Glynn Davis finds out why more and more companies are turning to London’s ‘junior’ market to raise capital
It is turning into a busy year for stockmarket listings in the food sector and while the main All-Share Market is the exchange of choice for heavy hitters such as Premier Foods, many smaller companies see the Alternative Investment Market (AIM) as the place to go.
The junior market - as it is sometimes described - is seeing plenty of action at the moment, with Blueheath (see Making Waves, p32), Nutrinnovator, Conival and Hill Station among the food-related companies that have gained market quotes over recent months and helped to make it a record year for AIM, which now hosts a total of 927 companies.
In 2004 alone, an impressive £2.7bn has been raised by a mix of companies and secondary fundraisings. Mat Wootton, deputy head of AIM, says: “It’s been a very busy year - especially from March to August. Through 2002 and 2003 a lot of companies had been waiting to raise money so there has been some pent-up demand. So when these companies saw the time was right for investors’ appetites they came on to AIM.”
The key reasons why some companies select AIM over the main market include the fact that it caters for smaller businesses, a track record is not necessary and only large acquisitions require shareholder approval (see box p38).
Tom Price, corporate finance director at broker Evolution, which has been one of the most active AIM advisors, says the market has proved popular with companies that are valued below £50m (where the main market becomes more viable) and want to raise only “small millions” of pounds. He says the sweet spot for an
AIM listing is £25m although there are businesses that have valuations as high as £700m. The market’s attractiveness has been enhanced by increased interest rates, which has led some companies to avoid taking on extra debt and instead raise capital through an AIM listing. Among these companies is Nutrinnovator Holdings, which specialises in developing wellbeing food products, and came on to the market on June 28 with a market cap of £8.8m.
Stephen Moon, managing director of Nutrinnovator, says: “AIM was an effective way for us to raise cash and broaden our shareholder base beyond business angels, and bring in some institutional investors.”
With growth likely through a combination of taking out licences and embarking on some joint ventures and acquisitions, Moon says the company needed some major capital. Its move on to AIM has given it the firepower to take its strategy forward.
The company appointed Oriel Securities as its Nominated Advisor (Nomad) - a stipulation of the exchange - to perform due diligence and handle the regulatory requirements.
Although the Nomads take away some regulatory burden, the main recommendation of Moon is to “get a decent lawyer because although the weight of paperwork is not like the main market, there is still a weight of due diligence documentation”.
Super premium ice cream maker Hill Station has just received a £1.4m cash injection from its move on to AIM and its shares began trading on Monday. The successful flotation will allow joint MDs Charles and Gina Hall to fund a new manufacturing facility for the £4.7m business, develop their sales and marketing operation and allow some working capital to grow the Hill Station brand.
A flotation can be costly. When the fees of accountants and lawyers are factored in with the cost of the Nomad, then the total bill for listing can run to between five and seven per cent of the amount being raised.
It took Nutrinnovator more than three months to list, which is average according to Wootton, whereas it can take up to a year to list on the main market where it is also more costly because the process involves more lawyers and accountants’ time.
The relatively recent ‘accelerated IPO’ development provides an even quicker method of listing on AIM - potentially weeks rather than months. A consortium of institutional investors agrees to binding commitments to invest in a company at a certain price while an investment bank vouching for the listing prospectus avoids the pre-vetting phase. It is proving useful for venture capital backers looking for a quick route to market for their investments.
Although online delivered wholesaler Blueheath Holdings had venture capital backers, the company’s decision to float on AIM on July 20 was based on the company’s need to increase its market credibility to gain greater credit from its suppliers and target larger accounts, says Douglas Gurr, chief executive of Blueheath. “We had some big accounts but to win new ones we needed both plc status and the balance sheet for this next step. Debt is fine for building stores but it would not have solved our balance sheet issue,” he says.
Since Blueheath had the minimum three-year trading record required by the main market, and a decent market capitalisation of £50m, the company did consider a main market listing. But although it recognised that it would have provided even more credibility than AIM, it was decided against. This decision was not only based on higher costs but made because AIM enabled the company to avoid the onerous shareholder approval regulations of the main market where it is a requirement for all acquisitions and disposals to gain approval and there are many other smaller obligations such as remuneration committee meetings. “There are lots of things like this that you have to do and they are okay for Tesco but not for a company of our size,” explains Gurr.
Having made the decision to go with AIM, Gurr says there has been no downside and many positive aspects. “It has helped us achieve our aim of gaining credibility with suppliers and it has had the influence to open doors. We’ve always given share options to our staff but now they know what they are worth and you’d be surprised how much more focused they are,” he says.
In spite of the success of the exercise, he says that if the company continues to grow as has been planned, then it might be a natural progression to switch its listing to the main market. But that is all in the future and for now AIM seems to be serving the purposes of Blueheath and the other listed food companies very well.
It is turning into a busy year for stockmarket listings in the food sector and while the main All-Share Market is the exchange of choice for heavy hitters such as Premier Foods, many smaller companies see the Alternative Investment Market (AIM) as the place to go.
The junior market - as it is sometimes described - is seeing plenty of action at the moment, with Blueheath (see Making Waves, p32), Nutrinnovator, Conival and Hill Station among the food-related companies that have gained market quotes over recent months and helped to make it a record year for AIM, which now hosts a total of 927 companies.
In 2004 alone, an impressive £2.7bn has been raised by a mix of companies and secondary fundraisings. Mat Wootton, deputy head of AIM, says: “It’s been a very busy year - especially from March to August. Through 2002 and 2003 a lot of companies had been waiting to raise money so there has been some pent-up demand. So when these companies saw the time was right for investors’ appetites they came on to AIM.”
The key reasons why some companies select AIM over the main market include the fact that it caters for smaller businesses, a track record is not necessary and only large acquisitions require shareholder approval (see box p38).
Tom Price, corporate finance director at broker Evolution, which has been one of the most active AIM advisors, says the market has proved popular with companies that are valued below £50m (where the main market becomes more viable) and want to raise only “small millions” of pounds. He says the sweet spot for an
AIM listing is £25m although there are businesses that have valuations as high as £700m. The market’s attractiveness has been enhanced by increased interest rates, which has led some companies to avoid taking on extra debt and instead raise capital through an AIM listing. Among these companies is Nutrinnovator Holdings, which specialises in developing wellbeing food products, and came on to the market on June 28 with a market cap of £8.8m.
Stephen Moon, managing director of Nutrinnovator, says: “AIM was an effective way for us to raise cash and broaden our shareholder base beyond business angels, and bring in some institutional investors.”
With growth likely through a combination of taking out licences and embarking on some joint ventures and acquisitions, Moon says the company needed some major capital. Its move on to AIM has given it the firepower to take its strategy forward.
The company appointed Oriel Securities as its Nominated Advisor (Nomad) - a stipulation of the exchange - to perform due diligence and handle the regulatory requirements.
Although the Nomads take away some regulatory burden, the main recommendation of Moon is to “get a decent lawyer because although the weight of paperwork is not like the main market, there is still a weight of due diligence documentation”.
Super premium ice cream maker Hill Station has just received a £1.4m cash injection from its move on to AIM and its shares began trading on Monday. The successful flotation will allow joint MDs Charles and Gina Hall to fund a new manufacturing facility for the £4.7m business, develop their sales and marketing operation and allow some working capital to grow the Hill Station brand.
A flotation can be costly. When the fees of accountants and lawyers are factored in with the cost of the Nomad, then the total bill for listing can run to between five and seven per cent of the amount being raised.
It took Nutrinnovator more than three months to list, which is average according to Wootton, whereas it can take up to a year to list on the main market where it is also more costly because the process involves more lawyers and accountants’ time.
The relatively recent ‘accelerated IPO’ development provides an even quicker method of listing on AIM - potentially weeks rather than months. A consortium of institutional investors agrees to binding commitments to invest in a company at a certain price while an investment bank vouching for the listing prospectus avoids the pre-vetting phase. It is proving useful for venture capital backers looking for a quick route to market for their investments.
Although online delivered wholesaler Blueheath Holdings had venture capital backers, the company’s decision to float on AIM on July 20 was based on the company’s need to increase its market credibility to gain greater credit from its suppliers and target larger accounts, says Douglas Gurr, chief executive of Blueheath. “We had some big accounts but to win new ones we needed both plc status and the balance sheet for this next step. Debt is fine for building stores but it would not have solved our balance sheet issue,” he says.
Since Blueheath had the minimum three-year trading record required by the main market, and a decent market capitalisation of £50m, the company did consider a main market listing. But although it recognised that it would have provided even more credibility than AIM, it was decided against. This decision was not only based on higher costs but made because AIM enabled the company to avoid the onerous shareholder approval regulations of the main market where it is a requirement for all acquisitions and disposals to gain approval and there are many other smaller obligations such as remuneration committee meetings. “There are lots of things like this that you have to do and they are okay for Tesco but not for a company of our size,” explains Gurr.
Having made the decision to go with AIM, Gurr says there has been no downside and many positive aspects. “It has helped us achieve our aim of gaining credibility with suppliers and it has had the influence to open doors. We’ve always given share options to our staff but now they know what they are worth and you’d be surprised how much more focused they are,” he says.
In spite of the success of the exercise, he says that if the company continues to grow as has been planned, then it might be a natural progression to switch its listing to the main market. But that is all in the future and for now AIM seems to be serving the purposes of Blueheath and the other listed food companies very well.
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