Author: Amy Jo Crowley
LONDON (Reuters) - The exodus of companies from London's alternative investment (AIM) market will accelerate by 2025, even as British policymakers try to revive the country's capital markets, bankers and financial advisers to AIM companies told Reuters .
As early as 2025, UK Alliance Pharma agreed to sell itself to asset management company DBAY Advisors, and online marketing company Team Internet said it had received acquisition intentions from private equity bidders.
The 30-year-old segment of the London Stock Exchange is designed to help smaller companies access capital and has fewer listing requirements than the main market.
But now, a growing number of AIM members are considering delisting or selling themselves as market valuations fall sharply and changes in UK tax rules make listed companies less attractive.
“We are seeing an increasing number of AIM company boards considering their options, including running a private or public sale process, and – particularly at the larger end of the spectrum – there is an increasing trend of AIM companies considering a move to major markets "The market will benefit in part from more liquidity," said Marc Jones, managing director specializing in mergers and acquisitions at Peel Hunt. "
British officials last year implemented a series of listing reforms aimed at helping London compete with New York and the European Union after Brexit. However, the relaxation of listing rules has yet to bring any significant upturn in initial public offerings (IPOs) and has been accompanied by chronic outflows from UK funds.
A total of 89 companies exited junior exchanges last year and only 18 companies joined. In contrast, in 2021, only 54 AIM companies exited and 66 new companies were added.
According to Peel Hunt, a third of AIM companies with an estimated market capitalization of £50 million to £250 million ($61-305 million) are vulnerable to bids.
Quest director Graham Simpson said AIM shares were trading 30% to 40% below their 10-year average, while the FTSE 100 and 250 Index markets have discounts of 10% to 20%. Research.
“The disappearance of AIM would be catastrophic,” Simpson said, adding that it would be an admission that the UK is not interested in supporting entrepreneurs, start-ups and growth businesses.
Simpson blamed outflows from UK equity funds and an "apathy" towards investment in UK smaller companies given their poor performance in recent years.
Bidhi Bhoma, deputy chief executive of Panmure Liberum, said UK-focused equity funds have seen outflows for 41 consecutive months, which is why more people are exiting AIM. At the same time, there is a lack of IPOs to deal with this situation.
"This is a British economic issue because an active AIM market creates a lot of jobs and tax revenue, which is vital to the British economy," Boma said.
Peel Hunt's Jones said another new catalyst that had recently prompted more than 600 AIM-listed companies to exit the index was the halving of inheritance tax relief.
Previously, owners of AIM-listed businesses were fully exempt from inheritance tax on their shareholdings. But in the October 30 budget, Finance Minister Rachel Reeves halved the relief and AIM-listed investors now face an effective tax of 20% on their holdings.
To reverse the decline, Boma said one solution could be to require pension scheme operators to allocate a minimum proportion of their assets to the UK.
Quest's Simpson recommends reinstating UK tax-free savings account schemes that invest in UK shares.
Many of the problems facing AIM are also reflected on the major exchanges, which saw fewer IPOs and a spate of large private transactions last year. Some companies are also moving their listings to the United States to obtain better valuations.
To be sure, analysts see a reversal in equity flows into Europe that could stem the trend and support new share issuance in London.
"While we see green shoots, we need to address the capital issues that exist in the UK to address the appetite for IPOs in private companies," Boma said.
($1 = 0.8241 British pounds)
(Reporting by Amy-Jo Crowley. Editing by Anusha Sakooi and Mark Porter)