Small Talk: Party on AIM is over, warns Grant Thornton

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The Independent Online

For the last few years, companies hoping to list on the AIM market have had a whale of a time. The majority of listings have been successful and generally speaking, firms have managed to raise the cash they were hoping for.

But small caps beware. According to research published by advisory group Grant Thornton, the party is over. The numbers show that the good times on the AIM market have come to an end, with a combination of the credit crisis and turmoil in the equity markets kyboshing new listings.

According to Grant Thornton's figures, the value of funds raised on AIM in the first quarter of this year fell by more than 60 per cent compared with the same period last year. New issues worth £339m were brought to AIM between Jan-uary and the end of March, compared with £1.124bn in 2007. Secondary issuance fell by 53 per cent in the same period.

"AIM continues to be open for business but only for those companies with stories that are in line with the very specific demands of investors at present," says Philip Secrett, international director of capital markets at Grant Thornton. "Investors are now sitting on their hands, and while they may be more willing to participate in secondary issues for firms they already know, raising substantial sums of money for new companies will only be an option for a select few."

While there is an argument to suggest that some companies opted to bring forward their listings last year, knowing that most offerings were flying through the market, Mr Secrett dismisses this as a real reason for the current market malaise. But he does argue that for companies in the right sectors, the AIM market is still open.

More than 50 per cent of listings in the first quarter came from energy and commodity firms, with investors keen to take advantage of the high prices of oil, gas and other commodities, seeing companies in those markets as relatively safe havens. "The surprise with the performance of AIM during the first quarter of this year is not that it has suffered as a result of the credit crunch and resulting equity market turmoil, but that its constituents were still able to raise over £1bn," reckons Mr Secrett.

Perhaps typical of the market between January and March is Darwen Holdings, a company that makes and services buses and coaches. The firm listed on AIM in February but opted against trying to raise funds, with the group's chief executive Andrew Brian saying he is content to ask for investors' cash later. He argues that his firm will benefit from what he describes as "key triggers in three to five years' time," as service companies need to comply with the terms of the Disability Discrimination Act, coupled with the demand for 1,400 or so extra buses needed for the 2012 London Olympics.

Mr Secrett insists that des-pite his firm's research, some companies can get a warm reception by choosing to list on AIM. Despite some firms enjoying positive experiences on AIM in the first quarter, the drop-off in new issuance shows that unless companies can point to being in a strong sector or, in the case of Darwen Holdings, they are not actually asking investors for any cash, the AIM market is turning into a place for only the brave.

Geo Genesis Group

One company that is about to buck the trend is Geo Genesis, a private equity house with interests in Asia, especially China. The firm thinks it has a good story to tell on the back of the boom in Chinese markets and will list on the PLUS market tomorrow.

Knowing that he needs a good story to tell to persuade investors to part with their money, the firm's chief executive Roger Bendelac points to the experience of his team in the Asian markets as a key factor in the firm's future, as well as his belief that the Asian markets offer a more robust environment for private equity groups.

But Mr Bendelac concedes that the market is tough, and says he opted for the PLUS market rather than AIM because it was "more amenable to the type of company we will looking to list." He reckons the firm should be able to raise about 50p a share tomorrow.