AIM Insights March 2015

AIM INSIGHTSReview of AIM for the six months to December 2014

Review of AIM for the six months to December 20141

After relatively strong economic growth in the first half of the year was matched by a robust performance by the London capital markets, the second half saw the return of some uncertainty arising from a number of factors, including the spectre of deflation in the Eurozone, the Ebola outbreak, the conflict in Ukraine and the slowdown in the Chinese economy. As a result, investors appeared to take stock in the second half of the year, particularly after the funding boom in the first half of the year.

Against this economic backdrop, the BDO capital markets team considers the performance of AIM and AIM listed companies for the six months ended 31 December 2014, together with 2014 as a whole, in the third edition of AIM Insights, our six monthly survey of the AIM market.

How has AIM performed relative to the FTSE All Share? What have been the trends in the number and size of AIM listed companies and how successful have they been in raising equity funds? Which sectors have been most in demand and which advisers have been most active?

KEY FINDINGS

• There was no change in the number of AIM companies (1,104) at H2 2014 compared to H1 2014, with the number of new joiners (54) offset by an equal number of leavers.

• There were 38 IPOs1 in the second half of 2014, broadly similar to the number seen in the first half (41) and in H2 2013 (40).

• However, IPO proceeds in the first half of 2014 were significantly higher than the second half, with total proceeds declining from £1.67 billion in H1 to £0.8 billion in H2. The largest further issue and the largest five IPOs and were all in the first half year.

• This trend was also evident for further issues, for which total proceeds in H2 2014 totalled £1.15 billion, a 42% reduction compared to H1 2014 (£1.97 billion) and a 30% reduction compared to H2 2013 (£1.64 billion) but still higher than recent historical levels in H2 2012 and H2 2013.

• In H2 2014, healthcare and other financial were the most active sectors for fundraising with 17% and 12% of total funds raised respectively. This compares to consumer services (24%) and industrials (21%) in H1 2014.

• For the fourth year in a row, BDO was the most active reporting accountant in 2014 with 23 IPOs, almost double the number of the second firm on the list. The most active nomad was Cenkos Securities with 11 IPOs although Zeus Capital raised the most IPO money (£654m).

REVIEW OF AIM FOR THE SIX MONTHS TO DECEMBER 2014

1 IPOs in this document are defined as excluding introductions and reverse takeovers.

2014 AT A GLANCE

H1 H2

No of companies 1,104 1,104

Total market capitalisation £78.3bn £71.4bn

Average market capitalisation £71m £65m

New admissions 64 54

IPOs 41 38

Total fundraising £3.71bn £2.02bn

IPO proceeds £1.67bn £0.80bn

Average IPO proceeds $40.8m £21.1m

Further issue proceeds £1.97bn £1.15bn

Average further issue proceeds £8.8m £5.2m

Review of AIM for the six months to December 2014 2

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65

70

75

80

85

90

95

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105

Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Dec 2014

STOCK MARKET INDICES - H2 2014 (REBASED)

FTSE AIM 100 FTSE All Share

40

60

80

120

140

160

100

20142013201220112010

STOCK MARKET INDICES - 5 YEAR (REBASED)

FTSE AIM 100 FTSE All Share

MARKET PERFORMANCEAIM MIRRORS MOVEMENTS IN FTSE

• The AIM 100 declined by 10% over the second half of 2014 compared to the FTSE All Share which was 3% lower over the same period. The is the second six month period in a row that the AIM 100 has underperformed the wider London index although the rate of decline has slowed, as the reduction in the first half was 14%.

• The overall decline in 2014 was largely driven by oil and gas companies, whose total market value declined by 63% in 2014. This reflected, in part, the departure from AIM of a number of very large oil and gas companies as a result of M&A activity and transfers to the Main Market.

• This is in contrast to H2 2013, when the AIM 100 grew three times faster than the FTSE All Share. The marked change in fortunes for the AIM 100 index over the last 12 months relative to the FTSE All Share index highlights the relative volatility of the AIM market compared to the wider capital markets.

• The volatility of the AIM index is also evident from the five year graph. AIM has periods when it substantially outperforms the FTSE All Share, as in 2010 and 2011, but there are also times of significant underperformance, as is the case at the moment.

• The rate of decline in the AIM 100 has slowed over the six month period, with Q3 2014 reducing by over 6% and Q4 declining by less than 4%. This largely mirrors the FTSE All Share, which was 3% lower in Q3 but flat in Q4.


1,600

£bn90

80

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60

50

40

30

1,400

1,200

1,000

800

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400

600

0 H109

1,413 1,293

1,235

1,195

1,152

1,143

1,114

1,096

1,085

1,087

1,104

1,104

H209

H110

H210

H210

H211

H112

H212

H113

H213

H114

H214

NUMBERS STABILISING

No. of companies (i-h scale) Market value (r-h scale)

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40

20

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-20

-40

-60

-80H112 H212 H113 H213 H114 H214

34 37 34

65 6454

-54-47

-63

-45-56-62

AIM JOINERS AND LEAVERS

Admissions Delistings

200

250

150

100

50

00-5 100-25050-10025-5010-255-10 250+

AIM COMPANIES BY MARKET VALUE

Jun 2014 Dec 2014

• There was no net change in the number of AIM listed companies at the end of H1 2014 compared to June 2014. This compares to a net increase of 17 in H2 2013.

• The number of AIM companies has now been relatively stable at approximately 1,100 for the last three years.

• There were 54 new admissions to AIM in the second half of 2014, a reduction from the level of approximately 65 in both the second half of 2013 and the first half of 2014.

• The number of IPOs in the second half of 2014 of 38 was broadly in line with the first half of 2014 (41) and the second half of 2013 (40) and, whilst the slight reduction may suggest that the number of IPOs may be starting to ease, this is not consistent with our experience of the market.

• The reduction in new admissions was largely due to fewer other admissions (such as introductions and re-admissions) which totalled 16 in H2 2014 compared to 23 and 25 non-IPOs in H1 2014 and H2 2013 respectively.

• Average market cap per company at 31 December 2014 was £65m, which represents an 8% reduction on the average at 30 June 2014 (£71m), reflecting the overall decline in the AIM index.

• The average market cap for new admissions in H2 2014 was £76m, a 16% reduction on H1 2014 (£90m) but still 55% higher than in H2 2013 (£49m). It is a sign of the quality of these new admissions that their average market cap is higher than the overall AIM average.

• There was a minor increase in the level of churn, with the number of delistings rising from 47 in H1 2014 to 54 in H2 2014.

• The total market cap of all AIM companies at 31 December 2014 was £71.4 billion, a 9% reduction compared to 30 June 2014 of £78.3 billion and a 6% reduction compared to 31 December 2013 of £75.9 billion. This is the first reduction in total market cap since H1 2013, although total market value is still 18% higher than in H1 2012 (£60.7 billion).

• The distribution of companies by market value between June 2014 and December 2014 shows a noticeable increase in the number of very small companies (ie less than £5m). As there were only three new admissions with market caps of less than £5m, this largely reflects the impact of the overall reduction in AIM company values. There were no material changes in the distribution of medium to larger companies.

NUMBERS STABILISING


TEN LARGEST IPO FUNDRAISINGS - H2 2014

Sector £m

Market Tech Holding Real Estate 100

Fevertree Drinks Food and Drink 93

Gamma Communications Telecoms 83

Quantum Pharma Pharmaceuticals and biotech 76

Mercia Technologies Financial 70

Crossrider Media 46

Mortgage Advice Bureau Financial 36

Entu (UK) Retail 33

Midatech Pharma Pharmaceuticals and biotech 32

Haversham Holdings Financial 30

TEN LARGEST FURTHER ISSUES - H2 2014

Sector £m

New Europe Property Investments

Equity investment instruments 100

Benchmark Holdings Pharmaceuticals and biotech 70

Infrastructure India Equity investment instruments 61

Velocys Oil equipment and services 52

Secure Trust Bank Banking 50

Monitise Telecoms 49

Rightster Group Software and computer services 42

Retroscreen Virology Pharmaceuticals and biotech 33

Pure Circle Food and drink 28

Earthport Software and computer services 27

• Total proceeds from new admissions in the second half of 2014 amounted to £869m, approximately half the amount raised in the first half (£1,735m) but broadly in line with the amount raised in the second half of 2013 (£850m).

• The proceeds in H1 2014 were inflated by three large IPOs (Boohoo.com - £300m; Dalata Hotel Group - £222m; Dx plc - £201m). Adjusting for these, second half proceeds were only 16% lower than in the first half. The second half still saw healthy proceeds relative to the £340m raised in H1 2013.

• The vast majority of the second half new admission proceeds (£801m) related to IPOs.

• Average IPO fundraising per company in the second half of 2014 was £21.1m. Adjusting for the three large IPO placings of over £200m, the second half average of £21.1m is mid way between the adjusted proceeds in H1 2014 of £24.9m and the amount raised in H2 2013 of £18.2m.

• Total proceeds from further issues in H2 2014 amounted to £1.15 billion, a 42% reduction compared to H1 2014 (£1.97 billion) and a 30% reduction compared to H2 2013 (£1.64 billion). However the second half still saw healthy investment appetite relative to the amount raised of approximately £1 billion raised in both H1 2013 and H2 2012.

• 221 companies raised money through secondary issues in H2 2014 at an average of £5.2m per company. The number of companies is broadly comparable to H1 2014 (224) and H2 2013 (234), but the average raise per company is lower than in these periods (£8.8m and £7.0m respectively).

• BDO acted as reporting accountant on five of the top ten IPOs in H2 2014, including Market Tech Holding and Fevertree Drinks.

FUNDINGINVESTMENT APPETITE CONTINUES


• In H2 2014, healthcare and other financial were the most active sectors for fundraising with 17% and 12% of total funds raised respectively.

• In H1 2014, the most active sectors were consumer services, with 24% of funds raised compared to 7% in H2 2014, and industrials, with 21% compared to 4% in H2 2014.

• In the corresponding period in 2013, the most active sectors were technology (23%) and other financial (15%).

• It is interesting to note the changes in the most active fundraising sectors in each half year period in the last few years, highlighting how quickly investment sentiment can change from one sector to another.

• It is also notable that the investments were relatively well spread across sectors in H2 2014. After healthcare, there was a relatively even spread across the next nine sectors, each accounting for between 7% and 12% of total funds raised.

• The healthcare sector included the IPO proceeds of Quantum Pharma (£76m) and Midatech Pharma (£32m) plus the further issues of Benchmark Holdings (£70m) and Retroscreen Virology (£33m). Other financial included the IPOs of Mercia Technologies (£70m), Mortgage Advice Bureau (£36m) and Haversham Holdings (£30m) and the further issue of Secure Trust Bank (£50m).

• There was a notable split between the first half and second half in 2014, with the first half accounting for 65% of funds raised for the year compared to 36% in H1 2013.

• Total funds raised in H2 2014 (£2.02 billion) were 19% lower than in the same period in 2013.

• The market took longer to bounce back in 2014 after the usual seasonal lull in the summer, with fundraising in October and November being substantially lower than in 2013. This reflected a certain degree of investor caution in the Autumn due to the uncertainties over the impact on the global economy of the Ebola outbreak, the conflict in Ukraine, the strength of the Eurozone economy and the slowdown in China.

• However, activity bounced back strongly in December, with £621m being raised in that month, the third highest monthly total of the year. It will be interesting to see if this momentum is maintained in the first quarter of 2015.

• The three large IPOs noted above contribute to the very strong fundraising results in the first half of 2014. The largest IPO of H2 2014 (Market Tech Holdings) contributed to the strong performance in December 2014.

FUNDINGINVESTMENT APPETITE CONTINUES

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

NEW AND FURTHER ISSUES

2014 2013

Oil and gas 11%

Basic materials 7%

Consumer goods 9%

Healthcare 17%

Consumer services 7%

Telecoms 8%

Equity investments 10%

Real estate investment 7%

Other financial 12%

Technology 7%Other 5%

11%

7%

9%

17%

7%

8% 10%

7% 12%

7%5%

TOTAL NEW AND FURTHER FUNDS RAISED BY SECTOR – H2 2014


MOST ACTIVE ADVISERS

NOMADS

• The most active Nomad on AIM IPOs in 2014 was Cenkos Securities with 11 IPOs.

• The most successful Nomad on AIM in terms of IPO proceeds was Zeus Capital who raised £654m. Zeus Capital’s IPOs in 2014 included boohoo.com, which was the largest IPO on AIM in terms of money raised (£300m), and DX plc (£201m).

IPOS - MOST ACTIVE NOMADS (H1 2014)

IPOs (No.) Money raised (£m)

Cenkos Securities 11 373

Finncap 8 65

Zeus Capital 7 654

Nplus1 Singer 5 63

Panmure Gordon 5 82

Cairn Financial Advisers 4 17

Canaccord 4 78

Investec Bank 3 201

Oriel Securities 3 36

Strand Hanson 3 37

Others 33 867

Total 86 2,473

REPORTING ACCOUNTANTS

• With 23 IPOs, BDO continues to be the leading reporting accountants for IPOs on AIM with almost twice as many IPOs being concluded as KPMG in second place. It serviced clients across a range of sectors, with the most active being TMT (6), real estate (3) and healthcare, support services, food and drink, travel and leisure and retail (2 each).

• BDO was also the leading reporting accountant in 2013 with 12 IPOs.

IPOS – REPORTING ACCOUNTANTS ON AIM

2013 No. 2014 No.

BDO 12 23

KPMG 7 13

Grant Thornton 9 10

PwC 5 8

Deloitte 4 7

Baker Tilly 7 5

Crowe Clarke Whitehill 5 4

Ernst & Young 3 3

Other 15 13

Total 67 86

BDO UK CAPITAL MARKETS

1. total for the 23 AIM IPOs for which BDO was reporting accountant

2. independent research (Mid Market Monitor 2012, 2013 and 2014) undertaken by Meridian West shows BDO has the highest client satisfaction rating among its peers

3. total for the 23 AIM IPOs for which BDO was reporting accountant

4. on AIM IPOs for the fourth consecutive year

4

accountantreporting1No. 3market capitalisation

£2.46bn

for exceptional client service21No.23 IPOs

in 2014

AIM £564m1

fundsraised

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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www.bdo.co.uk

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ANDY HARRIS READINGPartner t: +44 (0)20 7893 2162 e: [email protected]

CHRIS HEATLIE MANCHESTERPartner t: +44 (0)161 833 8362 e: [email protected]

CHRIS SEARLE LONDONPartnert: +44 (0)20 7893 2058 e: [email protected]

GRAHAM ELSWORTH BIRMINGHAMPartner t: +44 (0)121 352 6212 e: [email protected]

IAN COOPER LONDONPartner t: +44 (0)20 7893 2678 e: [email protected]

JEFF HARRIS GATWICKPartnert: +44 (0)129 384 8994 e: [email protected]

JOHN BARKERLONDON AND EAST ANGLIAPartner t: +44 (0)20 7893 3980 e: [email protected]

MATT COPLEYLEEDSPartnert: +44 (0)113 204 1217e: [email protected]

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AIM Insights March 2015