Quest for quality must underpin recovery on Aim
26th March 2010, David Blackwell, Financial Times (Companies and Market),
An unlikely combination of rock ‘n’ roll, Jane Austen and the Titanic graced the London Capital Club this week.
The event was tagged by Beautiful Books, the small publisher featured in this column a year ago as it sought to raise £600,000 because its bank overdraft facility had been withdrawn.
The diversity of its output was on show as three authors spoke about their work – 101 Things You Thought You Knew About the Titanic But Didn’t, a self-explanatory tome; Murder at Mansfield Park, which turns Austen’s least popular novel into a crime mystery; and Gods, Gangsters & Honour, a collection of lurid tales, spiced with expletives, from New York entertainment lawyer Steven Machat, who brought along his latest protégé to perform a song.
Simon Petherick, the founder, had been planning to take the company on to Plus, the third-tier market. But enough has been raised from private investors to delay going public. Mr Petherick said the company, which is expected to lift sales from £800,000 to more than £1m next year, was now thinking of going straight to Aim when it was big enough.
It will join a lengthy list of companies waiting for the right time to move to the junior market. Since late last year there has been much talk of a resurgence in the market for initial public offerings, but up to the beginning of this week there has been little evidence.
The situation was encapsulated in the Daily Telegraph’s Alex comic strip on Monday. Alex had entered a Megabank team in a City quiz, but failed to turn up, leaving rivals staring at an empty table. “Do you reckon one of their IPOs is actually happening?” one asked.
But the same day shares started trading in CSF Group, a Malaysian data centre company. It raised more than £28m on Aim and was valued at £88m when it made its debut at 55p a share.
That made it Aim’s biggest technology listing in more than a year – but only for a couple of days. On Wednesday Emis, the healthcare software provider, finalised its flotation, raising £50m through a placing that was two times subscribed. The shares started trading on Monday. At the placing price of 300p, the company will have a market valuation of £175m.
Next week is also expected to see the finalisation of Bellzone Mining’s plans to raise $100m (£67m). The company, which is expected to have a market capitalisation of £280m, is setting out to develop the Kalia iron ore project in Guinea, one of Africa’s poorest countries. Its arrival on the market will be a sign of renewed investor appetite for more risky mining assets.
These three are all sizeable companies, a fact that might give Beautiful Books and others of its size pause for thought.
Their size also indicate that Aim has grown up since the heady years of several flotations every week, peaking in 2005 with an annual count of 335.
The latest Taking Aim survey from Baker Tilly, the accountancy group, suggests there may have been too much emphasis in the past on new listings. Now Aim can be seen “more as a mature market that helps soundly based and proven smaller companies to grow”. The evidence can be seen in the solid level of secondary fundraisings last year, when there were just 13 IPOs.
Market experts taking part in the survey hoped that “the level of IPO activity will not reach the level of perceived excess of the mid-noughties within the foreseeable future”. They also hoped that “companies will be more realistic, nomads more responsible and investors more selective”.
The general feeling was that two to five flotations a month would be a reasonable sign of recovery. “I would have thought that would be sufficient to put the doubters and the sceptical commentators in their place,” said one fund manager.
Is it too much to expect another three floats of a similar size next month?