AIM: the junior stock market

As many, if not more, companies leave the stock market as join it. The Aim junior market had a net loss of 29 companies in the year to June 2015 — its biggest for three years.

The reason to float is well researched: companies want profile, access to blue-chip investors and a wide shareholding to enable them to raise money.

But what about those delisting? Some are taken over or go bust, others find the costs too high or attract very few investors.

The most comprehensive analysis suggests their owners did not really want to give up control in the first place.

Eilnaz Kashefi Pour, of Birmingham Business School, and Meziane Lasfer, of Cass Business School of City University, analysed delistings from Aim in a 2013 paper.

They found that companies that delisted voluntarily tended to have borrowed too much and not reduced debt by selling more shares.

They were a “bit naughty”, says Prof Lasfer. “They did not raise fresh equity. Their share price underperformed and so the costs outweighed the benefits.”

During the public life of such companies, insider ownership increased from an average of 44 to 56 per cent.

Prof Lasfer said managers were then able to take them private at a discount. “The effect on the share prices was more like a bankruptcy.”

Detecting such companies when they listed was difficult, however, he said.

Case study: the lister

Gateley became the first law firm to convert from a partnership to a public company in May this year under rules introduced in 2011.

It was a toe in the water. Just 30 per cent of the stock was sold, raising £30m and valuing the business at £100m. Some £25m went to its 81 partners.

Michael Ward, chief executive, said the main attraction was the ability to retain profits. Under a limited liability partnership, profits have to be shared among partners. Gateley is going to retain 30 per cent while paying the remainder in dividends.

“We want to improve the value of our net assets over the next five years, to get to £20-£25m. It will give us a good base to expand the business.

“It gives us more flexibility. Shares are a currency we can use for acquisitions,” he said.

Birmingham based Gateley has six offices in the UK and one in Dubai and employs more than 600 people, including about 340 solicitors.

Case study: the de-lister

Matt Riley, the founder of Daisy Group, has been responsible for two delistings in the past year. In October he bought Daisy back from shareholders after five years on Aim for £494m. The provider of communications and IT services to small businesses had grown rapidly, buying more than 20 businesses in that time.

Then in May, Daisy bought listed rival Phoenix IT for £135m.

Hedge fund Toscafund had a significant stake in both businesses and had long been linked with an attempt to merge them. Going private was the key to that.

Mr Riley, now executive chairman, wants to build a £1bn business in fragmented market worth about £10bn annually to become the “go-to provider” of unified IT infrastructure.

During its time on Aim, the shares rose 131 per cent, compared with 27.5 per cent for Aim as a whole. Its value grew from £200m to £494m.

Mr Riley said the share price would have been hit had it taken on more debt to buy businesses. And with private sources of finance more widely available by 2014, it made sense to go private.

It also keeps the entrepreneur, who appeared as one of Sir Alan Sugar’s interviewers on Dragons’ Den, out of the limelight while he grows the company.

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