Taking AIM

Source: Stock Market Digital

Date :22/05/2007 14:55:07

Floatation regular columnist Paul Watts looks at the floatation process, step by step.

There’s a great saying on goal setting which asserts that a person who aims at nothing is sure to hit it. Entrepreneurs considering what comes next for their business may look to AIM flotation as key to their business and personal goals and I believe one thing is vital to both AIM flotation and goal setting - preparation.

AIM is certainly enjoying buoyant times as a market to raise capital and is an option that successful companies are well advised to explore as part of their strategic planning.

However, entrepreneurs often consider flotation before they are ready for life as a publicly quoted company. Founding shareholder/directors need to take a critical look at their business and themselves before setting off down the AIM route.

When exploring this, businesses need to ensure they are fully prepared in order to avoid some of the pitfalls that have cost other companies dear. In itself, commencing the process of an AIM flotation is a major step and the key issue is to ensure that the transaction proceeds smoothly and efficiently. There are some clear stages to flotation that any prospective AIM company should consider and carefully plan for.

Preparation and suitability for listing

There are a number of key drivers behind a successful AIM company:

- Strong management team

- Good growth prospects

- Blue chip customers

- Unique products and services

- Good governance and internal controls

Not only should a company aspiring to an AIM listing be suitable but it is also important to be prepared and early consideration should be given to matters including financial systems, accounting policies and reporting GAAP, corporate and board structure and the most appropriate time for the company to float to maximise the fund raising potential.

AIM advisers will critically assess the company’s strategic or business plan, which should cover all of the above areas, prior to considering an initial public offering (IPO). The management team must have a clear vision of the company’s direction and business aspirations.

Appointment of advisers

The next step is to appoint professional advisers to assist with all aspects of flotation. The key roles are those of nominated adviser (Nomad) and broker. The Nomad assesses the company’s suitability for the AIM market, project manages the flotation process and helps ensure that the AIM rules are followed. It is a requirement of AIM that the company retains a Nomad at all times. A Nomad must be authorised by the London Stock Exchange (LSE) (a list is available at www.londonstockexchange.com/aim) and it should be appreciated that the Nomad owes a duty to the LSE as well as the company.

The broker is responsible for raising funds from institutional and other investors for the IPO, and managing the aftermarket. The broker will frequently be from the same firm as the Nomad, albeit in quite separate departments.

In addition, a company will need to appoint a reporting accountant and a lawyer to help with the process. Experienced AIM lawyers and accountants are well placed to effect introductions to suitable Nomads and brokers.

Timetable

Whilst the Nomad is responsible for drafting a timetable and allocating responsibilities to the respective parties, it is important that all parties have an input into the process and ensuring that the timetable is achievable. The company should not underestimate the amount of senior management involvement required during the process, which can be for a minimum of three to four months.

It is often necessary to effect a re-organisation of group companies, or to form a new holding company for the IPO. This will usually require tax clearances, as will application for EIS/VCT status. It is important that sufficient time to obtain such clearances from the Inland Revenue is built in to the timetable.

The due diligence process

The reporting accountant will frequently prepare a detailed financial due diligence report, known as the ‘long form report’, which is usually based in part on the company’s business plan. The report details the company’s history, structure, operations, organisation and its historical and future trading results.

Key features from the long form report will form the basis of the information to be included in the front end of the admission document. The long form report will include a review of the company’s internal financial controls and corporate governance issues, making recommendations as appropriate. The reporting accountant is often required to report independently to the Nomad on financial reporting procedures.

Legal due diligence covers such areas as the company’s memorandum and articles, employment contracts, title to assets, key customer and supplier contracts and other legal areas specific to the business.

There may be a requirement for specialist due diligence in relation to the company’s technology, asset valuations as well as environmental issues and other matters.

The AIM rules require that the admission document contains a statement by the directors that, after due and careful enquiry, there is, in their opinion, sufficient working capital for a period of at least 12 months following admission. The reporting accountant therefore reviews the company’s integrated working capital model (profit and loss account, balance sheet and cash-flow) and scrutinises the stated assumptions and sensitivities.

Admission document

The admission document must contain factual information about the company, its management and the fundraising. It will also include historic audited financial information on the company for the last three years, together with the accountant’s report thereon.

The lawyers to the company usually draft the statutory and general information section at the back of the admission document. The lawyers will deal with the formal verification process to ensure that all the information in the document is properly supported and is not misleading. This is a critical part of the process as it is a criminal offence to make false statements in a prospectus.

Marketing and completion

The pathfinder admission document is then produced. This will be a complete document, with the exception of final dates and the share price. The broker uses the pathfinder during the marketing phase for an AIM placing, when the company’s directors will spend two or three weeks meeting with potential institutional investors.

Finally, once the money has been raised, a completion meeting will be held with all parties. All reports, documents and supporting comfort and consent letters are signed at this meeting and remuneration corporate governance committees. The directors approve the final admission document and printing is authorised. The Nomad then completes the formal admission procedures and admission to AIM occurs three days later.

Of course, with regard to being a successful AIM quoted company, getting there is just the beginning and a stage upon which successful companies are built. Good advisers help businesses with the long term goals as well as the steps in getting there such as flotation. It brings to mind the quote by the American entrepreneur JC Penny who said: “Give me a stock clerk with a goal and I'll give you a man who will make history. Give me a man with no goals and I'll give you a stock clerk.”