Bulletins | August 2, 2017

22 not out: Why AIM remains a force to be reckoned with

Kamalprit Lally, associate in the corporate and financial services team at Wedlake Bell, gives her outlook for the future of the Alternative Investment Market (AIM) as it approaches its 22nd birthday.

The AIM – a market regulated by the London Stock Exchange (LSE) for smaller, growing companies – often faces criticism for what some consider an overly permissive regulatory framework.

But as it approaches its 22nd birthday, some believe it is facing one of its least successful years.

Fusionex International, a software solutions provider that was admitted to trading on the AIM in December 2012, recently decided to cancel the admission of its shares.

Standard Life attacked the LSE and the Financial Conduct Authority (FCA) for allowing Fusionex to cancel its shares, saying it would leave minority investors burdened with unlisted and illiquid shares.

Its head of governance Euan Stirling stated that this feels like the company has been snatched away from them.

In a circular to its shareholders, the board of Fusionex explained that the performance of the company’s shares had been disappointing for 15 months.

It added that the development of the business had not been adequately reflected in the value attributed to the public market – that is, the stock was undervalued.

While Standard Life was quick to criticise, it is interesting to note that of the votes cast at the general meeting, more than 85% were in favour of a cancellation.

Regulatory framework
Instead of looking at Fusionex as being “another company to fail on AIM”, perhaps the AIM regulatory framework should be commended for providing growing companies with flexibility and understanding that for their growth a public market may no longer be suitable.

What return would minority shareholders realise if Fusionex was forced to keep its shares admitted? Would those minority shareholders have found investors willing to purchase such “undervalued” shares?

Despite the cancellation of its admission to the AIM, Fusionex announced on 26 June that it won a multi-million dollar multi-year contract in Asia.

And despite the ongoing criticisms, and alternative markets available to companies such as the NEX Exchange, the AIM continues to stand out as the UK’s most successful growth market and provides a valuable public regulated platform to smaller companies from which to raise capital, grow and promote themselves.

Companies such as Boohoo, Domino’s and ASOS have all had great success on it. There are currently more than 950 companies on the AIM, with a combined market capitalisation of over £95bn.

Other platforms such as the NEX Exchange have fewer stocks traded and less liquidity with similar regulation, while the crowdfunding platforms have even smaller markets and less regulation in general.

The tax benefits and reliefs available to shareholders in AIM companies encourages and attracts investors wanting to invest in early stage companies and benefit from their growth and development too.

Down, but not out
But through a number of scandals, the AIM has lost support, with many citing poor disclosure and transparency regulations.

AIM companies are, however, not only subject to the LSE’s AIM Rules for Companies (the AIM Rules) but also the FCA’s Disclosure and Transparency Rules (DTRs).

The FCA has always had remit to investigate the activities of an AIM company, including and especially where disclosures made by the company could be false or misleading.

In addition to the AIM Rules and the DTRs, AIM companies such as those listed on the main market, are now also subject to the EU Market Abuse Regulation.

The regulation supersedes the Market Abuse Directive and the key obligations in the regulation relate to the disclosure of inside information.

AIM companies will therefore owe duties to two regulators in respect of their disclosure obligations: the LSE in respect of the AIM Rules and the FCA in respect of the regulation.

This should provide critics of the AIM comfort and give more confidence to those institutions and investors who have avoided the AIM and the securities of the companies admitted to it.