AIM high: Why the London Stock Exchange still matters
Urgent reforms are needed to prevent the flow of companies exiting the London Stock Exchange becoming a flood – and AIM is a great place to start, says Lord Rothschild
As the executive chairman of a company listed on the Alternative Investment Market (AIM), conventional wisdom dictates that I must be desperately unhappy with my lot, frustrated by the lack of liquidity in my shares while contemplating exiting the market altogether and relisting our shares in America.
But I’m not.
While every day seems to bring with it news of another company departing London for New York, the cosy embrace of private equity or a trade buyer, for high-growth companies like Volex, the London Stock Exchange, and particularly AIM, remains a vital launchpad.
We have been listed on AIM since mid 2016 having swapped the main market for the lighter
regulation AIM offered and, in the past eight years alone, have grown from a £30m market cap firm to a business valued at over £650m as of today. Along the way, we’ve significantly increased our global presence and today operate from 28 sites around the world with a team of over 13,500 colleagues working across 25 countries.
Our growth has included the successful delivery of multiple acquisitions, the last of which saw us raise nearly £60m from our shareholders last year. In the last four years alone we have doubled the revenues of our business, and our trading update in April confirmed we are on track to hit $1.2bn of revenues in 2027.
AIM has been a fantastic home for a number of firms over the years and we are no different – it has provided us with a springboard for our growth ambitions while attracting a blue-chip roster of shareholders who have helped us get to where we are today.
I am, however, acutely aware that not everyone has enjoyed the same experience of life as a PLC as Volex.
Last year alone, AIM suffered 78 cancellations and a further 15 in the opening two months of this year. The number of firms listed on AIM has fallen by nearly a third from 1,104 to just 742 since 2015.
So, what can be done to make AIM an even more attractive proposition for high-growth companies?
Well, a good starting point would be encouraging and fostering a more engaged investment culture throughout the UK as a whole. Indeed, the importance of engaging retail investors directly or indirectly and promoting long-term investment cannot be underestimated.
This starts at schools, where we should be promoting the importance of financial literacy in children from an early age, and continues into adulthood where people are encouraged to take greater ownership of how to sensibly invest their household wealth instead of just defaulting to bank deposits.
There is also a real need for a public information campaign to encourage people to take ownership of their pension allocations and actively invest in shares.
It was heartening to see Jeremy Hunt use his last budget in March to set out plans for a British Isa to encourage small investors to use their savings to back listed UK companies but this needs to be the start, not the end, of these reforms.
Beyond this, we need to push through measures to boost investments by pension funds in UK equities – the fact that domestic equity holdings among pension funds now account for just four per cent is a fact that cannot be allowed to continue if the UK is serious about nurturing the ecosystem that surrounds its domestic stock exchange.
Likewise, strategic tax breaks for companies listing on AIM would also provide a much-needed financial incentive for firms to take the plunge, particularly those in the crucial early stages of growth who would benefit from a corporation tax relief mechanism for newly listed companies or tax breaks on research and development.
And on the subject of research more broadly, one of the key takeaways from the government’s Edinburgh reforms has seen the FCA propose giving asset managers greater freedom in how they pay for company research, effectively rolling back some of the effects of MifID II which has seen smaller companies starved of independent analyst coverage. A definite step in the right direction.
Since launching in 1995, AIM has helped almost 4,000 companies raise over £115bn but the global nature of capital means that London cannot afford to continue to lose ground when it comes to attracting high growth, exciting businesses to list here – as leading UK midcap broker Peel Hunt recently said, the combination of companies fleeing London and the dearth of new IPOs means that the UK Small-Cap Stock Index is on course to be extinct by 2028 if current trends are maintained.
A vibrant AIM is an essential element of the City’s ecosystem, helping dynamic businesses raise capital on the public markets while acting as a magnet for exciting international firms – its sometimes easy to overlook the fact that, of the 742 companies currently listed on AIM, almost 250 come from 26 different countries outside the UK.
While the 2002 Sarbanes-Oxley Act in the US substantially increased regulatory requirements for all publicly traded companies there, causing dozens of US-based companies to seek to list on AIM in London, we are now faced with the need to enact regulatory reform to prevent the flow of companies heading the other way.
There is still time to prevent this flow becoming a flood but it is vital that whoever occupies Number Ten come the turn of the year recognises the need to move quickly.
Let’s be clear: a strong AIM isn’t just good for businesses, it’s good for Britain. It strengthens our economy, creates jobs, and positions us as a global leader in innovation.
Our business is a great case study in how AIM can be a superb home for companies looking to deliver on the next phase of their development – now is the time for the Government to deliver the reforms that AIM needs for its development.
Lord Rothschild is executive chairman of Volex