Introduction to AIM IPOs


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Aalto Capital's event 21st January 2010.

Tim Richardson, Director, Altium Capital
Andy Richards, Director, Altium Capital

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Introduction to AIM IPOs

  1. 1. Introduction to AIM IPOs January 2010 Tim Richardson30 St James‟s Square Andy Richards London SW1Y 4AL England Strictly Private & Confidential 1
  2. 2. Overview of Altium Full service, integrated and independent investment bank Strong entrepreneurial spirit, 100% employee owned Pan European footprint - network of locally staffed offices Focussed on high quality small and mid cap growth stocks Active in AIM market - registered NOMAD and Broker with 35 retained AIM clients Experienced institutional sales team with proven track record of distribution – Raised over £1 billion of capital since 2005 Market leading equity research – 12 specialist sector analysts covering 138 stocks Provide advice / guidance on all aspects of an IPO and afterwards as a quoted companyFurther information on Altium is contained in the AppendixStrictly Private & Confidential 2
  3. 3. Introduction The UK IPO market effectively closed around Q1 2008 More recently, investors have been occupied with supporting secondary fundraisings – More than £76 billion raised in the UK in the year to December 2009However… ….equity markets are recovering and a handful of IPOs have successfully completed Expectations are that IPO activity will increase throughout 2010 This presentation seeks to give an overview of: – UK stock market conditions – Investor sentiment, particularly regarding international companies – AIM IPO considerations and processStrictly Private & Confidential 3
  4. 4. The UK Stock Market Comments AIM All Share Performance 1200 Sustained rises in share prices over the last 10 months (AIM All Share up 84% since 1000 March 2009 low) 800 Equity market volatility and IPO volumes have 600 been closely correlated historically 400 – Volatility spiked in Q4 2008 but has 200 reduced significantly since Anecdotal evidence suggests a substantial AIM All Share IPO pipeline AIM Issuance vs. Market Volatility 18 90 Underlying institutional liquidity robust 16 80 14 70 Capital markets do remain nervous but Funds Raised (£bn) Volatility Index % 12 60 further successful IPOs should generate 10 50 confidence 8 40 6 30 4 20 2 10 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Market conditions / appetite for IPOs improving New Secondary Volatility IndexStrictly Private & Confidential 4
  5. 5. Press commentary “2010 is a year of opportunity on the AIM market… and for those considering an IPO “If 2009 was the UKs year of getting the timing right to take advantage of the rescue rights issue, 2010 is cash which has been hoarded in 2009 and is set to be the year of the IPO” now looking for a home will be key” The Times, 1 January 2010 Mondaq Business Briefing, 5 January 2010 “Pipeline of new companies looking to float in 2010 is promising” The Oil Daily, 28 December 2009 “Strong support for secondary issues, together with renewed confidence in the M&A market, bodes well for the return “The availability of debt funding continues of IPO activity in 2010” to be restricted and as equity markets are Ernst & Young, December 2009 starting to show signs of life once more, IPOs will be back on the agenda for many companies” Mondaq Business Briefing, January 2010Strictly Private & Confidential 5
  6. 6. Background on AIM Background Market value / Funds Raised 120 18 Exchange (not EU) regulated market 16 100 – Owned and operated by the LSE 14 80 12 – Reduced regulatory burden Funds Raised (£bn) Market Value (£bn) 10 60 Designed for smaller growing companies 8 40 6 Some perception / instability issues following bull market excesses and recent stream of de-listings 4 20 2 – May prejudice some investors willingness to invest and impact liquidity 0 2002 2003 2004 2005 2006 2007 2008 2009 0 Market Value Funds Raised Market Growth Distribution by Market Capitalisation* 3000 350 2500 300 287 Number of Companies 250 2000 Number of Companies 207 199 200 190 1500 150 122 122 1000 101 100 500 50 37 8 1 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0- 2 2- 5 5 - 10 10 - 25 25 - 50 50 - 100 100 - 250 250 - 500 500 - 1,000+ 1,000 Market Cap (£m) AIM Of f icial List *excludes unvalued and suspended securitiesStrictly Private & Confidential 6
  7. 7. Growth critical … sector neutral AIM Companies by Sector Software and Computer Services General financial Support Services Other Automobiles Industrial Transportation Telecoms Media Chemicals Food Producers IT hardware General Retailers Mining Construction and Building Materials Electronic and Electrical Equipment Travel & Equity Investment Leisure Instruments Health Real Estate Oil and Gas Engineering Pharmaceuticals Household GoodsStrictly Private & Confidential 7
  8. 8. AIM is an international market  LSE has actively sought to internationalise AIM  Strong constituency of international companies – 241 international companies (19% of total) at December 2009 – Many more with a majority of their operations outside the UK  Recent reduction in number is proportionate with general rationalisation of the market International companies on AIM… …as a proportion of total market 2000 400 347 350 317Number of international companies 304 1500 Number of Companies 300 250 241 220 200 1000 150 116 100 500 60 50 50 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 International UK Strictly Private & Confidential 8
  9. 9. AIM is an international market (cont’d) International companies on AIM by International companies on AIM by country of incorporation country of operation South Africa, 3.0% Russia, 4.2% Republic of Republic of Ireland, 6.2% Ireland, 16.1% India, Rest of Europe,Israel, 2.8% Rest of Europe, 5.4% 16.6% 9.3% China, 10.4% Canada, 9.3% Israel, 2.2% Canada, Australia, 9.7% Rest of the World, 3.8% 42.7% Rest of the World, Australia, 31.7% 5.6% USA, 10.1% USA, 11.0%  Powerflute is the only Finnish incorporated  Sunrise Diamonds cites Finland as its country of company currently listed on AIM operation Strictly Private & Confidential 9
  10. 10. Why IPO on AIM? Quotation on one of the Historically open to worlds premier markets international for growth companies companies Access to Enhanced profile / London’s deep pool credibility of investment capital Currency for (and easier Flexible regulatory rules on) acquisitions regime Increased liquidity for Facilitates recruitment, shareholders / (partial) retention and exit for investors incentivisation of staffStrictly Private & Confidential 10
  11. 11. But… IPO may only provide a partial exit Ongoing “Public” accountability / loss of privacy Cost of obtaining and maintaining a listing Requirement to satisfy the needs of a diverse range of external shareholders Management time Possible culture change Can be unforgiving environment if expectations not delivered AIM will not suit all companiesStrictly Private & Confidential 11
  12. 12. Our investors’ current focus • Credible growth story and committed management team are essential Equity Story • Strong track record through the current recession – fundamentals back in focus • Visibility of earnings and ability to deliver post IPO expectations • Simplified capital structure Capital Structure • Conservative levels of gearing • Management incentivisation and alignment of interests • Preference for primary capital raisings – funds to supports the equity story Offer Structure • Longer lock up periods • Sufficient aftermarket liquidity / size of free float • Negligible institutional appetite for very small issues Operational Scale • Sizeable potential / existing market • Overseas companies will need an international / potentially international business • Material IPO discounts likely to be the norm until market fully recovers Valuation • Overseas companies may attract an additional discount Appetite for high quality stocks at the right priceStrictly Private & Confidential 12
  13. 13. Conditions for listing on AIM Regulatory  Must comply AIM Rule book published by the LSE Framework  Regulatory supervision delegated to Nominated Adviser (NOMAD) Public Shares  No minimum free float Track Record  No minimum period for financial statements  Admission Document (Prospectus Directive lite) - description of business, Documentation investment rationale and financials  No requirement for regulatory approval of documents  NOMAD to be retained at all times Advisers  Broker to be retained at all times (N.B. can be combined with NOMAD role) Investor requirements may materially add to purely regulatory conditionsStrictly Private & Confidential 13
  14. 14. Other issues to consider • Ability to effectively manage the IPO preparations Management • Willingness to commit to the company post IPO • Ability / availability to communicate effectively to UK based investors • Is the current corporate structure appropriate for a listing? Legal Structure • Consider using PLC Topco to mitigate any investors‟ concerns • UK standards of corporate governance will be sought – Effective compliance with Combined Code Board – Focus on „best practice‟ • UK based non-executives can provide local presence / market knowledge • Is the track record robust – sharp uplift pre IPO may be treated with suspicion Financials • Are operational, financial and management systems suitable Recognisable internal and regulatory structures will reassure UK investorsStrictly Private & Confidential 14
  15. 15. IPO process and timeline IPO process typically takes place: – in four key sequential phases – over a period of 3-5 months, with an intensive marketing phase lasting 2-4 weeks Marketing & Preparation Due Diligence Documents Admission Assess suitability of  Decision taken to  Admission Document  Research IPO route proceed  Short form report  Institutional roadshows Appointment of NOMAD  Accountants‟ reports  Institutional  Bookbuild & firm Preliminary valuation  Legal due diligence presentation valuation Review of:  Commercial due  Pre IPO research  Admission – Corporate structure diligence, as required – Financial requirements  Working capital review – Employee incentivisation  Ensure appropriate – Investor procedures for expectations company and directors Test marketing, as appropriateStrictly Private & Confidential 15
  16. 16. Key Continuing Obligations • Timely and accurate disclosure of information required Price sensitive • Must inform the market as soon as possible of any price sensitive information information • Announcement if potential leak about negotiations of a price sensitive nature • Half year report within 90 days of the half year • Publish accounts within 6 months of period end – preliminary announcement usual Financial reporting • Additional trading updates the norm • Website disclosures • Class tests referenced to gross assets, profits, consideration and gross capital Transaction • > 100% requires shareholder approval disclosures • Process requires a circular - cost and timing impact for acquisitions • Directors must not deal during „close‟ periods Dealing restrictions • Internal dealing code to be introduced • Vital that management maintain profile and stimulate interest in shares Investor relations • Year round IR planning including institutional roadshows, site visits and marketing • Share register analysis and new investor targeting Controls in place to ensure compliance with the AIM RulesStrictly Private & Confidential 16
  17. 17. Summary IPO window expected to open more fully during 2010 AIM provides an attractive market for quality growth businesses Size / Quality / Valuation will be key in obtaining investors‟ attention and overcome any prejudices against AIM – Good quality companies with a strong growth story properly priced and structured Investors will be more discerning and less willing to „take a view‟ in the early stages of the recoveryStrictly Private & Confidential 17
  18. 18. AppendixStrictly Private & Confidential 18
  19. 19. Fully Integrated Investment Bank Investment Corporate Banking Broking Market Sales Making Equity Research Full service offeringStrictly Private & Confidential 19
  20. 20. International Footprint London, Manchester, Edinburgh (71 employees) Hong Kong, Shanghai, and Taipei* Paris (31)Los Angeles, New York, San Madrid Francisco (12) Bahrain Zurich, Munich, Milan (34) Athens Belgrade, Sofia, (6) Bucharest, Vienna * Associated Offices Strictly Private & Confidential 20
  21. 21. Approach  Regular dialogue with key institutions Sales / Trading  Commitment of capital to support liquidity  Excellent placing power  Company-specific research and wider sector pieces Research  Direct feedback on institutional trends and attitudes  Continuous dialogue with the marketChinese Wall  Advice and guidance on regulatory responsibilities Corporate Finance  M&A: 165 transactions (£12.9bn) completed since 2005 Advice  Capital Raising: c.£1.1bn raised for public companies since 2005  Proactive advice on all market facing issues Corporate Broking  Selective investor targetting  Coordination and execution of IPOs, secondary placings, vendor placings etc.  Liaise with PR to develop an investor relations calendar Investor Relations  Coordination of regular or one-off road shows  Market reports to suit client requirements Registered NOMAD and Sponsor 35 corporate broking clients, including 8 new wins during2009 Strictly Private & Confidential 21
  22. 22. Sector Focus Current Equity Research CoverageTechnology Support Services Leisure Capital Goods Software Recruitment Restaurants and Pubs Electronic & Electrical Hardware FM Food EquipmentIT Services Social Housing Beverages Industrial Engineering Telecoms Construction Services Gaming Aerospace Distribution Cinemas & Nightclubs Defence Retail Speciality Financials Media High Street Asset Management IP Online Wealth Management Marketing Services Brands Specialist Lenders Publishing Specialist Brokers Training / EventsStrictly Private & Confidential 22
  23. 23. Highly Rated Securities OperationEquity Research 12 specialist sector analysts covering 138 stocks Regular research product distributed to an established audience of institutions and potential investors: – Daily updates in morning meeting notes – Company specific notes – Sector specific / thematic notes – Monthly research publication “Altimeter” – Weekly economics productsStrictly Private & Confidential 23
  24. 24. Highly Rated Securities OperationDistribution Strength Strong and very experienced sales force dedicated purely to mid and small cap stocks Participants in recent Altium equity placements  £174m raised in last few months from a strong list of institutions £40.0m placing and the £80.8m placing and Open £15.9m acquisitions of UK Fire acquisition of RSM Bentley Offer £37.5 million Firm Placing, and Igrox and £28.0m Jennison for £76.3m Placing and Open Offer fundraising Altium acted as joint bookrunner and joint Altium acted as joint bookrunner and joint Altium acted as Joint Sponsors, Joint Altium acted as financial adviser and broker underwriter to the Company underwriter to the Company Financial Advisers, Joint Bookrunners, Joint to Brokers and Joint Underwriters to the the Company Company ENNISMORE Strong and motivated sales team with excellent mid and small cap relationshipsStrictly Private & Confidential 24
  25. 25. Full Range of Public and Private M&A Capabilities● Public takeovers, buyside or sellside (“Rule 3”) Buyside Sellside   Public● Management-backed “public to privates”● LBOs/MBOs of private companies   Private● Trade acquisitions and disposals● Pan-European network of Altium offices supplemented by international associates £3.1bn of UK acquisitions and disposals since 2005 £9.8bn of Pan-European acquisitions and disposals since 2005Strictly Private & Confidential 25
  26. 26. Leading Adviser to Private Equity Powerleague Group plc £42.5 million £35 million Management £65 million sale to £248 million sale to £33.3m Public to Private recommended offer by buyout led by Angus Newco Limited, a backed by Caspian Bidco Limited, £42.5 million company backed by a company funded by take private by Patron the Alchemy Sports Leisure S.A.R.L. Investment Plan Deal EV £85.5m Altium acted asAltium acted as Financial Adviser Financial Adviser to Miles 33 Altium acted as Altium acted as Financial Adviser Altium acted as Financial Adviser to Lloyds Development Capital and Its majority shareholder Nominated Adviser to Inspicio Altium acted as Financial Adviser to to management and BidCo Patron Sports Leisure S.A.R.L of Inventive Leisure plc Close relationships with private equity across Europe a company backed by Management buyout led by BoSIF Extensive experience acting on behalf of VCs and portfolio companies £53 million recommended cash offer Terms undisclosed for Leverage network of contacts to source backing for corporate clients Altium advised Vernacare shareholders Altium acted as exclusive financial adviser to 2e2 Ltd £52 million Acquisition of a Acquisition of a majority £99.6 million Secondary management £200 million Management buyout majority stake in stake in Management buyout buyout led by Management buyout backed by backed by led by Terms undisclosed in an owner‟s buyout Terms undisclosed Terms undisclosed Altium acted as Rule 3 Altium acted as exclusive Altium acted as Rule 3 Adviser to Premier Asset Financial Adviser to the Altium acted as exclusive Adviser to Altium acted as Financial Management shareholders of dress-for-less Financial Adviser to the Sellers Computer Software Group Adviser to Apollo Lifts Altium advised management 50 private equity transactions across Europe since 2005 Strictly Private & Confidential 26
  27. 27. Important Notice Altium Capital Limited, 30 St James‟s Square, London, SW1Y 4AL Tel: +44 20 7484 4040 Fax: +44 20 7484 4144 This document is issued by Altium Capital Limited (“Altium”), which is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. The contents are based upon sources of information believed to be reliable but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Altium provides two types of services: Corporate Finance and Securities. Corporate Finance services are provided to all types of customers depending on their needs. Securities services, which includes research, are provided to eligible counterparties and professional clients (i.e. market professionals). Retail clients must not therefore rely on any part of this document, which may include Securities related services or products and should note that Altium‟s Securities advisory services are not available to them. Any opinion expressed in these documents reflects our judgement at the date of publication and neither Altium nor any of its affiliated or associated companies nor any of their directors or employees accepts any responsibility in respect of the information or recommendations contained herein, which are subject to change without notice. This is not an offer, nor a solicitation, to buy or sell any investment referred to in this document. The material is general information intended for recipients who understand the risks associated with investment. It does not take account of whether an investment, course of action, or associated risks are suitable for the recipient. Altium or its affiliated or associated companies and their directors or employees may, as principal or as agent, make purchases, sales and offers to purchase or sell in the open market or otherwise and may have positions in or options on any such investment(s). Altium may provide services (including corporate finance advice) where the flow of information is restricted by a Chinese Wall. Accordingly, information may be available to Altium that is not reflected in this document. This document is approved for communication by Altium in connection with a presentation by the Corporate Finance Department. Additional information provided by Altium staff forms an integral part of the presentation. This document is not intended for transmission or distribution. Non EEA residents or those who are US persons must not use the information contained in this report. Any failure to comply with this restriction may constitute a violation of the relevant country‟s laws for which Altium does not accept responsibility.Strictly Private & Confidential 27