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UK market appeal broadens

By Richard Hall on August 03 2006

Entrepreneurs never miss an opportunity, so it is little wonder that it is not just UK business leaders flourishing in the current market – their overseas contemporaries are also joining the party.

We are seeing an enormous amount of activity in the UK markets, particularly on AIM, with non-UK businesses rapidly increasing their share of the action. Since AIM’s inception 274 non-UK companies have listed, with around two-thirds of them joining the market in the past two years. Indeed, more than 20 per cent of the businesses that joined AIM last year were from overseas. Compare that with around two per cent in 1995 and four per cent in 2000 and it is clear that AIM’s pulling power is intensifying.

So, what is the attraction of this lightly regulated but highly active market?

When it launched in the mid-1990s it was clearly pitched at young, fast-growth businesses and the risks involved for investors were clear. But the rewards have been evident and the market is now taken seriously by institutional investors looking for a balanced portfolio and exposure to a wide variety of investments. AIM has come of age and is now an accepted and legitimate avenue for mainstream fundraising. Even North America-based analysts now see AIM as a perfectly acceptable route to capital.

For many overseas businesses, particularly those from North America, a listing in London has long been seen as a stepping-stone into Europe. The increased regulation in the US markets has provided a further nudge towards AIM.

Private equity has also come into its own over the past decade. We have seen it move from the fringes into the mainstream and it now plays a vital role for those companies seeking finance, whether on the acquisition trail, looking to de-merge subsidiaries or grow organically.

Private equity houses are sitting on a pile of cash that needs to be used or returned to investors. This, in part, explains the high level of corporate activity, which is having a far-reaching impact.

PE houses will continue to look for an exit from their investments, and flotation numbers – for both UK and overseas businesses – are being bolstered by their growing interest in this route.

Against the backdrop of economic stability we are now entering a significant period for the middle market – AIM is flourishing, overseas investment is increasing and the demand for funds, whether from the capital markets, private equity or bank debt, is set to continue.

Taking the middle market public
Drawing on our experience of assisting middle market businesses through flotation, we have developed the IPO Retreat, a two-day insight into the IPO process for business leaders considering flotation.

The event has been running for several years and our most recent retreat – which included a North American business currently listed on the Toronto stock exchange – is testament to the pull the UK market is exerting on overseas businesses.

If you would like further information on our IPO Retreat, please contact Steve Durbin on 020 7951 1883 or sdurbin@uk.ey.com.

Richard Hall is Markets Leader at Ernst & Young.

This article was originally published in Masterclass magazine.

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