After reaching an all-time high of 1,694 in 2007, the number of companies listed on the AIM market has tumbled to 897.
Set up in 1995 as a light touch incubator for growth businesses, it is ironic then that the proliferation of regulation is being cited as one of the key depressants on the junior bourse.
Requirements such as maintaining a nominated advisor (NOMAD), an accountant, a lawyer, a broker and financial PR all add costs and the process for a float can take as long as two years, with joining the market itself taking up to ten weeks.
With all these costs piling up, the resulting bill can be eye-watering for a small company.
A serial AIM chief executive, who asked not to be named, said an initial public offering (IPO) on the junior market can cost a minimum of £500,000, while core running costs clock in at a minimum of £200,000 per year.
However, he stressed that those running costs would be the bare minimum to keep the listing stable, with the true costs for a company likely to be much higher.
For a company with a market capitalisation of around £1mln, that is a pretty large chunk of change.
The rise of the standard list
Given the financial hurdles that need to be cleared to list on AIM, small companies are increasingly being drawn to a standard listing on the London Stock Exchange’s main market, which is being seen increasingly as a viable alternative.
According to the AIM CEO, preparing for a standard listing will cost around £300,000, considerably less than AIM, while core running costs would be a minimum of around £100,000 per year.
The reduced float and running costs are mainly down to the fact that companies on a standard listing are exempt from many of AIM’s regulatory requirements, including the need for a NOMAD.
NOMADs are the gatekeepers of AIM, as they are responsible for making sure companies abide by the market’s rules. If a company cannot find a NOMAD, it is effectively game over for their listing.
A standard listing is also a useful main market alternative to a premium listing, which have their own set of stricter rules, as by contrast a company on the standard market need only comply with the minimum legal requirements for a listed firm.
Since becoming available in 2009, standard listings have become increasingly popular, with the number of companies now at 161.
The NEX level
Small companies are also finding opportunities on the NEX exchange, an independent growth market often referred to as AIM’s ‘younger brother’.
Like the standard list, NEX does not require a NOMAD, and its IPO costs are cheaper than AIM, while core running costs are estimated at around £75,000 per year.
NEX also offers similar benefits to an AIM listing such as being able to trade company shares and offers avenues for funding, while the time frame for a listing is considerably shorter at between two to three months.
The exchange also has no restrictions on the types of businesses that can join, and as such has made it a magnet for companies operating in unconventional sectors like cannabis and cryptocurrency. Its current total of listed companies since its foundation in 2012 is now around 89.
However, one pitfall of the NEX is that it is relatively illiquid compared to the other exchanges, meaning there is a lower amount of shares being traded.
But where does this leave AIM?
With companies increasingly being tempted by lower costs and regulation at NEX and on a standard listing, more established companies are looking to the AIM as a way of turning their fortunes around.
Last week, gear and chain maker Renold PLC (LON:RNO) announced its intention to de-list from the main board of the London Stock Exchange (LSE) and join the AIM market, following toy maker toy maker Hornby PLC (LON:HRN), which made a similar move in 2015.
According to Niall Pearson, a director at small cap broker Hybridan, a key factor in a company’s decision to step down is the ability to attract “specialist AIM investors” that would not have considered them on the main market, a useful pool of cash if the company is struggling to entice investment.
If this trend continues, AIM could change from being the haven for small caps and instead become a scrapyard for larger firms that fall on difficult times.