The AIM All-Share Index tumbled to a 12-month low over the course of October as retail investors sold up and scant buyers made any appearance to halt the dip. But things are on the up again this week with buyers moving back into the fray, and once more AIM proves itself a particularly resilient growth market.
At the recent Ambition Nation Summit, finnCap shone the spotlight on AIM as a place to grow, despite perhaps adverse factors. Speaking on this panel were Michael Hughes MBE, Co-CEO, LoopUp, Nicola Foulston, CEO, Rosenblatt, and Chris Searle, Partner, BDO LLP.
“Our decision to go public on AIM was based on the fact that we could best deliver on our goals in that environment,” Michael Hughes told the Summit. “And it’s interesting to note that the tech sector makes up a small part of the FTSE 100.”
Conference calling and online meeting technology developer LoopUp – a featured company of finnCap’s Ambition Nation Listed 50 – was the first successful float on AIM after the Brexit vote, and a testament to the fact that external factors don’t have to impinge on the right move forward for a company.
Despite the very recent dip, the AIM All-Share Index has seen its value rise by approximately 160% since the EU referendum in mid-2016. Over 2017, AIM-listed tech companies saw valuations soar by around 50%. And for the first time ever, as of September 2018, AIM is expected to return over £1 billion in dividends to investors, panel host Michael Hayman MBE pointed out.
So, is AIM the public market that our flourishing tech sector should be, well, aiming for?
With such market uncertainty in the balance, the Brexit decision could have been an unmitigated disaster for the LoopUp team. And in some ways it was, says Michael Hughes, pointing out that it was a lot harder to raise the money they needed at the valuation they had. But, in putting together an excellent investment story with clear direction prior to the vote, the momentum behind the company was such that they improved on their share price by around 400%. The performance of the index suggests they weren’t the only tech company experiencing rapid growth on AIM.
Is it the right route to growth capital?
A CEO must be clear on whether AIM is the best route to the right growth capital, but if so, AIM can be a resilient market in which to do it. Over the course of the Summit, finnCap shone the spotlight on AIM as the most successful growth market in the world for ambitious companies.
Chris Searle, Partner, BDO LLP said, “AIM is certainly a global kite mark. That said, not long ago, the London Stock Exchange was trying to attract more foreign companies to AIM. Many couldn’t live up to our corporate governance standards and more recently, I think AIM has shifted back to its original focus of being a UK growth market. It also has upscaled – the average market cap of AIM companies is approaching £100 million.”
Indeed, blue chip, household names such as Hotel Chocolat and Fever Tree call AIM home.
AIM is a place of high growth, and as our Ambition Nation campaign continues to unearth, growth companies in the UK tend to develop and employ the use of innovative technology, while there are strong, sustained cash generative performers that operate in steadier software development. The tech contingent of the Ambition Nation Summit seemed in the majority. Of course, if there’s one thing that’s certain about the future of UK business, it’s the continued growth and prevalence of data. Data isn’t just at the heart of tech companies’ product portfolios, it’s everything – driving creative and distributive decisions in business, and decisions about the right operational technologies, driving regulation, legislative change, your security, and ultimately your growth trajectory.
The PR of floating on AIM is not to be sniffed at, either. Chris Searle points out that there’s considerable press round the IPO process and at the point of market entry, and if you’re at the point of floating one can assume your investor campaign has thrown up a lot of good news and positive sentiment about the company as you strive to impress. For companies that build a good momentum in the lead-up to floating, a virtuous circle manifests, in that as the share price climbs, more investors will want to get involved, raising the price further.
From the point of view of more ‘traditionalist’ firms looking to modernise, transform and attract a younger breed of talent – as so many strive to do with the help of new tech – floating on AIM brings with it a dynamic shift in thinking.
Panellist Nicola Foulston, CEO of City law firm Rosenblatt, saw how bringing a more commercial mindset to a legal practice could help in exactly this respect. For her, AIM was a means and place to disrupt that traditional partnership model that law firms typically subscribe to.
In a partnership model, says Nicola in our Ambition Nation Summit magazine - download the magazine here - junior team members can face very slow career progression which restricts their earnings. The younger generation increasingly want more flexibility in their work.
“In a traditional partnership, it is common for a disproportionate profit share to be held by a small number of equity partners,” explains Nicola. “This forces junior partners to achieve high billing targets compared to their salary, which can result in dissatisfaction. When we floated, all our partners re-negotiated their contracts, replacing their existing packages with equity participation through share incentives. It is now a crucial part of our culture. We have also been encouraged by the enhanced levels of productivity and focus across the company since the IPO.”
The decision to float on AIM must first and foremost be based on a company’s strategy for growth. But if AIM is indeed the right route to capital and a company can demonstrate that it can deliver on its promises to investors, then AIM can indeed be a place that encourages and supports high growth companies, and the tech field grows fast.
In our next blog, Jon Moulton, founder, Better Capital and finnCap Chairman, explains what defines the leading companies of AIM, while finnCap Head of Research Raymond Greaves explains how we quantify those winners.