Weigh costs and benefits before listing

Jun 10 2009 by Gillian Hall, The Journal

IT is nearly 15 years since the launch of the Alternative Investment Market (AIM), which was created to provide a market for shares in smaller entrepreneurial companies.

The recession is, however, battering AIM with delistings up a record 33% in the year to last March.

As AIM declines, an alternative trading platform for SMEs, the Plus market, appears to be surging forward. Regulation is lighter on Plus than it is on AIM, and it benefits from a relatively simple admission process and low listing costs.

Plus companies tend to raise £1m to 2m, so it has often been viewed as a stepping stone to AIM, which has 1,700 companies, some with market capitalisations of well over £100m. In today’s economic climate, Plus is becoming increasingly popular.

The decision to list on Plus or AIM is not one to be taken without advice and due consideration of advantages and pitfalls. The cost of admission fees to Plus is between £70,000 and £100,000, while on AIM it can be three or four times that, excluding the cost of fundraising.

AIM’s annual compliance costs total about £100,000 to £200,000 compared with Plus’s £50,000. For a small company, the annual costs of both trading markets are considerable, including the fees of advisers and a non-executive director’s salary.

A comprehensive cost benefit analysis is required before any decision to list is taken. Accountability and control are other issues to consider. The past 10 years have seen intense activity on AIM. The recession has slowed momentum, but some investment advisers are predicting a return to more flotations next year. Richard Metcalfe of Mazars believes there could be about 200 floats in 2010, but activity is not expected to return to the “exceptional” levels of 2004-2007 for some time.

Rivals AIM and Plus face each other at the High Court this month in a major antitrust case. Plus is challenging the London Stock Exchange over a rule it believes prevents AIM securities being traded on any other market. If Plus succeeds, it will help it launch Plus-Europe, which would trade AIM securities.

Small and mid-sized companies looking for capital could consider both ambitious Plus and established AIM as options for growth.

Gillian Hall is head of corporate law at Watson Burton LLP