Less Scottish companies taking AIM to hit targets

THE flow of Scottish firms seeking a listing on the Alternative Investment Market (AIM) is slowing.

Experts say there appears to be less urgency north of the Border for AIM flotations - despite the huge number of private companies that have reached the stature where an AIM listing would be a possibility. Dealmakers say this trend seems to be down to the fact that banks are now more willing than ever to lend money to Scotland's rising stars - making some of the advantages of launching on AIM redundant.

A study by Grant Thornton Corporate Finance revealed that, during 2006, just half a dozen Scottish companies took the plunge, compared with a UK-wide total of 454. The six who floated on AIM last year were Clyde Process Solutions, Corsie Group, General Capital, Glen Group, Invocas and Vialogy.

Robert Hannah of Grant Thornton Scotland says: "It would be nice to think that given the number of Scots firms that have done well on AIM there would be more of an appetite."

The slowdown could get even worse this year, with the latest quarterly figures showing the fewest admissions to AIM in three years and the poorest fundraising performance in two years. In the first quarter of 2007, AIM recorded just 51 admissions in total - a drop of more than 50 per cent on the 121 admissions for the same period a year ago. New funds raised over the three-month period amounted to 1,017 million - a 44 per cent reduction of the 2,052m figure last year.

Jack Ogston, head of acquisition finance at Clydesdale Bank, says: "There clearly has been a slowdown in Scots firms listing on AIM. We are falling behind the pack. Even taking into account Scotland's relatively small size, activity has been disproportionately small, which is disappointing."

Stephen Campbell, director of growth equity at Bank of Scotland, feels the healthy appetite among Scots banks for lending at present is a key reason behind the slowdown in AIM activity.

"One of the major reasons for going to AIM is to raise money. But the fact that banks are keen to back the star entrepreneurs of tomorrow diminishes the importance of an AIM listing. We have had management teams asking us why they should bother going to the market when their bank is keen to lend them similar sums of money - often at a much lower cost than a flotation."

Jonathan Brooks, head of capital markets at law firm Maclay Murray & Spens, says that potential new entrants to AIM therefore have to work much harder to sell their fund-raisings to institutions.

"Investors are currently only interested in larger, more mature companies. Smaller companies have to be well placed in a particular market niche - a good example of which is the float of technology funding firm Braveheart, eventually achieved in March, although the original target date was last May.

"It is, therefore, increasingly difficult for early-stage companies to come to AIM. Even if the funding can be found, the valuation that AIM investors are likely to put on smaller companies is probably not going to be attractive to those firms, making equity or debt funding on a private basis more attractive. This is particularly going to impact Scottish companies, which are likely to be smaller than the average UK company."

But not everyone is taking a negative outlook. James Will, head of corporate finance at law firm Shepherd and Wedderburn, says there are still good prospects for Scots firms wanting to float on AIM.

"At present, the AIM market is very focused on both quality and good management and a higher proportion of companies coming to the market - or effecting secondary fundraisings - will need to have not only revenue but profits. Valuations will also need to be attractive.

"The recent downturn in Scottish AIM floats reflects the current demands of the market and the valuations on offer. I do not believe that it is anything other than that."

Will adds: "Traditionally, many Scottish AIM flotations have been in the technology sector and institutional demand for pre-profits technology AIM floats is weak to say the least.

"Markets move in cycles, however, and AIM is no different. Sentiment towards smaller early technology stage companies will change at some time in the future.

"The other side of this is that sound Scottish businesses with good management, healthy profits, excellent growth prospects and a good story should find a ready welcome from AIM investors provided that no-one is too ambitious on valuation.

"AIM is an excellent platform on which to take a business to the next stage of its development and any companies falling into that category should not hold back from exploring what AIM has to offer."