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There are various ways a company may be structured, such as private or public. The main advantage of a public company is the ability to raise capital by issuing new shares to either the public or institutional investors. In the UK market, when a company decides to become public, if they choose to list on the LSE (a UK company can list on any international stock exchange) it has the option to either list on the main market or AIM (Alternative Investment Market).
AIM is a sub-segment of the LSE that mainly serves smaller and growing companies. AIM has fewer regulations, contained in its own rulebook whilst still allowing these companies to raise capital. Some companies view AIM as a stepping stone to the main market, whilst some companies only intend to list on AIM.
The LSE sets a rule book for AIM which covers topics such as admission, reporting and accounting requirements and the role of the nominated adviser. Following consultation this summer, the revised AIM rules came into force on 5 August, marking the biggest changes to the AIM rules in two decades. The changes broadly focus on supporting growth for AIM companies with the aim to attract more AIM listings.
The burden has been lowered from having to prove that the company has adequate capital for 12 months following admission to a mere directors’ disclosure that they obtain a reasonable opinion of the company’s future fundraising needs for the next 12 months. The removal of proof will reduce the cost of the financial preparation required for admission.
On a case-by-case basis, AIM companies conducting an equity fundraising or any other transaction involving the issue of AIM securities may request a temporary suspension of trading. This creates certainty for the company and allows them to manage the fundraising process, manage risk and prevent market volatility.
UK or EEA AIM applicants can use their accounts in either IFRS or local GAAP. This is intended to save the applicant time and money as accounts will not need to be restated under IFRS.
All companies wanting to list on AIM must produce an admission document. The specific requirements of the admission document is stated in Schedule 2, Part 1 of the AIM rules. It covers information such as capital, profit forecasts and about the management of the company. In the admission documentation, the applicant can now incorporate publicly available information via hyperlink. This should reduce the length of the admission documents and avoid duplication.
A reverse takeover is a takeover or acquisition where a smaller company acquires a larger company, but the larger company’s shareholders end up owning most of the shares in the smaller company.
Prior to the new rules, if a transaction exceeded 100% in any of the class tests (see Schedule 3 of the rules for full definitions of the gross assets test, turnover test, consideration test and profits test), it would constitute a reverse takeover. However, now a reverse takeover will only take place if it results in a fundamental change to the business, board or voting control.
This provides greater certainty for AIM companies as they are able to grow through takeovers and acquisitions of smaller companies but are not then impacted by the complex and expensive reverse takeover process. It will only be triggered in the event that the reverse takeover results in a fundamental change to the business.
The threshold in any class test for a substantial transaction is raised from 10% to 25%. This threshold now aligns with the main market. Therefore, an AIM company can now enter into larger transactions before meeting the substantial transaction threshold which gives the company greater flexibility and generally promotes growth.
Founders, management teams and pre-IPO investors now have special voting shares at admission to enable them to retain enhanced control rights over the company. Whilst special voting shares cannot be issued nor can the rights be extended following admission, LSE has not imposed any fixed time limits on this right, therefore an AIM company can reduce or withdraw special voting shares post-admission.
AIM companies are no longer required to adopt a recognised corporate governance code or disclose how they comply with such a code under the “comply or explain” model. This gives AIM companies the flexibility to adopt governance arrangements that are appropriate to their size, stage of development and circumstances. The new AIM Rule 26 is much more flexible; it requires disclosure on board composition, director roles, remuneration and performance, risk and controls framework and investor relations.
The previous AIM Designated Market Route has been replaced with a new Express Market Route offering a quicker and less onerous admission process for companies already listed on an Express Market (any regulated public market). An express applicant must provide the exchange with a draft Schedule One Announcement at least 3 business days before the expected date of admission to AIM.
A nomad is a nominated adviser that is appointed to guide a company’s admission to the AIM and to ensure the company is compliant under the AIM rules post-admission. The new rule 11 places an obligation on the company to keep the nomad updated on changes or developments that may reasonably have a material impact to its business and/or prospects. The nomad will then decide if the changes or development are likely to have a market impact; the company must regard and consider the view of the nomad.
AIM has always been an attractive market for growing companies; there are fewer regulatory burdens than the main market, but still gives companies the access to raise capital which they can then invest into the business. Additionally, listing on AIM also gives the company greater visibility, and increases the company’s credibility amongst consumers and investors. The changes to the AIM rules have leant into the fundamental principle that the requirements for AIM companies should be more relaxed, this can be seen in the removal of working capital statement, the greater accounting flexibility AIM companies now have when applying to AIM, and the removal of the recognised corporate governance code and the “comply or explain” model.
Whilst there are fewer regulatory burdens than the main market, AIM companies still have to comply with the AIM rules, creating an administration burden with costs. The permission to include hyperlinks is trying to reduce the administrative burden during the admission stage along with the greater accounting flexibility which will hopefully reduce duplication of work. However, it should be noted that any admission to AIM is always going to include administrative and cost burdens as the company still has to appoint a nomad, prepare admission documentation and complete verification (every statement made in the admission documentation must be verified so that investors are know that the information included in the admission is truthful and reliable), and trading on AIM incurs costs.
Furthermore, opening up the company to shareholders may dilute the power of the founders. Founders, management teams and pre-IPO investors now have the right to new special voting shares at the time of admission to try to combat any dilution during admission. However, there is currently some ambiguity with this rule as an AIM company has the right to reduce or withdraw the rights attaching to the special voting shares following admission.
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