AIM IPOs and secondary issues – the current appetite for AIM IPOs is very discriminating
According to LSE data just published, AIM IPOs in September 2007 numbered 16 - half the number of AIM IPOs in September 2006. Yet the number of issues of new shares by companies already quoted on AIM in September 2007 (267) actually exceeded the number of such new issues in September 2006 (241).
Against the background of the Credit Crunch and recent volatile markets, what is actually going on in the markets behind these numbers and what now is the outlook for AIM IPOs?
September 2007's sharply reduced IPO number was perhaps unsurprising due in large part to poor sentiment arising from the Credit Crunch with many investors preferring a "wait and see" stance. It is however perhaps a little more surprising – and yet encouraging - that when it came to supporting further issues of shares in companies in which institutions were already invested, such investors were as ready to support those companies as they had been in September last year.
Opinion from investment banks on current appetite for AIM IPOs indicates that demand from investors remains extremely discriminating. Notwithstanding a suspicion that the Credit Crunch has been overblown, most AIM investors remain cautious and will only invest in companies which "tick all the boxes" - real quality, keenly priced shares, positive cash flow, good growth prospects and excellent management. The evidence is that while investors will currently be much more likely to support new issues in comparatively "hot" sectors such as Mining and Oil and Gas Services, they are actually less focussed on sector than on quality companies at the right price. The fact that the markets are indeed open to quality companies is demonstrated by the IPO of veterinary company CVS raising £92.7 million through Panmure Gordon and the secondary issue by China Goldmines where Brewin Dolphin in Glasgow raised £30 million.
James Will is Head of Corporate Finance with UK law firm Shepherd and Wedderburn