Withers Worldwide

What is AIM?

The AIM market (‘AIM') of the London Stock Exchange plc (the ‘Exchange') is targeted at growing international companies.  In 2007, 284 companies joined AIM, 182 of which were IPOs and a total of £6.5 billion was raised in new issues.  There are now approximately 1,700 companies (including more than 350 international companies) whose shares are traded on AIM.

AIM has also, in recent years, been targeting overseas companies.  In particular, a fast track application process was introduced to enable companies with existing listings on certain overseas stock exchanges to join AIM without having to issue a prospectus style admission document.

Why go to AIM?

The reasons AIM companies give for joining AIM are to:-

provide access to capital for growth	encourage employee commitment
create a market for their shares	increase a company's ability to make acquisitions
obtain an objective market value	create a heightened public profile
enhance status with customers and suppliers

How much does an AIM listing cost and what advisers does an AIM listed company need to appoint?

The total average fees on an AIM admission depend on the nature of the company coming to the market, which affects the nature and level of due diligence needed.  The base level for admission costs would normally be in the region of £250,000 - £300,000.  On top of these fees, the company will need to pay the broker's fees for raising funds (unless the AIM listing is by way of an introduction), which may be in the region of 4 - 6% of funds raised.

The key adviser that a company needs when seeking an AIM listing is a nominated adviser.  We would be happy to recommend nominated advisers to you and you can find a list of the Exchange's approved nominated advisers on their website at http://www.londonstockexchange.com/.

One of the duties of the nominated adviser is to confirm to the Exchange that the company is appropriate to be listed on AIM and that the requirements of the AIM rules for companies and nominated advisers have been complied with.  The nominated adviser will carry out due diligence on the company and its directors to assess whether or not they would like to sponsor the company and to ascertain whether the company is suitable for an AIM listing.

A company will also need to retain a broker (although many nominated advisers will also be able to act as broker).  Other advisers who will be involved in an AIM admission are lawyers to the company, reporting accountants, lawyers to the nominated adviser, public relations advisers, printers and registrars who will administer the register of members.  We can give a company an indication of likely costs levels, which in part depend on the nature of its business. 

Can your company float on AIM?

The directors of the company need to have confidence in the company's business plan.  The directors also need to be able to sell the company's strategy and prospects to the nominated adviser.  Nominated advisers tend to see ‘management' as the central ingredient in any float.  The process of flotation requires a substantial investment of time and therefore the board needs to be prepared for the distraction from the company's day-to-day business that it causes. 

There is no requirement for a company to have a trading record prior to an AIM admission.  Once admitted to AIM, a company incorporated in an EEA country must publish annual audited accounts prepared in accordance with international financial reporting standards (IFRS).  A company incorporated in a non-EEA country must publish annual audited accounts in accordance with IFRS or US, Australian, Canadian or Japanese generally accepted accounting principles (GAAP).  A half yearly report also needs to be prepared although this does not need to be audited.

A company's AIM shares must be freely transferable (subject to limited exceptions).  The company's shares will need to be eligible for electronic settlement and the main electronic system in the UK is CREST, operated by Euroclear UK & Ireland Limited.  CREST is a central securities depository (CSD) that operates an electronic settlement system allowing UK (and Irish) shares to be held, transferred and settled between CREST members in dematerialised (or paperless) form, that is without the need to use share certificates or written instruments of transfer.  Foreign companies will often create depository interests representing interests in the underlying shares, which are held by a UK registrar such as Computershare Investor Services or Capita IRG Trustees who will act as the depositary.

Where a company's main activity is a business which has not been independent and earning revenue for at least two years, it must ensure that all related parties (including directors, their associates and shareholders who hold 10% or more of the company) and applicable employees (those who either alone or with members of their family hold 0.5% or more of the company) must agree not to dispose of any interest in their shares in the company for a period of one year from the date of admission to AIM.

How long does an AIM admission take?

The whole process from the appointment of advisers through to admission would normally take at least 12 weeks and often longer.  Most companies start planning an AIM float several months in advance.  In particular, a company will need to devote time to finalising its business plan and, unless the company is a start up, building up a good track record of financial performance which will make it attractive to investors.

AIM PD vs PD

A company seeking admission will have to produce either an ‘AIM-PD' admission document or a more detailed European Prospectus Directive (PD) style prospectus.  The criteria for deciding which of these documents is required are set out in this note.

If a company is making a public offer and no exemptions apply (see below for commentary on this), it will need to publish a prospectus in accordance with the PD requirements.  If an exemption applies or no public offer is being made, a company seeking an AIM listing can publish an AIM-PD admission document. 

AIM-PD omits some of the requirements of the PD.  For instance, an AIM-PD document does not need to include an operating and financial review, details of borrowing requirements and capital resources or an indebtedness statement.   

Admission document

A company seeking to be admitted to AIM will need to produce a prospectus style document called an admission document.  The AIM rules set out the requirements for the contents of an admission document and these include most of the matters which would need to be disclosed in a prospectus.  A company may either include its last three years' audited accounts in the admission document or an auditor's report on the company's state of affairs and profit and loss for the last three years.  In the case of a start up no audited accounts or accountants report will be required and in the case of a recently formed company, only those accounts which it has prepared need to be included or reported on i.e. there is no minimum 3 year trading requirement for an AIM listing.  A nominated adviser will often require an auditor's report to be included.  Interim accounts (or an auditor's report on the interim period) may need to be included where more than 9 months has elapsed since the end of the last financial year.  Any such interim accounts would need to cover a period of at least 6 months. 

An important point to note is that the last two years' audited historical information must be presented and prepared in a form consistent with that which will be adopted in the company's next published annual financial statements.  So, for example, if a company will be using IFRS in its next published accounts, the last two years' information must also be presented under IFRS.  If, therefore, an EEA incorporated company has not converted to IFRS in anticipation of a listing on AIM, this will result in that company having to re-state information previously prepared under national accounting principles under IFRS for the purposes of the listing.  If, for instance, an EEA incorporated company was planning to list following the publication of its accounts for the 12 months ending 31 December 2008, the suggested presentation format would be as follows:

Year 2008 under IFRS (restated)

Year 2007 under IFRS (restated)

Year 2007 under previous GAAP (as previously published)

Year 2006 under previous GAAP (as previously published)

The AIM rules require a statement by a company's directors to be included in the admission document which confirms that the company has sufficient working capital for a period of at least 12 months from the admission date.  The company's nominated adviser will therefore require a working capital report to be prepared by the company in conjunction with its auditors. 

On the application for admission to AIM, the company will be required to repeat the working capital sufficiency statement and also provide a number of other representations to the Exchange.  These will include confirmation that the company has satisfactory reporting procedures in place to enable the directors to make judgments as to the financial position and prospects of the company. 

The directors of the company will be personally responsible for the contents of the admission document and a detailed verification exercise will need to be carried out to ensure the accuracy of the document.

If a PD prospectus has to be published, which authority will approve it?

In order to work out which authority will approve a prospectus, you need to know a company's ‘Home State'.  Please note that an AIM-PD admission document does not need to be approved by the UK listing authority of the Financial Services Authority (‘UKLA').

The Home State of an EEA company is the country in which it has its registered office. If a company has its registered office in the UK, the competent authority is the UKLA. 

Why are companies and advisers keen to avoid issuing a PD prospectus? 

The main reason is to avoid the need for approval.  PD prospectuses issued by a UK company will have to be approved by UKLA.  The UKLA requires 20 business days to approve documents relating to an AIM admission, or 10 business days for a subsequent capital raising.  No approval is required for an AIM-PD admission document, which is instead signed off by the company's advisers. 

Dealing with the UKLA together with the requirement for more information to be included in a PD prospectus are likely to add to costs and affect the timetable for a listing. 

How do you avoid the need for a PD prospectus on admission to AIM?

Where possible companies will restrict their offer to:-

• professional (or "qualified") investors;
• fewer than 100 persons, other than qualified investors, per EEA state.

These are the two main exemptions that companies are likely to rely upon.

Another exemption, that will not, however, be relevant to most companies, is that a PD prospectus is not required where the total consideration for the offer is less than €2.5m.

In practice, many companies will structure their fundraisings so that they are made only to qualified investors and/or fewer than 100 persons per EEA state, and so avoid the need to produce a full PD prospectus. 

Who qualify as ‘qualified investors'?

Qualified investors include authorised financial and credit institutions, investment firms, pension funds, insurance companies and unauthorised investment firms. 

Large companies also qualify as qualified investors, so long as they satisfy at least two of the following criteria:

• average number of employees during the financial year in excess of 250;
• a total balance sheet exceeding €43m;
• an annual net turnover exceeding €50m.

Smaller companies and individuals can also qualify as qualified investors, so long as they meet certain criteria and apply to have their name kept on the register of qualified investors maintained by the FSA, or by authorities in other member states. 

Smaller companies qualify to be on the register if they do not meet two of the three criteria for larger companies set out above and they have a UK registered office. 

Individuals qualify to be on the register if they meet at least two of the following three criteria:

• their share portfolio exceeds €0.5m;
• they work or have worked for at least one year in the financial sector in a professional position which requires knowledge of securities investment;
• they have carried out transactions of a significant size on securities markets at an average frequency of at least 10 per quarter over the previous four quarters.

In summary, companies who do not wish to issue a PD prospectus should ascertain whether they can raise sufficient funds by encouraging investors to register as qualified investors or to participate through investment entities prior to any public offer being made. 

What are the incentives for investors?

There are a number of potential benefits for both individual and corporate investors who are subject to the UK tax regime:

• Subscription for new shares in qualifying AIM companies may attract reliefs under the Enterprise Investment Scheme (‘EIS').
• Investors may obtain 100% relief from inheritance tax for investments in certain AIM companies in some circumstances.
• Investments in venture capital trusts which may invest in AIM companies attract income tax and capital gains tax reliefs.
• Corporate investors may benefit from reliefs under the Corporate Venturing Scheme (CVS). These include a lower rate of Corporation tax, deferral of tax on CVS gains and relief against income for capital losses.

Please see the Exchange publication "AIM - A guide to AIM tax benefits" on the Exchange's website at http://www.londonstockexchange.com/ for more information.  Please note that this publication includes a section on issues for overseas investors and companies. 

What are the continuing obligations?

The continuing obligations for AIM companies are generally less stringent than those for fully listed companies.  For acquisitive companies, AIM has the advantage of not requiring a circular to be produced and shareholder approval obtained except where the transaction to be undertaken is a reverse takeover. 

An AIM company is obliged to notify a regulatory information service without delay of any new developments which are not public knowledge concerning a change in its financial condition, sphere of activity, the performance of its business or its expectation of its performance which, if made public, would be likely to lead to a substantial movement in the price of its shares.

AIM companies must send their annual accounts to shareholders within six months of the financial year end and also announce half yearly results within three months of the end of the relevant six month period. 

The AIM Rules further require that AIM companies maintain an easily accessible website, with up-to-date management and financial information on the company.  This would include details of its business, directors and major shareholders, a copy of the admission document or prospectus, and copies of documents recently sent to shareholders, such as accounts.

Directors will not be able to deal in the AIM company's shares when they have information which might affect the company's share price or in the two months period leading up to the company's announcement of results. 

Quite apart from the requirements of the AIM rules, the company's nominated adviser may also impose additional restrictions on the company in order to make it more attractive to investors.  An example is the common requirement for directors and substantial shareholders to be restricted from selling their shares for a period after admission.  In addition, the nominated adviser may require the company to follow corporate governance best practice.  At the very least, a nominated adviser is likely to insist upon the appointment of non-executive directors (assuming none are already in place).

If an AIM company does not comply with the AIM rules, the Exchange may suspend trading in the company's shares and ultimately may seek to cancel the company's AIM admission.

Is my company eligible for the fast-track procedure for joining AIM?

If a company's shares have been traded on one of the stock exchanges listed below for at least 18 months, it may apply to have its shares listed on AIM using a quick and simple application process, the AIM Designated Markets Route.  The relevant stock exchanges are:

Australian Stock Exchange Euronext Deutsche Börse Johannesburg Stock Exchange Nasdaq

NYSE Stockholmbörsen Swiss Exchange Toronto Stock Exchange UKLA Official List

 

 

 

 

 

 

Companies whose shares are listed on one of the ‘designated markets' referred to above may obtain a listing on AIM relatively cheaply.  The costs of an AIM application will partly be dictated by the amount of due diligence that the company's proposed nominated adviser requires to be undertaken.  Costs will be higher if the company also wishes to raise money by way of an offer to the public at the time of its admission to AIM which requires a prospectus to be published.  There will, however, be no need to produce a prospectus if shares are to be issued to institutional investors.  A broker is still likely to require some form of document to be produced to present to investors which will need to be verified and therefore some additional costs on any capital raising on admission cannot be avoided.

Applicants have to provide information to the Exchange at least 20 business days before the expected date of admission of their shares and the admission process is likely to take 5-8 weeks from initial instruction of advisers to admission.  There is no requirement for new applicants to produce a prospectus-style document on admission unless they are making an offer to the public as mentioned above.  An applicant's latest accounts will, however, need to have been prepared in accordance with IFRS or UK, US, Australian, Canadian or Japanese GAAP.  The accounts, which are provided to the Exchange, must also be for a financial year ending not more than nine months prior to the admission date.

An applicant will also have to provide the Exchange with information equivalent to that which would be required to be put in a prospectus-style document but which is not in the public domain.  The directors of the applicant would also have to confirm that the company's working capital will be sufficient for 12 months from admission.  Certain other information also needs to be provided in relation to an applicant company including the following:-

• the name of the stock exchange upon which its shares have been traded;
• the date from which its shares have been so traded;
• confirmation that it has adhered to any legal and regulatory requirements involved in having its shares traded upon such market;
• an address or web-site address where any documents or announcements which it has made public over the last two years (in consequence of having its shares so traded) are available;
• details of its intended strategy following admission including, in the case of an investing company, details of its investment strategy;
• a description of any significant change in financial or trading position of the applicant which has occurred since the end of the last financial period for which audited statements have been published;
• information equivalent to that required for an admission document which is not currently public; and
• a website address of a page containing its latest published annual report and accounts which must have a financial year end not more than nine months prior to admission. The accounts must be prepared in accordance with IFRS or UK, US, Australian, Canadian or Japanese GAAP (which will depend on whether the company is an EEA or non-EEA incorporated entity). Where more than nine months have elapsed since the financial year end to which the latest published annual report and accounts relate, the website address must also include a set of fully audited interim results covering the period from the end of the financial period of the published annual report and accounts and ending no less than six months from that date.

An overseas company applying for an AIM admission must appoint a nominated adviser to oversee the admission process and to provide ongoing support.  The nominated adviser has to confirm to the Exchange that, to the best of its knowledge and belief, having made due and careful enquiry, the requirements set out above have been complied with.  One of the main elements which will need verifying is that disclosure to the Exchange has been made of information equivalent to that required for an admission document which is not currently public.

In summary, the fast track application procedure is a useful route to AIM for qualifying overseas companies.  Where an offer to the public is to be made on admission, however, the applicant company will be treated in the same way as any other applicant.