The cost of listing on the alternative investment market has risen sharply,
making it harder for smaller companies to go public, a study from
UHY Hacker Young has discovered.
In 2006, the cost of smaller initial public offerings on AIM increased
dramatically as companies looking to raise up to £2m saw costs as a percentage
of capital raised surge by 58% from 23.6% to 37.3%.
For those looking to raise between £2m and £10m, costs as a percentage of
capital rose from 15.4% to 18.1%.
The average cost of listing companies on AIM has increased to 6.23% of all
funds raised, up from 6.11% the year before, the joint study by the firm and
City lawyer Trowers & Hamlins reported. This is despite the decline in the
number of companies listing on AIM from 519 in 2005 to 462 in 2006.
Hacker Young partner Laurence Sacker said: ‘It is clear that for some
companies, the process of listing on AIM can become very expensive. Companies
need to be clear at the outset what work needs to be done to get them ready for
AIM and whether they are working with professional advisers that are going to
offer them the best value.
‘There is also a warning here for those who may want to burden the AIM
listing process with more red tape – if the process does get much more expensive
then one day we might see smaller capital raisings locked out of AIM.
‘The success of AIM has not gone unnoticed and a number of copycat markets
are springing up in other countries. The right balance between both regulation
and cost is needed for AIM to compete internationally.’
Hacker Young also highlighted that some of the increases in the average cost
of listing on AIM is due to the larger percentage of foreign companies listing
on the supposedly ‘junior’ exchange: ‘The costs of undertaking due diligence
work on an overseas company may be more expensive than one located solely on
Law experts have said that some of the extra costs were due to higher levels
of due diligence being undertaken before the introduction of the new nominated
adviser rulebook earlier this year.
Charles Wilson, senior corporate finance solicitor at Trowers & Hamlins
said: ‘Fund managers have been encouraging nomads to take a more rigorous
approach and of course this extra work means extra costs.’
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