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Only a handful of companies a year move from AIM to the Main Market of the London Stock Exchange. Alex Tamlyn, head of EMEA capital markets at law firm DLA Piper, looks at the implications of such a move and asks whether there are any tangible benefits.

AIM has more than doubled in size over the last four years and now has 1,626 issuer companies on its books, some 80 more than the Main Market, across 32 different countries. For a market that was developed in 1995 as a facility for high net-worth individuals to invest in small UK technology companies this is a creditable achievement.

It is well understood that AIM is a more lightly regulated environment than the Main Market. The requirement that companies should have three years of trading history does not apply to AIM, shareholder approval is only needed for the largest transactions, and financial disclosure and reporting requirements are generally less demanding.

Other so-called advantages of AIM are more intangible in practice. On paper the UK corporate governance regime does not apply to AIM companies – but in reality businesses that expect to be taken seriously by institutional investors still need to show that they are more or less compliant. The AIM rules set no minimum “free float” limit, in contrast with the Main Market’s 25 per cent; but AIM companies with very restricted public ownership can suffer significant reduction in liquidity.

Regulations aside, there is a perception that Main Market companies are more highly esteemed than those on AIM. That is difficult to judge. Most institutions are now permitted to invest in AIM stocks, but their willingness to invest is a different matter, and the market has had little success so far in attracting the interest of non-EU investors.

Making the shift
Since October 2004 there has been no fast-track procedure for AIM companies to move to the Main Market. In practice, however, the admission process may not amount to the same ordeal over again. A well-run AIM business will already have made the private-to-public cultural shift and will be used to the existence of a corporate governance regime and the making of timely and accurate disclosures to the market.

Is the move worthwhile? It depends. Some companies have had a poor experience of AIM for reasons which have more to do with their own businesses than the market of listing – in which case a move could be counterproductive. Other businesses may have used AIM well, expanding quickly and cost effectively until reaching a point where they have outgrown it. Although the average size of AIM companies is increasing, it is still of a different order from the Main Market. AIM is certainly not designed to be optimal for companies which are larger than £500 million.

In a difficult economic environment there can be great pressure on boards simply to “do something” to justify themselves and satisfy shareholders, but ultimately the question should not be whether the move from AIM to Main is possible but whether it is right. Each of these markets has a purpose to serve, but needs to be allowed to play to its natural audience and not be strained to be something which it is not.

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