Growing with direction
AIM. What a great acronym – a word that says focus, direction, vision and goals in just three letters. It might be luck, it might be good thinking, but either way, right on the mark for the world’s most successful growth market … and the companies listed that are living examples of these ‘on target’ qualities.
With alternative investment high on many company agendas, 83 business executives, directors and professionals met in November at the Madejski Stadium in Reading for the Thames Valley AIM Seminar, ‘Funding Growth in Challenging Times’, where they learned that flotation is just as much about finance, as strong relationships and common sense.
The morning seminar was hosted by The Business Magazine, which published a listing in its November issue featuring more than 50 businesses in this region on the AIM market.
The event was supported by the London Stock Exchange, Crowe Clark Whitehill, Cantor Fitzgerald and Business Growth Fund (BGF), and delegates heard speakers from each of these organisations.
Claire Dorrian – London Stock Exchange
First up, Claire Dorrian, senior manager of the London Stock Exchange, gave the audience an update on the state of the AIM market today. She said that while the main market has seen some fluidity post-Brexit, AIM has stayed resilient. Described as the world’s most successful growth market, it has seen more than £98 billion raised by more than 3,600 companies since its launch in 1995.
She said that some companies shy away from the transparency of listing, and it requires a change of mind-set. However, being publicly listed brings a lot of benefits around customer interaction, retaining staff, marketability of the company and acquisition opportunities. And from the UK perspective “we’re fortunate in having a great regulatory system”.
Considering the benefits of joining AIM, she cited the example of Hotel Chocolat, which joined this year and is already outperforming market expectations.
For companies considering an AIM listing she introduced the Elite Programme, a business education support programme.
She said: “At AIM we sit at the heart of the financial system from a public market perspective, with a whole network of advisers and investors. We felt we could use this to add value to private companies as they navigate their growth, and launched the Elite Programme in response. It has been going for two years, and there are already over 90 companies involved across a wide range of sectors.
“This is an interesting and diverse range of companies – they come on board for an 18-month period, and get access to various workshops and sessions, and we draw on our partners to help and support that. It’s not an IPO programme – it’s more about us having a role to play in supporting growing companies.”
Dorrian said the set of rules in listing on AIM are fairly flexible; the practice is around investors’ expectations. You wouldn’t bring a business to market at a low market cap, for example. “Looking at the distribution of market cap among listed companies, you really want to sit in the middle so you are attractive to the right type of investors. This is where the Elite Programme is positioned – to help put companies in the best possible position to access finance, and to be on the radar for the right type of investors.”
Robin Stevens – Crowe Clark Whitehill
Representing accountancy firm Crowe Clark Whitehill was partner and head of capital markets Robin Stevens, who spoke about becoming investor ready.
His key message was that moving a privately-owned company to a public market takes time, and that detailed planning is needed. He said in theory you can do an IPO in four months, or even three; before that is planning. “And the earlier we are involved in talking to a client the better. Flotation takes time, don’t rush it.”
Another key message was on valuation: “Go in at a value you can go up from … so people still see it as a good value investment,” and he warned that companies might need to adapt to more realistic expectations when they come to market.
Asked about ‘red-light situations’ he said a common stumbling block is where a client doesn’t take advice. Are they really prepared to move away from being a private family company to being a public company, he asked? Are they prepared to take advice and listen, or are they coming just to hear what they want to hear? Because they can’t just run the company the way they did before. So this willingness to be advised is very much about the chemistry of the team.
Looking at sector success, Dorrian had mentioned that the tech sector is currently the most prevalent. Adding to this, Stevens said: “Investors are looking for a growing business operating in an expanding market.
“Almost any sector works, it’s more about the quality of the company. In commercial terms, a successful IPO candidate must demonstrate quality, good governance and value.”
Several delegates were interested in the operations and processes involved. Stevens said: “The proportion of the senior executive’s time devoted to preparation is high – up to 70%; so it’s sensible to bring in a finance person, or an IPO team to ensure the basics of the business can carry on.”
Tim Davis – Cantor Fitzgerald
Tim Davis, senior adviser at Cantor Fitzgerald, premier capital markets investment bank, said AIM is for the minority – it is not a one-size fits all. In terms of sectors though, he says: “We’ve got all sectors represented – even a firm of lawyers.”
Naming Gateley plc as the firm in question, he asked: “Who would’ve thought that a firm of lawyers would list on AIM? It does seem fairly improbable. The reality is that it was a long-held strategic desire by the partners at the top in that they wanted to break the mould. But most of all they wanted a currency – for the partners to sell or buy shares, and to make acquisitions and grow the business. When they came to market the media was all about organic growth and they have already opened up in Reading, across the UK and in Dubai.
“So what makes an attractive IPO? At Cantor Fitzgerald we have a very simple philosophy,” said Davis,” in that when we listen to a company presenting to us, we sit back and think, ‘would we put our own money into this business?’ We take a straw poll after the meeting, and if it gets more than a 75% vote it gets the thumbs-up.”
Davis’ key message though was: “We will not take a company to market if we don’t feel it’s ready. There’s a time and a place to maximise the share sale.”
With regard to valuation, we have to agree on what a company’s worth. “If we fall out it’s usually because management are coming in too high on valuation. We spend months on getting this absolutely right,” he said. “We look at the here and now, what you can deliver in the coming year; what we know we’ve got in the bag for the next 12-18 months; and what we think we can do in that time.” His advice: “Don’t go too high.”
Davis said that AIM is the international stockmarket for growth companies, but stressed that IPO is another stage of development, not the end of the journey. “When you float your business, part of the transition is the mindset, in that you’re no longer your own boss and you now have critical external investors owning part of the business. It doesn’t follow, however, that going public you’re giving up your independence.”
He then empahsised the importance of open and honest communication, saying: “As a listed company you have an obligation to tell the market anything that is vaguely relevant.”
In managing relations with the outside world, the golden rule is: “Keep the market informed”. He said always be honest, open, available and communicative. Newsflow is critical, and there must be no surprises, or sudden or unexplained problems.
James Austin – Business Growth Fund
Rounding off the sessions was James Austin, investment director at BGF, who said that as equity providers, BGF could be part of a hybrid solution for growing companies, where the business received equity funding while listing.
He explained that BGF is an independent company that was established in 2011 to help growing SME businesses. Backed by five of the UK’s main banking groups – Barclays, HSBC, Lloyds, RBS and Standard Chartered – it has up to £2.5b with which to make long-term equity investments.
Today BGF has the largest investment team in the UK. He said. “A lot has changed in the past six to nine months. We’ve scaled up again and now invest in 30-40 companies and support in the region of 120 equity transactions per year.
“We do a number of things but the interesting bit is we’re offering a hybrid solution between bank debt and full equity fundraising.
“Our mission is to unlock the potential of fast-growing UK businesses that need long-term capital to drive their success, and we are looking for companies that have robust and realistic expansion plans.
“Simply put, we’re looking for companies who’re trying to grow, so my advice on taking the BGF route is: let us have a look at it. It might well fit us, even though you don’t think in does.
“We offer a tremendously exciting opportunity for growing companies in that we offer a highly-collaborative approach to financing growth, and work very closely with the companies we invest in.”
Permeating through the seminar was the overriding message that being publicly listed brings a lot of benefits, but that flotation takes time and preparation and can’t be rushed. As Stevens said: “Invest in the market and it will invest in you.”