AIM on the rise

The Alternative Investment Market is becoming a viable exit route for private equity-backed companies in the UK and elsewhere. By Judy Kuan

As compliance costs for listed companies in the US continue to rise, the Alternative Investment Market (AIM) of the London Stock Exchange is starting to become a more attractive option for smaller and mid sized companies seeking access to the public markets. Just last year, the number of new companies listing on AIM jumped to 450, up significantly from the 355 recorded in 2004 and setting a record for the nearly eleven years that the exchange has been in existence.

For private equity and venture capital firms – both within and outside of the UK, there is interest in whether AIM could prove to be an attractive route to exit for portions of their portfolios.

One notable listing from last year was that of venture capital firm BP Marsh & Partners, which raised ?13 million when it listed on AIM in February. Last year specialist browser software company ANT plc, backed by UK midmarket private equity firm Inflexion, also raised £11.2 million from floating shares on AIM.

Meanwhile, over the course of 2005, 19 US-based companies listed on AIM, some of which were backed by private equity. One of these is Glenview, Illinois-based telecom service provider Billing Services Group, which received funding from private equity firm ABRY Partnersin 2003. BSG has been touted by some as a posterchild for US companies listing on AIM.

Another firm that has publicly stated its intention to list on AIM is Foster City, California-based Entelos, which creates ?virtual patients? modelling technologies for pharmaceutical companies. Since it was founded in 1996, Entelos has raised four rounds of VC funding totalling nearly $50 million, with investors such as Abingworth Management, Bear Stearns Health Innoventures, Boulder Ventures, Charles River Ventures, Brentwood Venture Capital and St. Paul Venture Capital.

Part of the appeal of AIM – particularly for SMEs – is the exchange's straightforward guidelines and low cost of compliance relative to those associated with listing on the New York Stock Exchange or NASDAQ, which require compliance with Sarbanes Oxley. While how long the AIM listing process takes varies case by case, the typical timeframe is between three to four months, says Graham Dallas, who heads the exchange's business development activities in the Americas. This is significantly shorter than listing on US exchanges.

?The AIM rule book is famously thin – there aren't very many rules,? says Dallas. ?They are written in plain English, short, and basically couched in general principles of good public company behavior.?

The rules are intended to –leave room for flexibility, and encourage the establishment of best practices rather than minimum standards, says Dallas.

However, despite the growing attention directed toward AIM, one of the factors that may limit the pace at which companies outside of the UK will opt to list their shares on the market could be the limited number of London Stock Exchange-approved Nomads, or nominated advisers, that international firms may access locally. Nomads are a required part of the listing process and advise companies on their suitability for initial listings on AIM, as well as serving as the companies' point of contact thereafter with the exchange.

According to Dallas, there are only three Nomads currently in the US – Piper Jaffray, Jeffries and Canaccord Adams. ?I very much hope there will be more than three by the end of this year, because there are more US corporations interested in AIM,? he says