Withers Worldwide

What is AIM?

The AIM market (‘AIM’) of the London Stock Exchange plc (the ‘Exchange’) is targeted at growing international companies.

Currently there are over 500 AIM companies with the majority of their operations outside the UK in over 100 countries. This strong international representation reflects the fact that AIM is an ideal public market for growing and entrepreneurial international businesses seeking to expand and raise their global profile. 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.

Since AIM was launched it has had over 3,000 admissions. In the first half of 2011, there were 50 new admissions raising a total of £417.02 million.

Why go to AIM?

The reasons AIM companies give for joining AIM are to:

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

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 £350,000 - £450,000 ($580,000 - $740,000). 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 (a ‘Nomad’). We would be happy to recommend Nomads to you and you can find a list of the Exchange’s approved Nomads on their website here.

One of the duties of the Nomad 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 Nomads have been complied with. The Nomad 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 Nomads will also act as broker). Other advisers who will be involved in an AIM admission are lawyers to the company, reporting accountants, lawyers to the Nomad, 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 Nomad. The Nomad tends 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, although, practically, investors may be more willing to invest in a company with a proven track record.

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, Canadian, Australian 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. The shares of non-UK companies would ordinarily be settled through CREST by using CREST depositary interests (issued by CREST), which are to be distinguished from other depositary interests such as depositary receipts (‘DRs’). DRs will only be considered appropriate for admission to AIM where the AIM company is incorporated in a jurisdiction which prohibits, or unduly restricts, the offering or admission of its securities outside of that country (e.g. India and Korea).

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.

If the company is an investing company, it must, as a condition of its admission, raise a minimum of £3 million in cash via an equity fundraising on, or immediately before, admission. An investing company must state and follow an investing policy and must seek shareholder consent to any material change in its investing policy. If the investing company has not substantially implemented its investing policy within 18 months of admission, it must seek shareholder consent for its investing policy at its next AGM and on an annual basis thereafter, until such time as the investing policy has been substantially implemented.

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.

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 Nomad 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.

A parent company incorporated in the EEA (which for the purposes of the AIM Rules includes the Isle of Man, Jersey and Guernsey) must present and prepare its last three years historical information using IFRS. An EEA company which is not a parent company at the end of the relevant financial period may prepare such financial information either in accordance with IFRS or the accounting and company legislation and regulations applicable to the company due to its country of incorporation.

AIM companies incorporated outside the EEA (which for the purposes of the AIM Rules includes the Isle of Man, Jersey and Guernsey) must prepare and present their historical financial information using IFRS or US, Canadian, Australian or Japanese GAAP.

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 Nomad 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.

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 below.

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. The general principles that apply to a prospectus or admission document is that it must contain all such information as is necessary to enable investors to make an informed assessment of both:

• the assets and liabilities, financial position, profit and losses, and prospects of the company; and.
• the rights attaching to the securities.

Such information must be presented in an easy to analyse and comprehensible form.

The directors of the company (as well as the company itself) must take responsibility for the contents of the prospectus or admission document, and must confirm that, having taken all reasonable care to ensure that such is the case, the information it contains is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import.

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; and
• fewer than 150 persons, other than qualified investors, per EEA state. (Please note that this exemption was increased to 150 persons from 100 persons on 31 July 2011. In member states that have yet not implemented this change, the limit will remain 100 persons.)

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 ($3.6m).

In practice, many companies will structure their fundraisings so that they are made only to qualified investors and/or fewer than 150 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 ($62m);
• an annual net turnover exceeding €50m ($72m).

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 shares portfolio exceeds €0.5m ($0.72m);
• 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 here 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 or a substantial disposal.

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. The AIM rules specify numerous matters requiring announcement including directors’ dealings, substantial transactions by the company, and changes through whole percentage points to significant (3%-plus) shareholdings in the company.

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. Accounts must include, inter alia, disclosure of transactions with related parties and each director’s remuneration.

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 Nomad 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 Nomad may require the company to follow corporate governance best practice. At the very least, a Nomad 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 ‘AIM 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 Nomad 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 using the fast-track 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 US, Canadian, Australian or Japanese GAAP (which will depend on whether the company is an EEA or non-EEA incorporated entity). 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 in an admission 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 at least 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 investing policy;
• 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;
• a statement that its directors have no reason to believe that the working capital available to it or its group will be insufficient for at least 12 months from the date of its admission;
• 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 US, Canadian, Australian 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 Nomad to oversee the admission process and to provide ongoing support. The Nomad 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.

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