Is the London Stock Exchange’s AIM in terminal decline?

When the little-known pharma firm Redx announced plans to delist from the London Stock Exchange’s AIM market last week, it issued a familiar refrain.

“Despite completing some of the largest AIM capital raises for biotech companies in recent years, Redx is still liquidity constrained on AIM,” Jane Griffiths, chair of the board, said in a statement. 

“As a result, we believe our current market valuation is not reflective of our track record or future potential and is not conducive to raising the level of capital required for our growing clinical portfolio.”

Redx is trading down nearly 93 per cent from its flotation price in 2015, not helped by the sharp fall triggered by its announcement last week. But rather than being an outlier, the tale of RedX has become an all too familiar one for London’s beleaguered bourse.

The number of firms listed on AIM has cratered 30 per cent from 1,104 to just 742 since Redx debuted in 2015. Last year alone, AIM suffered 78 cancellations and a further 15 in the opening two months of this year.

This seemed to have ramped up in recent months, as just today, London-headquartered e-therapeutics announced it was leaving the exchange for Nasdaq, citing a “lack of UK institutional interest” and “risk appetite”.

Alasdair Haynes, chief executive of challenger stock market Aquis, said: “The London stock exchange is all about winning today’s unicorns, but AIM should also be about getting growth businesses. The problem that I think they have is that their model really hasn’t changed for 30 years.”

According to data from the London Stock Exchange, just ten new firms have floated on AIM since the start of 2023.

Meanwhile, takeovers of AIM companies have jumped 75 per cent just in the last year, reaching their highest point in 12 years. Some of the 35 included the buyouts of Hotel Chocolat and asset manager Gresham House.

The London stock exchange is all about winning today’s unicorns but AIM should also be about getting growth businesses. The problem that I think they have is their model really hasn’t changed for 30 years.

Alasdair Haynes, CEO of Aquis

The numbers underscore the existential crisis currently facing London’s junior market and the challenge facing policymakers and regulators in reviving it. Like its bigger sibling, AIM has been rocked by the volatility that has shaken the public markets, but its issues run far deeper than a momentary downturn.

Cash has been flooding out of UK-focused stock funds in recent years, losing £14bn alone in 2023. This has dragged on firms at the smaller end of the market and spurred a wave of opportunistic dealmaking.

Liontrust’s Anthony Cross, who manages one of the only funds that invests in AIM companies, said that while takeovers and moving to the main market are positive developments, even those choosing to delist is “not always such a bad thing as long as existing shareholder rights are not abused”.

“What is more of a worry is if there are not sufficient flows of capital into the market to support both existing companies and new market entrants,” he stated.

Dwindling money entering the market and depressed share prices have, therefore, discouraged small companies from making the step to list.

An IPO on AIM will cost about £500,000, and fees for RNS announcement, legal costs, and other expenses add around £200,000 a year to that.

Given that about 400 companies listed on AIM have a market cap below £50m, that’s a high price to pay for the UK’s small businesses.

Simon Moon, manager at the Unicorn UK Smaller Companies fund, argued that the push away from AIM “is the same as that hurting wider UK equities: the UK is unloved and valuations are low”.

This is especially the case for the AIM market, he explained, as small companies have been “on the wrong end of a general flight to the perceived safety of larger stocks”. At the same time, the market’s higher growth focus has also been exposed to the negative impact of high interest rates.

The market’s total value has fallen by over 50 per cent since its peak in 2021, and investors just don’t trust that those valuations will go back up.

However, Moon argued that this thinning out from the perils of high interest rates had left “a raft of companies performing well on an operating basis but looking better and better value”, which had led to the significant uptick in M&A, without being balanced with an increase in IPO appetite.

For its part, the LSE is bullish on the future of its junior market. AIM, it says, is one of the world’s “most successful and established markets for dynamic high-growth companies supported by a remarkable community of companies, advisors and investors”. 

“The London Stock Exchange is focused on supporting companies to access capital and liquidity however best works for them, at every stage of their development and growth, be that as a publicly listed or private company,” deputy chief executive Charlie Walker, told City A.M.