Derek Pain: AIM will bounce back when the crunch eases

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The Independent Online

There is no doubt that the Alternative Investment Market, the London Stock Exchange's junior trading pitch known by its AIM acronym, is a casualty of the credit crunch. I have even encountered suggestion that it is doomed to follow other LSE attempts to develop second-string share facilities, like the USM and Third Market, and slide into obscurity.

No one expects a sudden demise. The feeling is that AIM is gradually, but irretrievably, running down and in a few years time will have so little support that it will no longer be viable.

I disagree. True, the junior market is facing increasing problems. But I believe it will survive unlike, its predecessors. The LSE has over the years struggled to develop a trading platform for smaller companies. In the 1970s, it attracted criticism for not accommodating smallcaps and a committee, headed by former Prime Minister Harold Wilson, was charged with resolving the problem. The result was the USM (Unlisted Securities Market) which flourished for a time.

With just a handful of companies, AIM arrived in the mid-1990s. It was a quick-fire success. The investment environment encouraged a multitude of smallcaps to raise capital or merely obtain a share presence through its good offices. Even the dotcom madness failed to do any lasting damage. It was an inexorable journey upwards that at times seemed to overshadow the main market. At the end of 2007 the shares of no fewer than 1,694 companies were traded on AIM. And, of course, others had arrived and departed following takeover activity, crashing into administration or upgrading to full listings. All-told, AIM attracted 2,900 constituents, many from overseas.

But it's all been downhill since those halcyon 2007 days when AIM was a veritable hive of activity. These stricken times have exposed its limitations. The credit crisis has prompted many investors to shun the more risky undercard. Share trading has declined dramatically and the AIM index has more than halved. Suddenly, many of the advantages associated with an AIM presence have disappeared. Raising cash or offering shares for acquisitions has become difficult, the difference between buy and sell prices has widened uncomfortably and the more stringent, perhaps more realistic, attitude of investors has rested uncomfortably in many boardrooms. The new issue flood, once such a feature, has dried up and with more and more companies delisting, membership has fallen to 1,480. But the decline appears to be gathering pace. Quite simply for many AIM is no longer cost effective.

International Real Estate is one departing. Shares of the once fully listed group specialising in European properties were once above 400p. They are now a mere 30p. So much for the company's ambition "to enhance shareholder value". One reason often given for quitting AIM is that in current conditions an unquoted company is better placed to raise cash. As if to underline that claim an obscure waste water treatment business called Bluewater Bio International has raised £2.3m after delisting in November. The Aqua Resources Fund pumped in the cash, buying shares at 12.5p. Ironically, Bluewater arrived when AIM was around its peak, pulling in £2.7m by selling shares at the same 12.5.

The AIM slump is worrying. But once the investment environment improves – and it obviously will – I believe the junior market could recapture past glories. In the meantime, the fringe Plus market and the even more peripheral JP Jenkins facility could collect recruits. AIM is quite expensive and in the present cost-cutting climate, disillusioned delisting companies could feel they are keeping some faith with shareholders by retaining a more secondary share market presence.

At the moment, delisters have, in the main, opted to become unquoted public companies, often overseeing share deals. Such arrangements are not satisfactory. After all, investors expected to be able to trade shares through a market. But Jenkins (recently acquired by Plus-traded Rivington Street Holdings) and the growing Plus platform offer share-dealing opportunities that could satisfy.

Eight of the 11 constituents of the no pain, no gain portfolio are AIM traded. One, the Booker cash and carry group, is set to join the leavers.. It is not delisting but moving up-market to full listing. Last week it produced an upbeat trading statement, indicating an encouraging profits increase.

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