Interactive Investor

How AIM came of age

29th December 2016 10:00

by Andrew Hore from interactive investor

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Interactive Investor is 21 years old. To celebrate, our top journalists and the great and the good of the City have written a series of articles discussing what the future might hold for investors. Here's Andrew Hore on the distinguished 21-year history of the Alternative Investment Market.

Like Interactive Investor, the Alternative Investment Market (AIM) is also celebrating 21 years since its launch. It has seen huge changes over that time. When AIM first appeared, it comprised 10 companies worth a total of £82.2 million. Today it is composed of more than 1,000 companies with an average capitalisation of £80 million each.

AIM is currently valued at £80 billion, and it has been valued even higher in the past. The average size of AIM companies has never been as high: more than 70 companies are valued at in excess of £250 million.

Average AIM company values go up and down with the market, but there has undoubtedly been an upward trend over the years. At the end of 2007, when the market was worth nearly £100 billion, that average reached £57.6 million.

Part of AIM's job is to help companies grow so that they can move to the main marketThe figure more than halved after the 2007/08 crash, but it has recovered and hit new highs. Market Tech Holdings, GVC and Dalata Hotel moved to the main market earlier this year. They were valued at more than £2 billion, so the average would have been higher if they had remained in AIM.

Part of AIM's job is to help companies grow so that they can move to the main market, and more than 180 firms have managed to step up so far - although some of these later returned to AIM, particularly technology companies that moved up when they were on ridiculous and unsustainable ratings at the turn of the century.

Movers and shakers

In the 1990s relatively small companies made the move, but in recent years businesses capitalised at hundreds of millions of pounds have been promoted. Not all the companies that have moved up have been successful, but many have done extremely well.

Student accommodation developer Unite was not on AIM for long, but its spell on the market enabled the company to grow to the point where it was ready for the main market in 2000. It is now worth more than £1.3 billion.

IT assurance, cyber security and consulting business NCC joined AIM in July 2004 and moved on three years later. NCC's share price is nearly 12 times the level it was at when it floated on AIM. GVC is the latest former AIM company to join the FTSE 250 index.

Many smaller companies on the full list find the less rigorous requirements of AIM more suitableThere are already more than a dozen former AIM companies in the FTSE 250, including Booker, Domino's Pizza and Big Yellow.

Information security products supplier Zergo Holdings moved to the main market in1998 and subsequently became Baltimore Technologies, which at one point was valued at £7 billion and was in the FTSE 100 index for a short period in 2000 - it is the only former AIM company to have achieved this feat.

However, even more firms have moved the other way, from the main market to AIM. Many smaller companies on the full list find the less rigorous requirements of AIM to be more suitable for them.

Some of these, however, have subsequently gone bust. More than £98 billion has been raised by companies when they join AIM or they are quoted. That is more than the current value of AIM and reflects the fact that many companies have then moved to the main market or been taken over.

AIM has seen phases of internet, Y2K, online gaming, mining, and oil and gas companiesThere are fewer new entrants than there were a decade ago, but their overall quality is much higher. The FTSE AIM index does not project a positive picture of the overall performance of the market. One of the negatives about a small companies market is that it is prone to fashions.

The same was true of AIM's predecessor, the USM, where the oil and technology sectors were just two to experience a rush of new companies joining the market. AIM has seen phases of internet, Y2K, online gaming, mining, and oil and gas companies, as well as a glut of shells listed on AIM before the rules were tightened up.

Many of these business spheres were relatively new, so these companies had little in the way of track records. Investor interest can be sparked and relatively early-stage companies can float, but most are unlikely to prosper and many will fail.

Shifting patterns

Back in 2000 technology and internet companies accounted for around 30% of AIM, while by 2006 resources companies comprised around 30% of the market. Financials have always dominated, but that is because the sector is so wide-ranging.

AIM shares are now traded much more heavily than in the past. Back in 1998 the number of trades for that whole year was much lower than it has been in any month so far this year.

There were more than two million trades in 2000, although in 2002, after the tech boom had run its course, the number of trades fell back to 449,876. This year there have been more than 400,000 trades in each month. There were 5.77 million trades in the whole of 2015.

There were more companies listed on AIM less than a decade ago, but that was not an indication of success. When the market is strong, as it was then, practically anything can float.

Losses in the banking crisis by the likes of RBS dwarf the amounts lost by failed AIM companiesThis led to complaints that there were too many small companies on AIM that were not going anywhere; much of the complaining came from the advisers who floated these companies.

However, the losses incurred in the banking crisis by the likes of Royal Bank of Scotland dwarf the amount lost by failed AIM companies - which are supposedly higher-risk.

Since AIM started, the Royal Bank of Scotland share price has fallen from around £18 to 200p - after share consolidation - and it has raised billions at higher share prices over that period.

AIM companies that have ultimately become successful have not always done consistently well. Online fashion retailer Asos (then known as AsSeenOnScreen) joined AIM in early October 2001 - not an auspicious time to make a debut.

At that time, it raised money at 20p a share, but the company's poor start meant that it took two years for the share price to climb above that level. Asos is now the largest company on AIM and worth more than 5% of the whole junior market.

AIM listing has helped hundreds of companies expand their businesses, but investors must understand the risks of AIM shares and not get sucked in by sector hype.

This article was first published in our special publication 21: Twenty-one years of Interactive Investor. Download your digital copy for free here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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