Analysis: London’s withering AIM market set to lose more members this year
16/01/2025 06:00
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Outflows from UK funds have drained investment in AIM
stocks
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Lowly valuations have made them vulnerable to takeover
bids
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AIM seen as symbol of UK's commitment to startups, job
creation
By Amy-Jo Crowley
LONDON, Jan 16 (Reuters) - An exodus of companies from
London's Alternative Investment (AIM) market is set to
accelerate into 2025, even as Britain's policymakers try to
revive the country's capital markets, bankers and financial
advisers to AIM companies told Reuters.
Already in 2025, Britain's Alliance Pharma ALAPH.L agreed
to sell itself to asset management firm DBAY Advisors, and
online marketing firm Team Internet TIG.L said it had received
takeover approaches from private equity bidders.
This 30-year-old segment of the London Stock Exchange was
designed to help smaller companies secure capital, with fewer
listing requirements than the main market.
But now a growing number of AIM members are considering
delisting or putting themselves up for sale as market valuations
have slumped and changes in Britain's tax rules have made these
listings less attractive.
“We are seeing an increasing number of AIM company boards
who are considering their options, including running a private
or public sale process, and – particularly at the larger end –
there is a growing trend for AIM companies to think about a move
to the main market to benefit in part from more liquidity,” said
Marc Jones, a managing director who focuses on M&A at Peel Hunt.
UK officials implemented a suite of listing reforms last
year aimed at helping London compete with New York and the
European Union after Brexit. This easing of listing rules has
yet to yield any noticeable turnaround in initial public
offerings (IPOs), however, which has been accompanied by a long
spell of outflows from UK funds.
A total of 89 companies left the junior exchange last year,
with just 18 joining. That compares with 2021 when there were
just 54 departures from AIM and 66 additions.
And an estimated third of AIM companies with a market value
of 50 million to 250 million pounds ($61-$305 million) are
vulnerable to bids, according to Peel Hunt.
AIM stocks are trading at 30% to 40% below their 10-year
average as investors have pulled out more cash from UK funds,
versus a 10% to 20% discount on the FTSE 100 and 250 markets,
said Graham Simpson, head of Quest Research.
"AIM disappearing would be catastrophic," said Simpson,
adding it would be an admission that Britain is not interested
in supporting entrepreneurs, startups and growth businesses.
Simpson blamed outflows from UK equity funds and "apathy"
about investing in small UK companies given their poor
performance of recent years.
UK-focused equity funds have seen 41 consecutive months of
outflows, a driver of more departures from AIM, according to
Panmure Liberum deputy CEO Bidhi Bhoma. At the same time, there
has been a lack of IPOs to counter the departures.
“It’s a UK economy issue as there is a huge amount of job
creation and tax revenue which is vital to the UK economy that
comes from having a vibrant AIM market,” said Bhoma.
Another new recent catalyst for some of the 600-plus
AIM-listed companies to exit the index is the halving of
inheritance tax relief, said Peel Hunt’s Jones.
Previously, owners of AIM-listed businesses were allowed
full exemption from inheritance tax on their shareholdings. But
in her Oct. 30 budget, finance minister Rachel Reeves halved
that relief, and AIM-listed investors now face an effective tax
of 20% on their holdings.
To reverse the decline, Bhoma said one solution could be
mandating operators of pension schemes to allocate a minimum
percentage of their assets to the UK.
Quest's Simpson suggested reinstating plans for UK tax-free
savings accounts that invest in British stocks.
Many of the problems facing AIM are also being felt on the
main exchange, which has seen the number of IPOs shrink and a
swathe of large take-private deals in the last year. Some
companies are also shifting their listings to the U.S. to
achieve better valuations.
To be sure, analysts are seeing a reversal in equity flows
into Europe that could stem the tide and bolster new issues in
London.
"While we see green shoots, we need to fix this capital
problem which exists in the UK and that in turn will then fix
the IPO appetite of private companies," Bhoma said.
($1 = 0.8241 pounds)
(Reporting by Amy-Jo Crowley. Editing by Anousha Sakoui and
Mark Potter)
((anousha.sakoui@thomsonreuters.com;))