What is the reason for the increase in IPOs on AIM?

IPO or Initial public offering text on blackboard with businessman on side

AIM, is one of the London Stock Exchange’s great success stories. However, back in 2008 the London’s growth market began to see a decline in the number of new listings. This was a direct result of the financial crisis and the global uncertainty that followed.

Given the nature of AIM, there will always be companies which are taken over by a competitor, merge, delist, join the FTSE main market or occasionally even fail – thankfully the last of these is far less frequent than it used to be. AIM therefore requires a steady flow of new listings to maintain numbers and replace the leavers.

AIM reached its peak in number of listed companies in 2007 at 1,694, when the resources boom saw a lot of small early-stage oil and gas companies and many overseas companies also join, many of which were of questionable quality. In July 2021 this number was at 832, less than half its peak.  Our associates Investor’s Champion cover all the new arrivals to AIM in July in their update here.

Many large companies which could qualify to be on the FTSE main market have become all too happy to remain on AIM, lifting the total market value. There are several reasons for a large company to remain on AIM: Business Relief investment might provide a welcome additional source of capital, they may prefer the reporting regime on AIM, owners and major shareholders might appreciate the Business Relief benefit for their own Inheritance Tax planning. As a result of this, AIM has seen a decline in the number of companies listed but a significant increase in total market value and quality of companies.

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Has this downward trend continued?

No. In fact from Q4 2020, the number of companies joining AIM began to increase and the rate of companies leaving the market began to slow. As a result, by the end of Q2 2021 the number of companies on AIM had increased by 13, raising £664m. The market also broke its record with the largest new admission in the second quarter of the year, as Victorian Plumbing Group raised £298m upon listing, with its market capitalisation £850m. The positive trend has continued with July 2021 the best month since December 2014 for IPOs on AIM, with a couple of very large new arrivals further highlighting the growing appeal of AIM for larger, high-growth companies.

Why are companies listing?

Many believe the reason for the change in direction is because some companies held back on their IPO plans during 2020 due market uncertainty brought on by Covid and Brexit. Going into 2021, the UK Covid vaccine strategy began to roll out which dramatically reduced the number of deaths from the virus. The Brexit deal agreed in the latter part of 2020 gave further reassurance to markets. A combination of the two could be the reason we are seeing more and more companies listing on AIM through 2021.


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