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In 2009, departures from AIM totalled 293, sharply reversing the surge in additions to the junior market over the five previous years.

There has been much commentary in the financial press concerning companies delisting, including particularly doom-filled diatribes from some high-profile fund managers and financial reporters. Scratch the surface, however, and you will see that allegations of AIM's shortcomings have been unnecessarily alarmist and misleading. 

Over the course of 2009 I followed delisting, suspension and new listing notices from AIM. Announcements from companies and the Stock Exchange are reported through the Regulatory News Service (RNS) and can be found at Financial Express' website: www.investegate.co.uk. There are two sources of significant announcements: the AIM authorities and the companies themselves. AIM announces each suspension and delisting (preferring the term 'Cancellation'). They also report every lifted suspension (Restoration). 

Companies are under no obligation, however, to report their last day of trading on AIM and there seems to be a not-entirely-satisfactory set of rules in place for companies reporting the suspension of their shares. Even the intention to delist can be buried within another announcement. To understand departures from AIM you must marry the company's announcements with those from the Stock Exchange.

Underlying Reason

Other commentators have previously failed to examine the reasons behind these delistings before pronouncing their diagnosis on the health of AIM. Many companies have delisted due to takeover, reverse-takeover or entering financial administration. Others have been forced to delist in desperate, cost-cutting measures, or at the whim of large shareholders. It is difficult to find companies that did not consider AIM helped their long-term objectives.

Often a Company will give a number of reasons for leaving the market. I have categorised delisting by what I considered to be the most important reason for the exit. I discuss the most important categories, with some examples, in the following paragraphs. 

Most companies leaving had no choice in the matter. In 2009 I counted 48 takeovers and 86 companies whose financial position forced them to delist. Twenty-one companies were struck off after failing to comply with the AIM rules, typically cash shells that had not executed their investment plans or companies that did not secure the services of a NOMAD. Twelve of the 293 delisted companies were subject of a reverse takeover, underlining the continued value of an AIM listing. 

Fifteen companies left the market following pressure from large shareholders. One example, GSH Group, announced in March that a shareholder with 83.9% of total voting rights was demanding delisting. 

Money-saving was the primary reason that 31 companies left AIM. Though departure was the company's idea, it is clear from the RNS that the decision to delist was taken as part of a series of urgent cutbacks.

David O'Hara                 

Voluntary Leavers

Determining whether a company chose voluntarily to cancel their AIM listing is not always clear-cut. I put another 31 companies in this category. Many of these bemoaned the economic environment, difficult trading or thin liquidity in their shares on their way out of the door. I posit that these difficulties would have been less if their successes had been more. Most of these departures will be mourned more by the advisor community than by investors.

Jourdan and Antonov are rare examples of solid, profit-making businesses choosing to leave the AIM market of their own volition. On September 8th, packaging and labelling specialist Jourdan announced its intention to leave AIM. Jourdan joined AIM in 2002 after first taking a London listing in the 1970s. Along with the proposed delisting, Jourdan announced £1.7m of profit from £18.1m of turnover. Commenting on delisting Jourdan stated:

"there is a clear lack of liquidity in the Ordinary Shares [...] which, in the Directors' view, has contributed to the Company being undervalued."

Liquidity was a common complaint from companies announcing their departure. Jourdan went on to echo other AIM companies' concerns saying:

Automotive specialist Antonov's story is also interesting. First listed on AIM in 1995, Antonov took a secondary listing on Euronext Amsterdam in 1997. By November of last year, 94% of the company's stock was held by Euroclear Nominees Limited or Euroclear Nederland and nearly all trades were executed on Euronext Amsterdam. Significantly, the company Directors estimated the combined cost of maintaining listings on AIM and Euronext at £500,000 pa.

Most companies delisting estimated the cost of AIM somewhere between £100k and £150k. Antonov's figure is likely to include the cost of management time.

solid, profit-making

businesses choosing

to leave

liquidity was a

common complaint

A Better Understanding

Plough through the RNS each day and you will develop a better understanding of the financial markets than can be gleaned from the traditional financial media. The reports from the RNS reveal the damage wreaked by the financial crisis on smaller companies. I have provided further analysis of this ‘damage’ in the following six categories:

1. Giving Up

The extreme climate persuaded a number of companies that they would not achieve the success hoped for. In February, property investment company Wyndham York announced that "in view of the current economic conditions there is no realistic prospect of generating satisfactory returns at the present time or in the medium term". The company announced plans to not pursue the business and return net surplus cash to shareholders. Delisting followed on March 25th. This was one of a handful of companies in 2009 to throw in the towel and wind up as an enterprise completely.  

2. Going Up

AIM's status as a training pool for growing companies remains. Booker Group, Afren and Omega Insurance were three of the eight** companies deciding to graduate to the official list. In the opposite direction, Eclectic Investment Company, Harvard International and investment bank Shore Capital were the three companies moving from the main market to AIM.

**Official statistics from the LSE state that nine companies left AIM for the Official List, including Golden Prospect

in June. I have spoken with the company, who tell me the shares were not admitted to the Official List following the AIM departure and have never traded there.

3. Going Bust

The financial difficulties many small companies suffered led to a large number failing to meet the deadline for publication of their results. This was followed by immediate suspension and frequently cancellation of their AIM listing. Clarification of a company's financial position rarely preserves value for shareholders.

damage wreaked by

the financial crisis

4. Going Home

A number of companies have AIM as their secondary listing. In 2009, fifteen of these departed AIM for home. September saw Australia-based oil explorer ROC Oil announce their forthcoming departure and retreat to the ASX. In the same month, Ontario-headquartered Redknee Solutions announced they would be leaving AIM but keeping their Toronto listing: citing cost, the concentration of its investor base in Canada and the difficulties of adhering to separate regulatory regimes.

5. Taking the Ball Home

One phenomenon that particularly riled investors in 2009 was the opportunistic delistings or MBOs carried out by a small number of AIM-listed companies. Though the financial crisis did have a huge impact on valuations and liquidity in the market it was clear the magnitude of the difficulties would not last forever. In June, IT specialist Touchstone announced their intention to delist. At the time shares traded at around 20p, down 80% from a year previous. Frustratingly for shareholders, trading statements from the company suggested that this decision had been taken just as trading reached its nadir, denying shareholders the opportunity to trade their shares over the course of the likely recovery.

6. Taking the biscuit

Some delisting announcements left much to be desired. Madara Bulgarian Property Fund announced their intention to delist at 6:18 pm, after many investors would have stopped checking the financial news and before they would look again the next day.

On March 16th, General Capital announced banking covenants had been breached and there was "significant uncertainty as to the future of the Group." Two weeks later the shares were suspended by AIM, "pursuant to AIM Rule 1" (Thou shalt have a NOMAD). The company's announcement stated "An unfortunate consequence of the aggressive cost cutting [...] has been to eliminate fees and costs payable to certain of the Company's advisors including those in connection with its AIM listing." NOMAD Collins Stewart had, naturally, resigned rather than work for nothing.  General Capital had their listing cancelled on May 1st, again "pursuant to AIM Rule 1".

It appears some firms preferred provoking AIM into cancellation to putting a proposed delisting to shareholder vote.

fifteen departed

AIM for home

Suspense is Killing

For a number of companies, the first sign shareholders were given that the company's listing was at risk came from an RNS reporting a 'Temporary Suspension'. For several companies including Black Raven Properties and Timan Oil and Gas, trading was never restored and the companies were eventually delisted.

In 2010 I would like to see NOMADs and the Exchange tighten up guidance on when the term 'Temporary Suspension' may be used as a fair description of the company's predicament.

The circumstances under which a company can legitimately request suspension is also unclear. An example came from technology company Artilium. In June the company requested suspension of the company's shares following board-level "disagreements over the appropriate financing strategy for the Company going forward". At the time Artilium had a two person board. This tiff prevented shareholders from trading their shares for almost five months.

David O'Hara is an experienced private investor and founder of Blackthorn Focus, a publication and events business dedicated to the financial markets. If you would like more information on this study, contact Blackthorn Focus.

trading was never

restored

Written by David O'Hara

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