For a successful flotation on AIM you’ll need more than a company with high potential. Just as crucial will be your ability to recruit the right advisers.

If you want to float your business on AIM, the London Stock Exchange’s market for fast growth companies, you’ll need to be running a business with all the necessary attributes – a strong management team, a sound business model and innovative products and services. A healthy level of sales and profits will also not go amiss.

However, while all of the above are extremely important, they will count for nothing if you don’t recruit the right advisers to guide you through the entire process.

Professional, adept advisers will be able to raise the cash your business needs for growth, introduce you to the right balance of investors (both private and institutional) and, most importantly, put a value on your business that is commensurate with its level of development and potential. If everything falls into place you should be able to sit back and watch your shares go to a premium on the first day of dealings. This will almost undoubtedly enhance your relationship with your new shareholders and the wider City – that most fickle of institutions.

Get the price right
However, if you choose the wrong advisers, you will be left with a tangled web of problems to unravel. The wrong adviser may not be able to procure the funds your business needs to leap to the next level, or they might fail to bring in the right investors. Moreover, if they price your business too aggressively, you could see your shares bomb when they launch, a development that will have dire consequences for your reputation. Conversely, if your advisers value your business too lowly and the shares soar, you will have given away a significant proportion far too cheaply.

To help you through the business maze, Business XL, in association with leading broker Canaccord, has examined every single IPO on AIM in the last year (all 248 of them). Our research charts the most active brokers and nominated advisers, the funds they have raised and the share price performance of all their clients.

Brokers are key
The most important adviser to select is your broker. Quite simply it is they that will raise the cash – if they don’t do this, there will be no IPO.

Happily, the brokers operating on AIM have an impressive track record in gleaning funds from the global investment community. Last year, they raised a total of £2.31 billion, the most that’s ever been raised in AIM’s short nine-year history.

The big broking guns
Top of the pile, for the third year running, is Collins Stewart, which raised £558.64 million for ten clients. In second place sits Evolution Securities, which reeled in £276.6 million – also for ten clients – closely followed by Numis, which raised £198.13 million for eight clients.

As the statistics suggest, these three professional service groups largely focus on bigger companies in search of considerable cash injections. Says Canaccord’s Neil Johnson, ‘we are much better at raising £50 million than £5 million, but it all depends.’ Interestingly, the companies from this broking house have soared 87.5 per cent since they joined the market.

Mid-size and active players
If you’re searching for funds in the £5 to £10 million bracket, the likes of KBC Peel Hunt, Arbuthnot and Teather & Greenwood are probably more appropriate operators to target. Of these, the best performance was produced by KBC, whose clients’ shares soared a credible 36.34 per cent. Like many, KBC adopts a flexible approach to raising funds. Says KBC’s Adam Hart, ‘we will do the smaller fundraisings, but we wouldn’t really want to do less than £5 million.’

The most active broker last year was Seymour Pierce, which pulled in £149 million for 27 new issues. According to Dru Edmonstone, Head of Corporate Broking at Seymour Pierce, his company will look at any size of fundraising. He says, ‘we have no delusions of grandeur. The biggest float we’ve done was £100 million market cap max and we have no minimum.’ On average, the companies from this house saw their shares soar 24.28 per cent.

Manchester-based broker WH Ireland was once again at the forefront of activity, floating 25 companies, raising on average £1.67 million.

Nomads play a key role
Once you’ve selected your broker, the next port of call should be the nominated adviser. The importance of the ‘Nomad’s’ role in the flotation should not be underestimated. Its job is to assess a company’s suitability for a place on the market, advise on valuation, oversee the admission procedures and ensure that a company adheres to all the rules and regulations – both before and after float. An experienced and capable adviser is a must.

Interestingly, many companies appoint as their nomad the same investment house that acts as their broker. The rationale is that it facilitates a much more swift and efficient float.

Nevertheless, there are advisers which only fulfil the Nomad role – Nabarro Wells and Grant Thornton for instance. The benefit of this, they argue, is that a pure Nomad is working only on behalf of the client, and therefore more ‘independent’.

Of all the Nomads, Canaccord’s clients recorded the best share price performance, with Noble & Co's a close second, followed by Nabarro Wells and Grant Thornton. Just as impressive though was the performance of seasoned City players Teather & Greenwood and Beaumont Cornish (another firm without a broking division).

Keep sectors in mind
Of course, as well as choosing a broker for their fundraising power and a nomad for its particular skills, you need to bear in mind that some investment houses specialise in certain sectors.

WH Ireland has a focus on mining and resources, Canaccord focuses most on mining, media and life sciences, while Brewin Dolphin has its fair share of technology clients and Durlacher has a penchant for speculative financial services companies.

Most brokers, though, are generalists and can cater for a wide range of sectors. Typical of the generalists is Evolution, which, according to analyst Jeremy Ellis ‘will pretty much look at any sector. As long as we have the analysts and skills in-house to provide professional support after a company has floated, we will take it on.’

The most popular flotations in the past year on AIM were in the speciality & other finance sector with 59 new issues, followed by mining and natural resources. Of the finance newcomers, 43 were fledgling and highly speculative shell companies (companies that have cash, but no operating business and are looking for an acquisition).

Encouragingly, if your company is a software or media play and is growing strongly, you should have no difficulty finding support in the City. A total of 26 software ventures floated last year, raising £230.08 million, while no less than 21 media ventures floated, raising £265.48 million. Incidentally, in the previous year, there was just one media IPO.

Keep an eye on costs
By the time you have recruited your adviser and broker (not to mention your lawyer and accountant) you will begin to realise that conducting an IPO is not a cheap process.

Graeme Cull of Birmingham-based Arden Partners says the cost of flotation very much depends on the size and complexity of the deal. ‘There are lawyers’ and accountants’ fees – they might charge a ballpark £100,000 to £125,000 each for their months of hard work.

‘And then there are the broker and Nomad fees of say, £125,000, and remember, they’ll also charge a percentage of the monies raised.’ Typically this is around three or four per cent, although some ‘blue-sky’ ventures with no revenues were more than happy to pay seven per cent during the tech boom.

Not everyone is happy handing over this sort of percentage though. Says Seymour Pierce’s Dru Edmonstone, ‘three per cent of the monies raised is the norm on floats. Anything reaching six per cent is what I’d call the rip-off end of the market.’

Buy the full report
This document is part of a more comprehensive 16-page report on New Issues 2004 compiled by Growth Company Investor. The report is available in PDF format priced £195 + VAT. To order a copy, call 020-7430 9777 or email info@growthcompany.co.uk.