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The new growth market in Italy

To date the Meet the Players feature has focussed on 'players' in the UK AIM market. However, in this article by Alessandro Dassi, a senior manager at BDO Corporate Finance, we venture to foreign shores to consider the future for AIM Italia.

Following its merger with the London Stock Exchange in August 2007, Borsa Italiana (the Milan Stock Exchange) launched, AIM Italia, the Italian market dedicated to small and medium companies with strong growth potential. 

The structure and rules of AIM Italia are largely the same as AIM UK, reflecting the ambition of Borsa Italiana to replicate the success of AIM UK by offering a simple and flexible listing process to SMEs in Italy. 

During 2009 and the first half of 2010 a total of eight companies have listed on AIM Italia.  The listed companies operate in a variety of sectors including: renewable energies (Fintel Energia), PR and marketing (PMS Group), healthcare (TBS Group), construction (House Building Spa), graphic design (VRway Communications) and printing (Poligrafici Printing).   Amongst the listed companies is also a Greek software company (Neurosoft) which has operations in Italy, an indication of the suitability of AIM Italia also to other non-Italian companies which have an interest in the Italian market.

Nomads

13 firms have now signed up as Nomads on AIM Italia – the nominated advisers acting as regulators for companies listed on, or coming to, the market – ranging from large international banks such as Unicredit to smaller corporate finance boutiques.  The requirements for becoming a Nomad on AIM Italia are equivalent to those applying to AIM and Nomads of AIM UK directly qualify as AIM Italia Nomads. 

A number of London Nomads with a pan-European focus have sought to form alliances with local Italian corporate finance advisors to capitalise on the opportunities arising from the launch of AIM Italia.  For example  Noble, the London based independent investment bank specialising in small to medium-sized European enterprises, has recently been approved to act as Nomad on AIM Italia and has formed a partnership with Cross Border, the Italian financial advisors.  

The benefits of forming these sorts of alliances are clear: AIM London Nomads/brokers offer their experience in executing transactions and raising funds in international equity markets, whilst local Italian advisors offer their expertise and knowledge of the Italian mid-market.

Both UK institutional and retail investors can invest in companies quoted on AIM Italia and can trade in shares quoted on AIM Italia through their brokers.  Market liquidity is guaranteed by specialist liquidity providers for each individual share.

Will AIM Italia succeed?

Borsa Italiana predicts a bright future for AIM Italia: another three companies are expected to float over the summer and over 300 businesses have recently enquired about floating on AIM Italia. 

The Italian economic landscape undeniably offers great potential to the market: Italy has the highest concentration of SMEs in Europe, with over 4,000 entrepreneurial businesses currently accounting for 20% of Italy’s exports and 13% of its employees.  It is estimated that in the Italian North-East regions alone, there are approximately 500 businesses with listing potential. 

Furthermore, the absence of an easily accessible equity market has meant that, in the past, smaller companies in Italy have relied far more heavily on debt than equity to finance their growth.  AIM Italia would therefore provide ambitious SMEs looking to realise their growth potential with a relatively quick and easy access to an equity market with a global recognition (through the ‘AIM’ brand).

However, some Nomads and brokers in London have raised doubts about the merits of an offshore expansion of AIM, especially at a time when the number of companies on AIM is decreasing (the total number of listed companies fell to 1,293 in 2009, down from 1,550 in 2008).

One obvious concern is that the launch of AIM overseas may undermine the LSE’s efforts in establishing the London operations as the growth market of choice for SMEs worldwide ( approximately 40% of AIM companies have overseas operations).  The Exchange is of the opinion that AIM Italia will not cannibalise their parent’s market, but rather will provide more choice to foreign companies looking to find the most suitable market environment. 

Time Needed

Despite the initial enthusiasm for AIM Italia, it is too early to say whether it will succeed.  In fact, although the infrastructure is now fully in place, it will take time to build the ‘critical mass’ required to generate market liquidity which is key to attracting and maintaining institutional investors. 

It will also take time for the necessary cultural changes to happen.  Most Italian SMEs are family businesses whose control and management have been handed down in succession for decades.  As such, the potential dilution of control associated with going public remains a key concern, with many families historically reluctant to allow non family members to hold shares. 

The change in attitude towards market listing amongst Italian entrepreneurs will be the key to the long term success of AIM Italia; and Exchange and Borsa Italiana will undoubtedly need to play a key role in this ‘education process’.

Alessandro Dassi is an Italian national and a senior manager at BDO Corporate Finance.  He has experience in cross border transactions with Italy and has worked for a number of clients with an Anglo/Italian relationship. 

BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO Corporate Finance is a leading reporting accountant on the Alternative Investment Market (AIM) with over 59 IPOs in the last three years with a combined market value of £3.7bn.

Alessandro Dassi                         

UK investors can invest

in AIM Italia

some Nomads and

brokers have raised

doubts

most Italian SMEs are

family businesses

Written by Alessandro Dassi

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