COMMENTARY | COLUMNISTS | GORDON KAPLAN

Funding growth on London's international market for small-cap companies

If your rising company needs money to grow, and sufficient venture capital or private equity isn't available -- at least on terms you are willing to pay -- an initial public offering on London's international market for small-cap companies, the Alternative Investment Market, or AIM, could be the right strategic move.

AIM provides growing companies a flourishing marketplace and access to London's deep pool of international investment capital, the largest in Europe and second only to New York. Owned and regulated by the London Stock Exchange, AIM gives companies entry to a public market at an early stage in their development with straightforward and relatively easy admission criteria. According to a recent report cited in The New York Times, AIM has become a market of choice for small companies seeking development or expansion finance.

Emergence of AIM

In recent years AIM has expanded rapidly. From 10 companies listed when AIM was founded in 1995, the market has grown to more than 1,200 companies listed today. In 2004, 335 new companies were listed on AIM, more than double the number in 2003. The market value of AIM companies is now more than $71 billion. And AIM has evolved from being a market mainly for private investors with a tolerance for high risk to one that today draws half its investment base from institutions.

AIM seeks to attract in particular companies whose businesses are intrinsically international, no matter where they may be incorporated or headquartered. This includes companies in the technology, gaming, natural resources and life sciences sectors. San Diego's pharmaceutical and biotechnology companies should take note: As of June 2005, AIM listed 43 companies in these sectors with a combined market value of more than $3 billion.

Admission requirements

Unlike most other markets, AIM does not require an applicant company to demonstrate a trading history, have a minimum number of publicly held shares or a minimum market capitalization. (The Nasdaq Small-Cap Market, for example, has minimum criteria for each of these areas.)

Instead, all AIM applicants must be sponsored by (and retain at all times) a nominated adviser, or "nomad," selected from a list of corporate finance and accounting firms approved by the London Stock Exchange, a list that includes many of the world's largest investment banks such as Goldman Sachs (NYSE: GS), Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER). The nomad carries out extensive due diligence to assess whether the company is "appropriate" for AIM -- in effect vouching that the company's reports are factual and its business prospects viable. The nomad also assists the company through the application process, and is responsible for advising and guiding the company's directors on compliance with AIM rules and disclosure obligations on an ongoing basis.

The other admission requirements are similarly straightforward. Each company must:

  • Prepare an admission document containing information to enable investors to understand the company and its activities, including detailed financial information and projections. Details are also required of all directors, major shareholders and senior managers. The company's directors are responsible for ensuring that the admission document is accurate and free from material omissions.

  • Appoint a securities firm that is a member of the London Stock Exchange as the company's stockbroker for the initial offering on AIM and subsequent trading in the after-market. The broker assesses market conditions and the level of interest in the company's shares, advises on pricing, prepares and accompanies the company on road shows to promote the shares, and places the shares with investors.

  • Have no restrictions on the free transferability of its shares (subject to certain limited exceptions). In practice, an offering of shares upon admission to AIM is normally structured as a "placing," addressed only to institutional investors, thus benefiting from one of several exemptions to more burdensome requirements that would apply to broader "public offerings." AIM applicants therefore need to consider carefully with their professional advisers the rules that will apply in the precise circumstances of their proposed offering on AIM. Bottom line
    At the end of June, there were 18 U.S. companies on AIM, up from eight two years ago. Spread across a range of sectors and including pharmaceutical, biotechnology, natural resources and a variety of technology and services companies, their combined market value on AIM was nearly $1.4 billion. If your company is seeking ways of raising additional development or expansion capital, it is worth taking a good look at AIM.
    Kaplan practices corporate, financial and international business law in San Diego and is counsel to Goode, Hemme, Peterson & Sayler. He formerly practiced in London. Send comments to editor@sddt.com. All comments are forwarded to the author and may be used as Letters to the Editor.

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