What is the Alternative Investment Market (AIM)?

For many owners of growing companies, the idea of transitioning into a public limited company (Plc), having their shares actively traded, and securing substantial investments via the London Stock Exchange (LSE), can be an appealing objective.

However, it's worth noting that this path isn't for everyone.

Many business owners might find the stringent regulatory requirements, the necessity of a proven trading history, and the hefty costs tied to a stock market launch quite daunting.

These factors can often act as significant deterrents, making business owners reconsider the move towards a public listing.

However, in the UK there is an alternative for smaller businesses interested in pursuing the IPO route: the Alternative Investment Market or AIM for short.

In this article we’ll explain what AIM is, how it works, and how a business can apply to be listed.

We’ve also collaborated with Tribe Technology Plc, a technology company that recently listed on AIM, to understand their journey to IPO and any tips they can pass on.

As with all financial decisions, it’s a good idea to speak to independent financial advisors to ensure any financial product is right for your business.

What is the Alternative Investment Market (AIM)?

The Alternative Investment Market (AIM) serves as a sub-segment of the London Stock Exchange (LSE) and has been specifically tailored to help smaller, riskier, or high-growth companies secure significant capital from the public market, often between £1m and £50m.

What sets AIM apart is its ability to grant these companies the opportunity to generate funds by listing on a public exchange, but with significantly less stringent regulatory requirements than those imposed on the primary LSE stock market.

This makes it an attractive platform for growing businesses seeking financial expansion.

The companies that feature on AIM are often smaller and more speculative due to the less stringent regulations and listing requirements.

Over 3600 companies have listed on AIM at some point since it was founded in 1995, collectively raising over £60 billion.

Currently the companies listed on AIM come from 25 different countries and operate in 37 different sectors including healthcare, technology, consumer services and finance.

Some of the companies that have listed on AIM include household names such as Yougov, Purple Bricks, and ASOS.

There are a number of companies who have used their listing on AIM as a stepping stone towards being listed on the LSE Main Market.

“For Tribe Tech a listing on AIM was the natural choice when looking at the various public market options” says Eric Hampel, CFO of Tribe Tech.

“The regulatory requirements of the main market and the market capitalization of our company steered us to AIM where we could obtain the benefits of a listing (liquidity, access to capital, increased profile) but with the less stringent regulations allowing us to focus on the primary goal - which is growing the business.”

What are the differences between AIM and the London Stock Exchange Main Market?

AIM is operated as a sub-segment of the LSE but there are a number of key differences between it and the LSE’s Main Market, designed to cater to the needs of smaller, riskier businesses with high growth potential.

These differences include:

Number of shares

To trade on the Main Market, a company has to have at least 25% of its shares in public hands, however there is no minimum number for companies that trade on AIM.

Trading record

The Main Market requires companies to normally have a trading record of at least three years whilst the AIM has no such requirement.

Shareholder approval

To trade on AIM, prior shareholder approval is required only for reverse takeovers and fundamental disposals.

To trade on the Main Market however, prior shareholder approval is needed for all significant transactions including acquisitions, disposals, and related party transactions.

Admission documents

Unlike the Main Market where all Prospectuses are pre-vetted and approved by the UK Listing Authority (or UKLA), admission documents are not pre-vetted by the Exchange for companies seeking to float on AIM.

The Financial Conduct Authority will vet an AIM admission document where it is also a Prospectus under the Prospectus Directive.

Advisors

Companies looking to apply for AIM need a Nominated Advisor (NOMAD) and Broker at all times whilst those looking to trade on the Main Market require sponsors for new applicants and significant transactions.

Market capitalisation

Unlike AIM which has no market capitalisation requirements, the Main Market requires companies to have a market capitalisation of at least £30 million.

Compliance

Companies listed on the Main Market need to be compliant with the UK Corporate Governance Code or need to explain why not.

However, companies listed on AIM just need to be compliant with a recognised corporate governance code or must explain why they aren’t.

Enterprise Investment Scheme/ Venture Capital Trust Eligibility

Companies listing to AIM can, within certain parameters, remain eligible investments for Enterprise Investment Scheme or Venture Capital Trust tax relief.

What companies are eligible to join AIM?

There are a number of eligibility requirements that an interested company will have to satisfy before their application to join AIM will be accepted.

The main requirements are that a company must:

• appoint and retain the services of a nominated advisor and broker who are registered with the LSE
• have produced an admission document
• have prepared all the relevant financial information to be included within the statement. This includes three years of audited financial information (if available), unaudited financial information with comparatives if the information is more than nine months old, and ensuring that at least the last two years of financial information is restated onto the basis to be applied in the issuers next annual accounts in line with International Financial Reporting Standards
• retain sufficient working capital for at least the next 12 months from the date of admission
• have adequate financial reporting procedures in place (known as FPPP)
• have completed a profit forecast, if available.

“Just because a company is eligible to list on AIM doesn’t mean it is the right decision for them. The listing process, especially if accompanied by a placing, can become all-consuming for the board and executive team. It’s important that the business has a strong team and sound processes in place before undertaking a listing, otherwise the stresses of a listing could impede the business.” advises Eric.

“Spend time researching the requirements, meeting with teams who have undergone a listing, and really be sure it’s the right step for the business before committing to the process.”

How does a company list with AIM?

The process of listing on AIM is much the same as any IPO process but has less stringent requirements such as no set requirement for market capitalisation or the number of shares issued.

It can take as long as two years to properly prepare to list on AIM but the actual admission to the market typically takes around 10-12 weeks though in practice this is often longer as issues arise during due diligence.

“I can’t stress how important it is to have your proverbial ‘ducks in a row’ before embarking on the IPO process. Spend the time upfront reviewing, with your lawyers, your company structure and shareholder documents and prepare a roadmap of any remediation that needs to be done before listing.” Says Eric speaking from experience.

“Once the process commences it is a quick-moving, high stress environment and that’s not the time to be revising the company structure. Pre-planning goes a long way.”

This period allows your designated Reporting Accountant to prepare the financial disclosures required in the Admission Document, for legal teams to conduct the required due diligence, and your NOMAD to finalise the application.

This process can be both time-intensive and demanding.

If the company is also raising funds alongside the listing, known as a placing, you'll need to deliver numerous presentations to potential investors to foster enough interest in your initial share offering. This is known as the Roadshow and can often be the most stressful part of the listing.

“Have your investor ‘pitch’ down pat as you’ll be repeating it time and again for potential investors. Know your facts, figures, and presentation off by heart. Keep it realistic and grounded but also be sure to show potential investors why your company is worthy of their investment.”

Financially, it's also a significant commitment.

The cost of joining AIM can easily exceed £500,000, which includes fees for professional advice, and annual membership maintenance costs could be around £100,000.

Despite these costs, listing on AIM is generally a more cost-effective alternative to going public on the main LSE.

The dynamic nature of the market, coupled with the proven growth of companies that have attracted investment through AIM, underscores its success.

Consequently, more and more business owners are recognising the appeal of AIM admission to achieve their growth objectives.

While it's not necessary for a company to have an established trading history to apply for the AIM, it is mandatory for each applicant company to engage and maintain a NOMAD.

What is an AIM Nominated Advisor (NOMAD)?

The NOMAD plays a crucial role in guiding the company through the admission process and provides necessary assistance during its ongoing journey as a publicly traded entity.

Typically, an investment banker or broker with significant experience of bringing companies to the market, a NOMAD provides assurance to shareholders that the company's operations are credible and reliable, not only during the IPO but also throughout the business’s life as a public limited company.

This guarantee serves to instil confidence and trust among shareholders regarding the company's ongoing activities and operational integrity.

A NOMAD’s primary responsibilities include:

• guiding a company interested in an IPO through the listing process
• undertaking due diligence to ensure that the company meets all the requirements of an AIM-listed company
• drafts the AIM admission document with extensive support from the company and its lawyers

What is an AIM Broker?

The services of a NOMAD aren’t the only expertise a company seeking to list on AIM will need and the company will also need a broker at all times.

The role of the broker is to:

• evaluate investor interest in your company, not only at the time of admission to AIM but also ahead of any subsequent share issues
• provide guidance on share pricing and investment opportunities
• provide ongoing advice on market and trading related matters.

In addition to the NOMAD and broker, you will need auditors, a legal advisor with Plc listing experience, and potentially a financial PR consultant.

Finally, to determine if a company is a viable candidate for AIM, a NOMAD will also engage an independent Reporting Accountant to conduct the necessary evaluations and their own lawyers who will review the company’s due diligence reports.

Eris says, “It is critical you find the right advisors as partners for the IPO journey. Trust, open communication, and a clear plan are all critical to success. There will be hurdles and its important that the company works closely with its trusted advisors to overcome those hurdles or the IPO will never happen.

"Tribe was lucky enough to work with some fantastic advisors who not only did the work but often acted as sounding boards or counsellors during the process. Take the time early to develop a relationship with them, agree on clear objectives and timelines, and then manage the budget tightly – its easy for the IPO to take on a life of its own.”