LEADERSHIP INSIGHTS

“When it was set up, the intention was always to create a bespoke and tailored market framework for smaller, growing businesses at an earlier stage of their growth cycle than typical for the Main Market,” said Marcus Stuttard, Head of AIM and UK Primary Markets at the London Stock Exchange.

But as AIM celebrates its 30th anniversary amid economic uncertainty and a shrinking funding landscape, attention is turning to how London’s bespoke junior market can retain its status as a vehicle for scaling ideas and small ventures into fully fledged businesses.

A Tailored Market

In addition to offering tailored rules for smaller companies, AIM’s appeal is derived from a dedicated ecosystem of advisors and a diverse investor base. “We've got everything from domestic UK retail investors through to some of the world's largest global investors, which typically don’t invest in growth markets,” Marcus added.

“We also have smaller micro-cap investors as well as tax incentivised investors, such as VCTs. There’s a really good mix of both companies and investors, which has given AIM that very broad base that I think is unparalleled for growth markets globally.”

Gamma Communications has a strong track-record of success, having recently graduated to the Main Market after first listing on AIM in 2014. The B2B communications business has seen its revenue grow from £173 million to £580 million over the last decade and immediately joined the FTSE 250 following its move up to the Main Market.

“It's that stability of ownership and that level of support from your holders that means you can go out and execute your strategy over a very long time horizon,” said Andrew Belshaw, CEO of Gamma.

“If you're privately held, and you think, ‘Ultimately, I want to be Main Market,’ it's a good middle ground to getting used to being in the public domain,” he continued. “AIM gives you time to get your governance where it needs to be for a Main Market company, and then you can move up fairly seamlessly.”

Marnie Millard, Chair of AIM-listed Marks Electrical and a Board Mentor at Criticaleye, also believes that AIM provides a helpful approach to governance. “It's much better, from a Board and a non-exec perspective, to be part of an AIM-listed business, because whilst you have the governance, it is lighter touch compared to [the] Main Market. Therefore, you concentrate more on the business itself, the strategy and the growth.”

Changing Investor Sentiment

However, the investor landscape has changed significantly over the last few years. Macroeconomic forces have negatively impacted pre-revenue businesses like Xeros, which listed on AIM 11 years ago. CEO Neil Austin said: “AIM was fabulous for Xeros at that point, in terms of helping it to get going. … [T]hrough that journey of the next five or six years, Xeros was able to continuously look to the capital markets and the AIM investor community to be able to continue to support the business.”

That support has since become harder to come by, although Xeros did complete a small fundraise last year. “We got what we needed in the fundraise, but it felt very different,” Neil said. “Institutions just didn't have the funds anymore—many were suffering from quite significant outflows. When that happens, the majority of people will inevitably pull back on the higher risk investments.”

Marnie has also witnessed the impact of weakening investor appetite, chiefly through her experience as a NED at Finsbury Food Group. “The team continued to drive value for the shareholders with its performance, [but] the reason it ended up coming off the market [in 2023] was that sentiment was really negative for the sector, not necessarily for the company. And then you get into a situation where you just can't activate, in our case, the M&A activity to take the business forward, and you get stuck.”

Marcus remarked that the broader economic climate has weighed heavily on the junior market. “Some of those headwinds and the outflows do tend to have a disproportionate impact on smaller companies compared to larger companies. We also know some of those factors have been particularly felt in the UK.

“One of the reasons for that is we've seen two decades of the de-equitisation of UK pension funds, so the overall investment into UK equities by our domestic investors has fallen over the years. This is being addressed and tackled as part of the broader UK reform package.”

Looking Forward

In addition to pensions capital reform, guided by the Mansion House Compact, a broad cross-section of stakeholders have focused on changes to listing rules, reviews of corporate governance and equity research, plus the development of a new secondary market framework called PISCES, designed to allow intermittent trading of shares in private companies.

“I think we've got really strong foundations,” Marcus reaffirmed. “We've got a market that's been through a number of business cycles [and remains] one of the most mature and deep growth markets, certainly in Europe, if not the world. I think we've got an incredible community of companies, investors and intermediaries, all backing the market. And with the reform agenda, we know what some of the headwinds are [and] we are working on the solutions.”

Read the full article here — Fuelling Entrepreneurial Ambition

Jacob Ambrose Willson, Senior Editor, Criticaleye