14th April 2010, M&A Deals (Web)
London’s growth markets are on the cusp of a recovery, but can this turnaround in fortunes be sustained?
During the febrile first quarter of 2009, a solitary company came to Aim, raising no money. Meanwhile, 73 companies delisted, one for every working day.
A year on, things look different. Eight companies have joined Aim, raising some £167 million, while the number leaving the markets has reduced to 42.
Granted, this is not the dramatic turnaround in fortunes that some were hoping for. But it’s a start, and with another eight companies having announced their intention to float, things are looking up.
Philip Secrett, capital markets partner at professional services firm Grant Thornton, says, ‘Over the past two to three months, we’ve seen prospective IPOs fall by the wayside and many others successfully raised money. The markets are still pretty fragile out there for new issues, but both the pipeline and momentum are building.’
The mood among institutional investors is still more cautious than optimistic. ‘A lot of them are watching how the economic recovery is progressing, and keeping an eye on the election,’ says Secrett.
Mark McGowan, MD of US-based Aim Advisers, says that some US companies have registered their interest in a listing on London’s junior market, but remain concerned about the UK’s stability.
‘You have a general election coming up and growth this year is looking weak, so you have to ask: is there going to be investor appetite?’ says McGowan. ‘At the end of the day, you’ve got to have institutions that want to open their cheque books.’
According to McGowan, it will be the Main Market that fires the starting gun. ‘The view I’m getting from London is, let’s see a few IPOs get away on the Main Market first, then open the floodgates for Aim.’
The mood on London’s other growth market, PLUS, isn’t much different. Vivienne Cassley, senior relationship manager at PLUS Markets, says, ‘On fundraising, the market is giving us the message that it can be done, it’s just going to be more difficult and take a lot longer.’
But Cassley insists that the appetite is out there: ‘There is a pipeline starting to build, and momentum is increasing.’
There is a running theme among the companies that have managed to get IPOs away over the past few months. Aside from natural resources plays, many of them are investment vehicles established by old hands – ‘the people who are recognised and have a fan club’, as Secrett puts it.
Better Capital, founded by maverick investor Jon Moulton, is the obvious example, but Sherborne Investors, backed by US private equity veteran Edward Bramson, equally fits the mould. Both of these raised more than £100 million and are comfortably the largest two floats of recent months. Smaller examples are Marwyn Capital and Digital Barriers, both cash shells aiming to build powerful businesses in their respective sectors through acquisition.
For Tom Black, chairman of Digital Barriers, AIM offered the most suitable platform for his strategy of consolidating businesses with innovative anti-terrorist technology. Though he had ‘assurances of funding’ from private equity houses, he decided that a public listing offered more control and more freedom.
‘It became clear [that with private equity] every investment we made would have to be scrutinised and signed off by their investment committee,’ Black says. ‘There was also a risk that after 12 months and three or four deals, the private equity house might decide that they were no longer interested [in backing our expansion] and leave us high and dry.’
Instead, Digital Barriers raised £20 million on Aim, securing the support of a range of institutional investors. ‘We certainly made it clear to our investors that this was unlikely to be the last [funding] requirement,’ Black states.
AIM has always attracted companies from overseas, and it still has appeal for some. Malaysian data centre business CSF Group floated on the market in March, raising £28 million at 55p.
‘I think it’s never the right or wrong time to float,’ says CEO Adrian Yong. ‘Although the liquidity on AIM wasn’t fantastic, in Asia there are no data centre companies listed on any exchange. So it was either going to be NASDAQ or London, and we were more comfortable with British legislation, being from a Commonwealth country.’
Though Yong feels that CSF’s valuation is still rather low compared with other companies in the same sector, he sees it as a ‘starting point’, and indeed the shares are up 15 per cent to 63p since the IPO.
According to Secrett, AIM has retained its distinctiveness and remains ‘the only true growth platform in the world’ for ambitious companies. As for delistings, they may even have strengthened the market by leaving behind a core of companies that are better performing and more attractive to investors.
‘AIM has gone through a volatile time,’ he adds, ‘but it has been true to its founding principles and has hopefully positioned itself well for recovery.’