The IPO market is a mess – Asset Match offers another way of accessing liquidity

Knowledge Base
Tuesday, February 27, 2024

If the last few years are anything to go by, now is not the time to take your company public.

Global IPO activity slumped to its lowest in more than a decade last year, as persistent inflation and high interest rates fuelled fears of a recession. Companies raised just $123 billion in 2023, according to EY.

London-listed companies managed just over $1 billion of that amount. The biggest blow to the UK capital’s IPO market was missing out on Arm. The chip designer snubbed the London Stock Exchange (LSE), where it was once listed, and debuted in New York instead. It raised almost $5 billion on its first day of trading, becoming the biggest IPO of 2023.

The picture gets even gloomier when you consider how British companies that went public in the preceding years are doing today. Only 12 of the 100 UK deals done in 2021 (where data is available) are trading above their debut price, according to the Financial Times. Others, such as furniture maker, have since gone bust.

Instead of taking the risk, many companies are delaying their IPOs. French software company Planisware and German military contractor Renk have paused plans to go public against a backdrop of weak European listings. In the US, venture capital firms are advising startups to postpone IPO plans until interest rates have peaked.

For these companies, whether they’re delaying an IPO or swerving one entirely, Asset Match offers a proven alternative route to create liquidity.

AIM isn’t what it used to be

For smaller UK companies, going public often means listing on AIM, a sub-market of the LSE which has more relaxed regulations and listing requirements than the main stock market.

In times like these, smallcap CEOs are following their larger company counterparts and holding off listing. AIM had just 13 new listings in 2023, the lowest number since the index was created in 1995. That’s about a third lower than last year, and a 97% drop from AIM’s peak in 2005.

But even in normal times, an AIM listing won’t always provide the liquidity many companies are looking for. The AIM trading desks of the late 2000s have long since been disbanded. Now the bottom 250 companies trade just £150,000 of their stock a year on average.

It’s also expensive to be a public company. An initial IPO on AIM will likely cost a minimum of £500,000. Core running costs are typically at least £200,000 a year once you factor in RNS announcements and legal costs, as well as nominated advisor (NOMAD), broker, and exchange fees. Especially given the poor liquidity available, those costs often simply aren’t worth the investment.

The hunt for liquidity

If AIM is no longer the spiritual home for smaller companies to raise growth capital, what are the other options? The question is particularly pertinent in the current down market where investment is difficult to come by and people need to free up cash.

One route is to delist from AIM (or never list in the first place) and use a platform like Asset Match. Unlike traditional exchanges which trade every weekday, Asset Match is an intermittent trading venue which creates liquidity by corralling all buyers and sellers into a typically quarterly auction.

The advantages of using Asset Match

First, it’s a much more liquid trading experience because it bunches together the trades rather than letting them happen on an ongoing basis. Market makers often refer to small cap stocks ‘trading by appointment’. With Asset Match, everyone knows when that appointment is.  Our proprietary order books and market algorithms have been specifically built to enable trading in a fair, transparent, and regulated environment.

Last year, Asset Match traded more than £13 million of assets, an average of £300,000 per company on the platform. More than 12% of companies on the LSE – 83 on AIM and 165 on the main market – traded below this liquidity level. Their average value traded was just £80,000.

Second, Asset Match is generally much cheaper than listing on a public exchange. It doesn’t come with the extra running costs attached. That means the cost of joining the platform is significantly less than listing on AIM. Asset Match takes a commission on shares traded, which means we’re incentivised to make a market and keep your stock liquid.

Finally, the compliance burden is much lighter. Although the AIM listing requirements are less onerous than the LSE full list, there are still hoops to jump through before a company can list on the exchange. By comparison, the compliance considerations to join Asset Match are more appropriate and less onerous on the management team.

Well loved brands such as BrewDog, Tottenham Hotspur, and Brompton Cycles have all used Asset Match to trade their shares. Some even delisted from public markets to join the platform. All three companies found liquidity on Asset Match. They have traded more than £20 million worth of shares between them, allowing investors to buy and sell at a fair price.

If you’re interested in creating a marketplace for your organisation on Asset Match, please contact us.