Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Growth capital: Can you afford it?

by
20th May 2009
Save content
Have you found this content useful? Use the button above to save it to your profile.


Finance can be hard to come by in the current climate but firms should think carefully before deciding on where to source funding for growth projects, reports Francesca Saunders.

Senior executives will add a significant chunk of time nurturing, meeting and supporting investors of whatever kind. Before raising any money from any source, it is vital to consider whether the business can afford the cost of that money.

The global economic conditions – and how that makes people behave – means that it is difficult to access significant amounts of capital. IPOs on AIM are still happening - only last week, a company announced that it would be going for a listing. It is a property investment company, Max Property Group, seeking to raise up to £200million to take advantage of the weak UK real estate market. It sounds like it is designed to exploit the economic cycle, rather than help the UK economy build its way back to health.

The number of IPOs on AIM has fallen dramatically, from 182 in 2007 to 38 in 2008, raising £6.2 billion and £917 million respectively. That little gold rush moment is over. The need to attract institutional investors who are, right now, increasingly nervous of anything that looks remotely risky means that the buccaneering fast growth technology stokes which liked AIM as a less onerous source of finance than venture capitalists are far from flavour of the month.

Kate Tzouliadis, managing director, Biddicks Ltd, a financial PR company specialising in smaller companies, expects more consolidation across AIM, particularly in the tech sector. In her view, a new entry to AIM would need to be a profitable business with a market capitalisation of £40m+ or a clear plan of how to reach that level over five years.‘The AIM companies that have been successful over the last 12 months have been profitable companies. The ‘jam tomorrow’ sales pitch just doesn’t exist today.’ She says.

The graphs on the AIM website show market statistics which prove that right now the game on AIM is raising further money, not IPOs.In the first four months of 2009, £667.8 million has been raised by further issues on AIM of already listed companies, which means that only £3.5m has been raised by new issues.

So if you are already in the AIM family, a new issue looks like a positive route to additional capital working with the investors that you already have. AIM is working to make the market more attractive to investors. ‘We continue to work to help companies make the most of their AIM quotations through initiatives such as PSQ analytics and our regional investor roadshow, and are urging the government to give VCTs (Venture Capital Trusts) greater freedom in the investments they make in small cap companies – all of this is designed to give companies new ways to increase their own liquidity.” Says Alastair Fairbrother, AIM spokesperson.

AIM itself recognises that the global market for IPOs is very tough.This will lead to more acquisitions as investors and founders need to extract themselves and their capital. All outside money is expensive, whatever the route, in time, money and energy and it is important to bear in the mind the distraction for senior management.

This article is an extract from an article originally published on our sister site Finance Week. To read more click here.
Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.