Does AIM live up to the hype?
London's Alternative Investment Market is getting a lot of
attention lately, especially from small and growing businesses
that see it as a potential alternative to the bigger markets.
But why is AIM gaining in popularity among companies and
investors alike? Is AIM a market you should consider - do the
risks outweigh the benefits?
If you have done any research on AIM in the past you already
know that it is growing quite rapidly. Last year it grew by 500
new companies; an increase compared to the 355 new companies
that joined in 2003. Along with the growing number of companies
flocking to AIM are eager investors, who are willing to take
advantage of investment opportunities in smaller and newer
companies rather than put their money into the big ones.
In particular, companies are eager to list on AIM for several
reasons. In the first place, new companies see it as an
opportunity to grow without all the restrictions and hindrances
put in place by the main markets and many international
exchanges. For example, if a company cannot provide the required
trading record to float on the main market, the only alternative
might be AIM. The Sarbanes-Oxley corporate governance rules in
the U.S. are also a concern for many American companies that
want to go public.
Softer regulations and lower costs make AIM an attractive
market, especially for smaller companies that have no other way
of raising the funds necessary to sustain continued growth. AIM
makes it easier for these companies to take that next step.
Overseas firms find AIM easier to break into than other markets
as well.
Of course, if you list on AIM, many investors will be attracted
to investing in your company because of the potential to rein in
huge profits if your stock grows at a rapid rate. Private
investors can get in at the beginning and benefit from the
growth that may follow. Larger companies don't have the tendency
to grow in leaps and bounds as their younger counterparts do.
But is this market too risky for some investors, and as such,
not quite as enticing for companies as it might seem at first
glance? This really depends on what your company's needs are and
what you're looking to gain from the market. Although the UK is
actively seeking to attract more companies from the U.S., there
are worries among American companies that AIM might not be worth
the risk.
In addition, more and more foreign companies (that follow
different reporting and corporate governance standards) and
lower-quality UK-based firms are joining AIM, and some analysts
worry that overall, the shares are overpriced. And rumors are
flying that IHT relief on AIM shares might be scrapped in the
near future, which would cause investors to start a massive
sell-off.
Of course, only time will tell whether or not the potential
problems surrounding AIM are temporary or deep-seated. There are
both risks and benefits to listing on AIM, so in the end, the
decision your company makes rests on factors specific to your
particular situation.