Message from Our Advertiser - Charles Stanley Securities

Initial considerations

There are very few companies that start life with the goal of being AIM-quoted, yet the most common characteristic of growth ompanies choosing AIM is their need to raise funds to expand the business, be it by organic growth, or acquisition.

An AIM IPO is just one option, or possible step, for a business. Companies looking seriously at AIM should also have considered the others, be it debt, private equity, merger or trade sale. Either way, directors must take a long, hard look at the business, where it is going, what it will cost to get there and what they (most likely as shareholders) want from it and over what time horizon. This should not be done in isolation: all takeholders, in particular those external, such as venture capitalists or banks, should be included in the process.

Why float?

Funding: new funds are usually raised at the time of IPO via an issue of shares, which are “placed” with a range of institutional investors. Once listed, companies can relatively easily issue new shares, with a market value, to fund acquisitions or organic growth, rather than use cash or debt.

Share sales: IPO provides a means for existing shareholders to sell shares, although incoming investors will expect management to retain holdings of sufficient size so as to remain suitably incentivised. Equally, employee participation in  company ownership can increase commitment and improve staff recruitment and retention.

Valuation: an AIM listing provides both an objective valuation for the company’s shares and a liquid market where they can be traded.

Status: the letters PLC invoke an aura of prestige and, some would say, an impression of stature, whilst increasing public profile.

Efficiency: the requirement for increased levels of disclosure is likely to lead to better internal controls, management responsibility and therefore, greater operational efficiency

Is our business right for AIM?

There is no such thing as an identikit AIM company: it is a market for smaller and growing entrepreneurial businesses, with participants drawn from all industry sectors and, increasingly, countries. Yet institutional investors typically look for particular attributes when onsidering investment.

Quality propositions addressing growing markets, or that provide an innovative roduct or service with clear potential; the given strategy will be appropriate and thoroughly “copper bottomed” in terms of supporting analysis, financials and growth expectations.

Companies operating in spaces where barriers to entry are high, or where there is a genuine “first mover” advantage - and a clear case for new capital investment. Management’s approach to risk, be it customer, market or financially related.

A company at breakeven, or already profitable, will be perceived as more attractive than a loss-maker: a track record of delivering year-on-year sales and profit growth will be more acceptable to a wider range of investors than an earlier stage business, or one with a patchy record. Visibility of sales and profits for the current and next financial year will be key. Board structure and corporate governance: the appointment of non-executive directors, the separation of senior roles and where required, new appointments.

Timing

Timing is vital in terms of optimising valuation: come to the market too soon and shares may be sold unreasonably cheaply; or, in stockmarket terms, the company maybe too small, or illiquid, to appeal to the right investors. Bear in mind also the cyclicality of the stockmarket. For the IPO project, three months is often quoted as the norm, although this is tight, especially as the business still has to be run!

More common is for companies to take a 12-18 month run in to it, so allowing plenty of time for all preparatory work to be completed, with orderly progression towards the intensive admission document production and investor roadshow stages. Life as a  public company IPO is a stepping stone to a new environment for the company and its directors; the latter are no longer accountable to themselves, but to a range of new investors.

There will be the continuing involvement of nonexecutive directors, who will scrutinise  executive directors’ and the company’s trading and financial performances, whilst also adding value through bringing to bear their own experiences. AIM companies must publish full and half-yearly trading and financial results, as well as any information that could be deemed “price sensitive”. Announcements are released to Regulatory News Services, to which anybody can have access.

Nomad and Broker apart, there will be additional responsibilities for, and involvement by, the company’s lawyers and accountants. Other advisors will be required, such as registrars and financial public relations specialists. Last but not least, time will have to be devoted to investor relations activities, specifically those involving existing and potential investors.

About Charles Stanley Securities

A wholly-owned subsidiary of one of the UK’s leading wealth management groups, Charles Stanley Group PLC, Charles Stanley Securities is a Nomad and Broker, specialising in advising growth companies drawn from a wide range of industry sectors and raising money for them, be it at the time of IPO, or subsequently. Fund raisings typically range from £2 million through to multiples of £10 million.

For an initial discussion and to determine whether your company could be appropriate for IPO, please contact:  Tim Davis, Business Development Director on 020 7149 6412 or email tim.davis@csysecurites.com