Fall 2007 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Raising funds on the equity markets While there are many equity markets there is probably only one market that a UK growing company is likely to consider in order to raise new funds – AIM. AIM is the junior market of the London Stock Exchange which now has over 1500 companies listed on it and is likely this year to exceed the number on the main list. AIM has become the most successful growth company market in the world because it has struck an appropriate balance of regulation (AIM is regulated by the London Stock Exchange itself and not the FSA) which has attracted both companies and investors. Every UK institution except one now invests in AIM companies. This article focuses on the following three areas: 1. why should a company seek a public listing? Benefits and drawbacks of a public listing The benefits of listing include: • the ability to raise new equity funds for growth • increased profile and visibility • making acquisitions using shares as a currency. (A particular advantage of AIM is that acquisitions of other companies can usually be made without seeking the consent of shareholders in the AIM company). 2. which companies are suitable for AIM, and 3. how should a company prepare for an IPO?

For many companies the advantages, in particular the ability to raise new funds for growth, outweigh the disadvantages, but for some, who are not prepared to cross the corporate governance boundary, then a public listing should not be considered. A public listing is not usually an opportunity for the proprietors to fully exit. However, dependent on market conditions it may be possible to realise some worth on IPO in particular in order to create liquidity in the stocks. Suitable companies Suitable companies are those that will attract institutional investors. Sought after criteria include: • strong well balanced management team • demonstrable growth potential - a scaleable opportunity • niche products or services • no dependence on key customers, suppliers or staff. Companies with lifestyle operations are not likely to be attractive – although they may provide a good living for the proprietors these are companies that are not fundamentally valuable largely because they do not meet the ‘sought after’ criteria. AIM can attract companies of all sizes and trading history although a market valuation including new funds to be raised of over £15 million is more likely to be attractive and cost effective in relation to the costs of the listing. These are some of the considerations when seeking a listing: • consider appropriate board composition – a CFO is usually essential and to comply with corporate governance expectations at least two non executive directors should also be put in place one of which is normally the chairman • ensure that financial systems and reporting procedures are robust and comply with generally accepted accounting practice (GAAP) and that accounting policies are acceptable and in line with quoted competitors • ensure all litigation is resolved

Drawbacks include: • closer public scrutiny and city intrusion • management lock ins • the requirement for more regular reporting • increased corporate governance and costs.

6 u winter 2007 issue