Stricter due diligence standards and a weak IPO market have led to a rise in the cost of listing on the Alternative Investment Market (AIM) and the emergence of “less efficient” fundraisings, says national accountancy group UHY Hacker Young.
It found that the total costs paid by companies floating on AIM last year was an average 7.7% of all funds raised, up from 7.4% in the previous 12 months. This total includes fees to nomads, legal advisers and auditors, and commission for placing shares.
Continued concerns over corporate governance within some overseas companies that have listed on AIM, has led to advisers insisting on even more stringent due diligence checks across all companies preparing for an AIM IPO. Those due diligence checks have added to the costs of AIM listing.
Laurence Sacker, managing partner at UHY Hacker Young, said: “Continuing concerns over a slowing Chinese economy and the uncertainty over Brexit have hit the IPO market hard.”
“Those companies that have been able to list on AIM have had to scale back the amount of money they have raised leaving them with far less after money after costs.”
“Even though there is not a lot of IPO work about, advisers have not been able to reduce their fees as they have had to work harder to complete the deals. The time advisers have to devote to due diligence and to market those shares to investors has increased, meaning there is little room to cut fees.”
The relatively weak UK IPO market means companies listing on AIM have been raising smaller amounts of money. Larger fundraisings benefit from economies of scale when it comes to professional fees, smaller IPOs will see a greater percentage of money being raised eaten up by professional fees leaving less money to help expand the business.
The average amount of money raised from AIM IPOs fell to £18.4m last year down from £27.8m in the previous year.
“Although companies on AIM are seen as riskier investments than on the main market, advisers will still want to ensure that the companies are as solid as possible,” said Sacker. “But this can risk making an IPO on AIM expensive and undermine the market’s role as a competitive source of capital for growth companies.”
“High costs do act as a deterrent for companies considering listing on AIM.”
However, UHY Hacker Young believes the outlook may be brightening for late 2016, as several high profile deals have been successfully completed, such as Time Out Group raising £90m and Hotel Chocolat Group, £12m.