Do you remember that one of the themes of 2010 was going to be the revival of flotations or at least so said the pundits at the end of 2009? You would be forgiven if you thought that the stock market had given up on its primary function of financing companies, their growth and their ability therefore to employ greater numbers of individuals. The stock market, by which most people understand the Full List of the London stock market, does seem to have turned its back on new companies and new flotations, doesn't it? New Look has failed to float and even on AIM Big Bear has also failed, and of course there have been several others on the Full List too. Does this mean then that the market is going down, that there is no cash for companies?
I think not. There are flotations happening and money is being invested in companies, but you have to look at AIM to see it and once again AIM is showing the way. I don't know if Full List investors have run out of money after supporting so many bank rights issues last year, but I suspect they haven't. The truth of the matter is that there is always money for a good company with a sound reason for wanting the additional capital. That is why in January this year AIM has invested £209 million into companies, of which around 10% is for new companies and approximately 90% was for existing businesses already listed on the market. The good companies with the worthwhile reasons are securing additional funds and making use of that capital.
It would appear that investors have stepped into bankers' shoes and effectively are lending permanent capital (that's equity), without the usual bankers' security, to companies to allow them to trade and grow. AIM has always been the market on which young companies grow up, but perhaps most heartening in that AIM itself is maturing and following on its earlier investments. Where that leaves banks in the future is an interesting point. Is there a viable role for them in the smaller company sector? I hope so, otherwise the consequences for UK growth and employment are stark indeed. But in the meantime, their usual lending is being substituted…
