One look at the AIM statistics for the year so far suggests that the London
Stock Exchange’s junior market has become the ideal place for private equity
groups to offload companies they have invested in.
This year, 158 companies have joined AIM, raising £3.14bn. Liquidity is good
and investors are hungry for new companies – the ideal climate for a private
equity firm to make an exit and realise value.
The use of AIM as an exit route for private equity provides lucrative
opportunities for advisers, who stand to profit from the work on due diligence,
preparing accounts and generating investor interest.
Unfortunately, private equity groups are not playing ball as enthusiastically
as advisers would like.
Clive Brook, a corporate finance partner at PKF, said the risks associated
with a float meant that private equity firms preferred the security of a trade
buyer exit: ‘An IPO is invariably an option for an exit, but no float is
guaranteed to work. If trade buyers enter the picture, private equity would be
more inclined to follow that route,’ he said.
Mat Bhagrath, a corporate finance partner at Grant Thornton, said that
although IPOs did provide the opportunity to receive a higher price, because of
the way stock markets value companies on future earnings, the costs of a listing
‘The key area of cost when floating is the raising of capital. If a VC
(venture capitalist) is seeking to exit in entirety then clearly more capital
will be raised on that floatation. The consequential impact of that is that the
cost implications are that much greater,’ Bhagrath said.
Brook added that the lack of flexibility following a listing was another
deterrent to using AIM as an exit.
‘In order to secure investor confidence, groups have to hold a portion of the
company’s shares. This lengthens the time period for a complete exit, which
hinders flexibility,’ Brook said.
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