Companies: BRU    HRG    MAYG    SCHE   

According to LSE stats, 242 new issues – excluding re-admissions and transfers – had arrived on AIM by the end of September, comparing very favourably with the record 250 that joined in the same time in 2005.

Opinion regarding the sustainability of the pipeline is still bullish in many quarters, with some AIM advisers insisting they remain feverishly busy and others arguing the pipeline has been replenished after a summer lull.

However, with some main board floats either pulled entirely (Cineworld in the summer) and others delayed or scaled back (Southern Cross, Hogg Robinson) the alarm bells have rung in certain quarters. Might the AIM pipeline falter with investment houses pickier and pricing issues coming to the fore?

Selective attitudes and competition
Luke Ahern, head of corporate broking at Corporate Synergy, believes that ‘there’s still plenty in the pipeline and by no means has the market died. However on AIM, the market has definitely become more selective. Investors are fussier and on a number of fronts, such as ethanol and biodiesel, there are just too many business plans around.’

Ahern reckons that prospective new issues can’t keep relying on the same UK investors for funding, and brokers and advisers ‘are going to have to be more willing to look for international money for their floats.’ That said, he believes ‘there’s always a market for profitable, cash-generative, dividend-paying, proper grown-up companies, though if it’s edge-of-the envelope stuff, where risk is higher, the new issues market is more tricky.’

In a revealing comment, Ahern also argues that AIM rival PLUS Markets, the firm run by the indefatigable Simon Brickles, ‘is raising its game, and is a far more serious market than it was’.

Investor indigestion?
Tony Fry, a partner at KPMG, weighs in: ‘We have seen a slowdown in IPO numbers since June. However, after a couple of years of very high activity levels, there is certainly a degree of indigestion on the part of investors. The supply is there, but investors will be pickier and they’ll want to see evidence of a sensible business model that has already worked.’ Discerning investors will no doubt demand more realistic IPO pricing, although Fry believes ‘good businesses will still get away with sensible prices.’

A track record is key
A typical example of the type Fry is talking about is construction services firm May Gurney. Despite some last-minute jitters, it went ahead with its AIM flotation – at a very difficult time at the beginning of the summer when a number of floats had been pulled – largely because of effusive backing from institutions that actually oversubscribed for the placing.

In all, May Gurney raised £44.1 million, of which £13.5 million was raked in for the company. It was no doubt aided by a seven year track record of profits growth and strong cashflow generation – EBITA burgeoned from £2.2 million to £13.7 million – not to mention strong earnings visibility in the form of forward orders.

Beer monitor moves higher
More recent debutantes also demonstrate that, provided the story hits the sweet spot for investors, a venture should find a receptive fundraising audience.

Brulines, which provides ‘volume and revenue protection systems’ for tenanted pubs, received particularly strong institutional backing for its float, handled by Cenkos Securities. It raised £19.5 million in total at 123p. Chief executive James Dickson expressed delight, stating that ‘this was at the higher end of our expectations and was particularly encouraging in what we understand to be challenging conditions.’ Of that figure, £7 million was fresh capital for the company, and the shares have subsequently frothed up to 144.5p.

Floats against the odds?
KSK, a developer of private power projects in India, has just raised £30.9 million at 107p a share through a placing led by broker and adviser Arden Partners, with 22.4 per cent of the company placed with hungry institutional investors, even after the prolific backing already given to renewable energy and sustainable power companies so far this year (see feature on page 12.)

Even more surprising perhaps is the successful IPO of Canary Wharf-based Betbrokers, the UK’s first retail and wholesale brokerage clearing house for the sports betting industry.

While the gaming industry was in meltdown, Hanson Westhouse managed to attract £2.5 million at 15p for Betbrokers, which is the first company in the UK that allows retail clients to trade with numerous bookmakers from one single account and also enables bookies to deal with each other ‘anonymously’ to assist in the laying off of risk.
‘There’s no argument that the online gaming stuff coming out of the US made our IPO more of a challenge,’ says chief executive Wayne Lochner, ‘but there’s no doubt we could have raised more.

We made it clear that we don’t take money from the US, we don’t have an online
presence, and we hit all the sweet spots on responsible gambling.’