An introduction to the Alternative Investment Market (AIM)

August 9, 2008

AIM was developed to meet the needs of smaller, growing companies from any sector or country which might not meet the full criteria for a listing on the main market of the London Stock Exchange.  AIM is intended to create a more flexible regulatory environment tailored specifically for smaller companies.  Companies that seek to have their shares traded on AIM range from young and venture capital backed businesses to more established companies looking to expand. In recent years, listing on AIM has been popular with fast growing technology companies.

AIM’s success is due in no small part to the fact that it has a simplified regulatory environment. A key difference between AIM and other markets is that AIM companies are supervised by a nominated adviser (referred to as a “nomad”) rather than by a securities regulator (in the UK, this is the Financial Services Authority (FSA)).

The main body of rules that govern the admission process and ongoing obligations of AIM companies are set out in the AIM Rules for Companies (AIM Rules). AIM’s simplified admission procedures generally result in savings in time and cost for an AIM admission as compared to a main market or other listing.

Reasons to list on AIM

The principal reasons for a company to admit its shares to trading on AIM are:

  • To provide opportunities for raising equity finance both at the time of admission and in the future. 
  • To enable existing shareholders to realise all or part of their investments.
  • To place a value on the company.
  • To raise the company's profile.

 To strengthen employee commitment through the participation of employee share ownership schemes.

AIM provides opportunities for raising capital from a broad range of private and institutional investors, particularly venture capital trusts which provide a dedicated source of institutional investment.

Admission criteria

The main requirement contained in the AIM Rules is that the applicant company must be “appropriate” for the market. This judgment is made by the company’s nomad who must make a declaration to this effect to the Exchange. The nomad will in turn rely on various legal, financial and technical reports, declarations and comfort letters from the applicant company, its directors and its advisers involved in the admission process.

Before being admitted to AIM, and at all times after admission, a company must comply with all of the following:

  • it must be legally established under the laws of its place of incorporation and able to offer shares to the public, that is, it must be a public company or the equivalent;
  • the shares to be admitted must be freely transferable and eligible for trading electronically, and all other issued shares of the same class must also be admitted to trading; 
  • it must publish accounts that conform with International Accounting Standards, or if it is a non-EEA incorporated company, it can instead publish accounts that conform with Canadian GAAP, Australian International Financial Reporting Standards, US GAAP or Japanese GAAP; and
  • it must appoint and retain a nomad and broker.
     
    In addition to the above, where the company's main activity is a business that has not been independent and revenue-earning for at least two years, all related parties (broadly, directors, substantial shareholders and those connected with them) and applicable employees holding 0.5% or more of the company's AIM securities are restricted from disposing of any interest in their securities for one year from admission to trading.

Continuing obligations

Once admitted, AIM companies are subject to continuing obligations which include: 

  • publishing price-sensitive information (e.g. new developments which may significantly affect the share price) without delay;
  • obtaining shareholder approval for certain significant corporate transactions; 
  • producing and filing half-yearly financial statements (within 3 months of the end of the period); and 
  • producing and filing annual financial statements (within six months of the year-end).

Each of these financial reports will need to be prepared in accordance with the accounting standards mentioned above.

The admission document

A prospective AIM company will need to publish an admission document unless a full FSA approved prospectus is required. A full prospectus is usually required where the company proposes to offer shares to the public and the offer does not fall within one of the following exemptions:

  • the total consideration of the offer is less than €2.5 million; 
  • the offer is addressed only to certain qualified investors or to less than 100 other persons per EEA state.

In most cases, companies seek to ensure they fall within one of these exemptions so that they do not have to produce a prospectus requiring FSA approval, resulting in both time and cost savings.
An admission document must include detailed information on the company and its activities, directors and management, together with historical financial information. In addition to this and other prescribed information, the admission document must contain all such information as is necessary to enable investors to make an informed assessment of:

  • the assets and liabilities, financial position, profit and losses, and prospects of the company; and 
  • the rights attaching to its securities.
     
    The admission document must also contain a “working capital statement” by the directors. This is a statement that, in the directors’ opinion, having made due and careful enquiry, the working capital available to the company and its group will be sufficient for its present requirements, that is for at least 12 months from admission. In determining the available working capital, the amount of any concurrent fundraising may be taken into account.

The directors of the company (as well as the company itself) must take responsibility for the contents of the prospectus or admission document, confirming that it contains accurate and full information and that there are no material omissions.

The nomad and broker

Nomads are responsible to the Exchange for deciding whether a company is appropriate for AIM and guiding and helping the company to comply with the AIM Rules. The nomad is also responsible to the Exchange for advising and guiding the company on its continuing obligations on an ongoing basis: principally, the disclosure of information to investors. Nomads are drawn from a variety of backgrounds including stockbroking, accounting and banking. There are also several nomads with overseas origins to serve the needs of overseas companies joining AIM.

The broker's role will be to price the issue and to act as a link to the investment community, thereby helping to place shares with investors and promote trading once the company is listed on AIM. During the admission process, the broker will plan the marketing strategy and organise marketing roadshows to potential institutional investors. Companies should appoint a broker that has good contacts with institutions which typically invest in AIM companies.

The roles of the nomad and broker may be performed by the same firm, which would be likely to save costs for the company.

Companies are required by the AIM Rules to retain the services of a nomad and a broker at all times. Trading in a company's shares will be immediately suspended if a nomad resigns or is dismissed and the company will need to find a replacement within a month. If a replacement is not found within this period the company's trading facility will be cancelled.

The role of the lawyer

The principal aspects of legal work on an AIM flotation usually involve:

  • working with the company’s accountants and tax advisers to establish an appropriate group structure;
  • incorporating a new public limited company and reorganising the group prior to flotation;
  • conducting legal due diligence;
  • drafting and commenting on successive drafts of the admission document and verifying the admission document; 
  • negotiating the form of any agreement relating to the placing of any shares with investors; 
  • drafting all other ancillary documentation; and
  • advising the directors of the new public limited company of their potential liabilities and responsibilities under applicable law and regulation.

Related pages:

Corporate more

Tax and Incentives more

Technology, Media & Digital more

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