Monday, October 16, 2023
For many small to medium size companies, the appeal of staying publicly listed on an alternative exchange is – or at least, was – understandable. At the end of the 2000s and start of the 2010s, all the bulge bracket investment banks had AIM trading desks. The investment and liquidity was clearly there and at its heyday there were over 1,500 companies listed. But it’s a different world now. Despite the average AIM IPO bringing in, by its own numbers, around £20m of funding, the number of AIM listed companies is down nearly 60% since its 2007 peak. Investors have, for the most part, moved on. Those AIM desks have been quietly disbanded. Founders and entrepreneurs often overhang the market as ongoing sellers. Today, exchanges like AIM can serve as a source of initial liquidity by providing access to capital – but come a distant second to larger markets in terms of daily volumes. To put it bluntly, the long term liquidity simply isn’t there anymore.
But some companies still feel reluctant to delist. There’s a level of perceived status that comes with being a listed company and the liquidity those exchanges should offer can be attractive. Delisting can also feel like a step backwards when a spell on junior markets is often seen as a training ground ahead of floating on a main exchange, rather than something to experiment with before going private again.
Those companies now risk paying a fortune to stay stuck in the past. The perceived status is really a very expensive badge of honour. An initial IPO on AIM will likely cost a minimum of £500,000, while core running costs tend to be a minimum of £200,000 per year, once you factor in RNS announcements and legal costs, as well as Nomad (Nominated Adviser), broker and exchange fees. Not to mention the cost of 6-12 months of senior management being distracted in the run up to the float.
One of the principal benefits, inheritance tax savings, can now be gained via private company ownership too. That’s just one of many areas where private exchanges have not just caught up with their alternative public counterparts but overtaken them. At Asset Match, we’ve seen a number of companies coming off AIM in search of liquidity and cost savings. This includes high profile companies such as Tottenham Hotspur, which delisted all the way back in 2012, citing how the exchange restricted the club's "ability to secure funding". Since then, it has been joined by companies such as DeepMatter, City of London Group, SEC Newgate SpA and many, many more.
This is understandable when private exchanges such as Asset Match offer superior liquidity, lower costs and a negligible compliance burden. Furthermore, they can provide companies and their shareholders accurate and fair share pricing driven by market forces measured over time. As Benjamin Graham, Warren Buffet’s mentor, once said about public stock trading: “in the short run, the market is a voting machine but in the long run it is a weighing machine.” Through periodic auctions, we allow private shareholders to apply this logic too.
Even the LSE seems to agree this is the right approach. Its plans for an Intermittent Trading Venue (ITV) – “a venue for firms to trade their shares periodically and privately” to aid growth and boost liquidity – are an admission that its own alternative exchange belongs in the past. Perhaps the LSE could learn a thing or two from Asset Match, an existing ITV that has already completed over 700 auctions.