So, you are on the board of a thriving company and you’re looking to make some money in order to keep growing. We saw earlier this week that the global recovery is gaining traction and you want to be able to take advantage of the increased appetite for deals. However, you don’t want to take out another loan and you’re not sure that your current methods of fundraising will continue to meet the company’s needs.
An obvious answer would be to list on a stock exchange.
Companies gain access to a potentially extensive new resource of capital when they offer shares on a public market. Most companies in England will opt to list on the London Stock Exchange (LSE). But which market to choose?
The LSE has two principal markets: the Main Market and AIM.
There are similarities between both markets: documents providing an in-depth guide to a company for its prospective shareholders must be submitted for both, and each market requires a company to appoint an adviser – a sponsor, in the case of the Main Market, or a Nominated Adviser (or Nomad), in the case of AIM.
However, some key differences will help companies distinguish between the two markets and decide which is most suited to them:
To list on the Main Market, a company must:
- Have a minimum market capitalisation of £700,000
- Have at least 25% of its shares in public hands
- Have a trading history of at least three years (records of which will need to be provided).
In contrast, none of the above restrictions apply to a company wishing to list on AIM, meaning smaller and younger companies can be accommodated there.
As mentioned above, companies wishing to list on either market will need to submit appropriate documents to the UK Listing Authority (UKLA), part of the Financial Conduct Authority, in order to disclose certain information to potential investors. For a company wishing to list on the Main Market, this will mean complying with the detailed and prescriptive requirements for a prospectus. However, a company listing on AIM may be able to avoid the requirement for a full prospectus (for example, if it is raising less than €5 million or is offering its shares only to qualified investors or to less than 150 other persons), and instead will be able to rely on an admission document for which the requirements are less stringent. Main Market prospectuses are also pre-vetted by the UKLA, whilst AIM admission documents are not.
Once listed, the level of regulation applied to companies on both markets also differs. Main Market listed companies are regulated by the UKLA, and are subject to strict disclosure rules in order to protect individual investors. On the other hand, AIM was established as an alternative market in 1995 with a view to allowing smaller companies to trade on a market within a regulated environment which is more suited to their size and target audience. As such, AIM companies are subject to the less onerous AIM rules.
Regulation is intrinsically linked with cost. The more preparation that must go into producing a prospectus or admission document, and the more professional guidance needed in order to comply with strict regulation, the more a company will have to spend in advisory fees. Therefore, listing on the Main Market will invariably be more costly than listing on AIM. Whether or not this cost is worth it will depend on factor number 4…
4. Exactly how much do you need to raise?
The regulation and cost linked with listing on the Main Market might be worth it if you have set your sights high. Typically, companies will have access to more capital if they list on the Main Market and will be able to raise more than if they list their shares on AIM. Alternatively, a smaller company could use AIM as a stepping stone, testing the market’s appetite for its shares before moving up to the Main Market if desirable.
A company’s choice of market will therefore depend greatly on its current wealth and position as well as its future expectations. One size does not fit all.
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