20 February 2008

Obtaining a London Listing - AIM vs Main Market


Listing in London?

The main market is the London Stock Exchange's principal market for listed companies from the UK and overseas.  It currently has approximately 1,600 companies listed including over 300 international companies.  In 2007, 264 companies listed in London compared with 298 on the New York Stock Exchange and Nasdaq combined.  In 2007 companies on the London Stock Exchange raised US$87 billion compared to US$15 billion on the New York Stock Exchange and US$20 billion on Nasdaq.

The AIM market of the London Stock Exchange (AIM) 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 approximately 1,700 companies (including more than 350 international companies) whose shares are traded on AIM.

Why list and why in London?

The main reasons most companies give for obtaining a listing 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

                 A London listing has a number of attractions

                • The London Stock Exchange is the largest stock exchange in Europe and the world's most internationally focused
                • London is a global financial centre – all the major banks have offices in London
                • The great majority of all IPOs on Western European exchanges take place in London
                • London is well known for its high standards of regulation

                What are the main differences between AIM and the Main Market?

                 

                Main Market

                AIM

                Minimum public float

                25% of shares in public hands

                None

                Market capitalisation

                £700,000 (in reality at least £100m and ideally £200m or more)

                None (in reality at least £10m and ideally £20m or more)

                Trading History

                3 years

                No minimum requirement

                Accounting standards

                IFRS or equivalent

                IFRS or US, Canadian, Japanese or Australian GAAP

                Tax incentives

                None although shareholders may invest through ISAs

                Incentives under UK tax legislation include relief under the Enterprise Investment Scheme, relief from inheritance tax, the ability of venture capital trusts to invest in some AIM companies and corporate venturing reliefs

                Shareholder approval for transactions

                Class tests require shareholder approval for a Class 1 acquisition (broadly speaking acquiring or disposing of a company or assets worth more than a quarter of the company's value) or on a reverse takeover

                Only for reverse takeovers (broadly speaking, acquiring a company or assets worth more than the AIM company) or transactions resulting in a fundamental change in the company's business, board or voting control

                Other conditions for listing?

                • At least 75% of the company's business must be supported by a historic revenue earning record covering the last 3 financial years
                • The company must control and have controlled its assets for the last 3 financial years
                • The company must be carrying on an independent business as its main activity
                • The total of all warrants or options to subscribe for equity shares must not exceed 10% of the company's issued equity share capital
                • The company's shares must be freely transferable and eligible for electronic settlement
                • The company's shares must be freely transferable and eligible for electronic settlement

                Primary adviser

                A sponsor must be appointed

                A nominated adviser or ‘nomad' must be appointed

                Cost of listing

                Minimum: £700,000 – £900,000

                Typically 7-10% of funds raised

                Minimum: £250,000 – £300,000

                Typically 8-12% of funds raised

                Ongoing costs

                Higher fees for sponsors, auditors, lawyers and non-executive directors in view of greater continuing obligations.  Typical cost of maintaining listing is £300,000 – £400,000 p.a.

                Lower fees for nomads, auditors, lawyers and non-executive directors in view of lesser continuing obligations.  Typical cost of maintaining listing is £150,000 – £250,000 p.a.

                Lock-in requirements

                None in theory, but in practice at least six months

                One year for a start-up and in practice one year for most AIM companies

                Insider List and annual information update

                Obligation to publish insider list and annual information update

                Not applicable

                Announce half year results

                Within 2 months of the end of the first six month period of the financial year

                Within 3 months of half year end

                Publication of full year accounts

                Within 4 months of the end of the financial year

                Within 6 months of year end

                Interim management statements

                Unless an issuer publishes quarterly financial reports, its management must release a statement during the first 6 month period of any financial year and also during the second 6 month period

                Not applicable

                Disclosure of remuneration

                Detailed directors' remuneration report

                Directors' aggregate remuneration and that of the highest paid director

                Number of independent non-executive directors (excluding the Chairman of the board)

                Three

                Two

                Limit on non pre-emptive share issues

                5% per annum (or 7.5% in 3 year period)

                10% per annum commonly accepted by institutional shareholders

                  

                How much does a listing cost and what advisers do you need to appoint?

                Costs

                The total average fees for a main market or AIM listing depend on the nature of the company coming to the market as this affects the nature and level of due diligence required.  The base level for admission costs for all advisers would normally be in the region of:

                Main Market: £700,000 – £800,000

                AIM: £250,000 – £300,000

                On top of these fees, the company will need to pay the broker's fees for raising the funds (unless listing by way of an introduction), which may be in the region of 4-6% of funds raised.

                Advisers

                The key advisers that a company needs when seeking a listing are a sponsor in the case of admission to the main market and a nominated adviser or ‘nomad' in the case of admission to AIM.

                We would be happy to recommend sponsors and nominated advisers to you.  The sponsor or 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 a listing.

                A company will also need to retain a broker (although many sponsors and nominated advisers will also be able to act as broker).  Other advisers who will be involved in a float are lawyers to the company, reporting accountants, lawyers to the sponsor or 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.

                What are the common obligations for fully listed and AIM companies?

                Companies considering listing in London should be aware of a number of obligations which are common to both fully listed and AIM listed companies:

                • The company's shares must be freely transferable and eligible for electronic settlement
                • Restrictions on dealing – no dealing in the 2 months prior to publication of half year and full year results and insider dealing and market abuse rules apply
                • Filing of accounts – accounts need to be filed within six months of year end
                • Retirement of Directors – in practice, the nomad or sponsor will require one-third of the board to retire by rotation each year
                • Notice Period – best practice is for directors' service contracts not to have notice periods in excess of 12 months
                • Remuneration of non-executive directors – best practice is for non-executive directors not to be remunerated in shares or share options
                • Length of service of non-executive directors – best practice is for annual shareholder approval of any non-executive director who has served on the board for more than nine years
                • Shareholder approval – shareholder approval for substantial property transactions with directors and connected persons.

                Conclusion

                More established companies not wanting to grow through a series of acquisitions may prefer to go directly to the main market.  Smaller acquisitive companies may prefer to list on AIM to avoid seeking shareholder approval for transactions.  The tax breaks for AIM companies may also increase investor appetite for an AIM company's shares.  The likely market capitalisation and investor appetite are often the deciding factors, particularly given the greater cost of obtaining a main market listing.

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