IPO, and managing the aftermarket. The broker will frequently be from the same firm as the nomad.

In addition, a company will need to appoint a reporting accountant and a lawyer to help with the process. Experienced AIM lawyers and accountants are well placed to affect introductions to suitable nomads and brokers.

3. Timetable
While the nomad is responsible for drafting a timetable and allocating responsibilities to the respective parties, it is important that all parties have an input into the process and that the timetable is achievable. The company should not underestimate the amount of senior management involvement that is required during the process, which can be for a minimum of three to four months.

It is often necessary to effect a re-organization of group companies, or to form a new holding company for the IPO . This will usually require tax clearances, as will application for EIS/VCT status. It is important that sufficient time to obtain such clearances from the Inland Revenue is built in to the timetable.

4. The Due Diligence Process
The reporting accountant will prepare a detailed financial due diligence report, known as the "long form report," which is usually based in part on the company's business plan. The report details the company's history, structure, operations, organisation and its historical and future trading results. Key features from the long form report will form the basis of the information to be included in the front end of the admission document.

Legal due diligence covers such areas as the company's memorandum and articles, employment contracts, title to assets, key customer and supplier contracts and other legal areas specific to the business. There may be a requirement for specialist due diligence in relation to the company's technology, asset valuations as well as environmental issues and other matters.

5. Admission Document
The admission document must contain factual information about the company, its management and the fundraising. It will also include historic audited financial information on the company for the last three years, together with the accountant's report. This is a critical part of the process as it is a criminal offense to make false statements in a prospectus.

6. Marketing and Completion
The pathfinder admission document is then produced. This will be a complete document, with the exception of final dates and the share price. The broker uses the pathfinder during the marketing phase for an AIM placing, when the company's directors will spend two or three weeks meeting with potential institutional investors.

Finally, once the money has been raised, a completion meeting will be held with all parties. All reports, documents and supporting comfort and consent letters are signed at this meeting and remuneration corporate governance committees. The directors approve the final admission document and printing is authorized. The nomad then completes the formal admission procedures and admission to AIM occurs three days later.

Of course, with regard to being a successful AIM quoted company, getting there is just the beginning and a stage upon which successful companies are built. Good advisers help businesses with the long term goals as well as the steps in getting there such as flotation. It brings to mind the quote by the American entrepreneur JC Penny who said: "Give me a stock clerk with a goal and I'll give you a man who will make history. Give me a man with no goals and I'll give you a stock clerk."

Chilton Taylor is the head of Capital Markets at Baker Tilly International. Baker Tilly is a recognized market leader in AIM – having acted for over 250 companies which have sought an AIM flotation, and with over 160 AIM clients and has been voted Growth Company AIM Accountant of the Year for 4 years since 2003. He can be reached at + 44 20 7413 5223.