skip to Main Content

As investors hunt out private equity opportunities, Avenir Registrars asks if this is a risk or an opportunity for AIM?

Last month we saw news that the London Stock Exchange had made an investment into Floww, a FinTech built around the idea of matching professional or institutional investors with privately held companies seeking to raise capital. Given the overblown valuations which now blight listed companies right across the board, the quest for value means that many see these higher risk investments as presenting significant potential for growth, but logistically, will this market ever be able to mature without some fundamental interventions at a regulatory level?

Many people will be quick to look to the US where for decades there has been a rampant market in the pink sheets and more recently some structure has been brought about from platforms like CartaX, offering privately held businesses better ways to connect with the buy side. But whilst market evolution in the UK still runs some way ahead of what we see in mainland Europe, there’s still a significant gulf to cross when it comes to aligning the UK regulatory structures with what is seen across the Atlantic. Not only is it easier for investors of all shapes to tap into the opportunities held by what we would consider unlisted companies, but the regulation relating to record keeping, transaction processing and the electronic payment of taxes is also far more accommodative to companies trading at lower valuations who in turn will typically only be tapping the market for a smaller tranche of investment.

Whilst reform stemming from the Hill review is definitely a step in the right direction, there’s still a lot more heavy lifting to be done here. However, there’s an opinion forming that as disruptors such as Floww and others like CrowdX make greater inroads here, then regulators will have to pay attention. And indeed the involvement of the London Stock Exchange can also only serve to further the cause here. But critically, does this risk cannibalising the AIM Market with smaller issuers recognising the benefits of a more informal listing structure? Our view at Avenir is that’s unlikely to be the case. Given the struggle that so many businesses face as they try to grow, having more formalised – and accessible – situations here can only be a positive.

Market feedback suggests that the vast majority of founders of small companies simply aren’t aware of the range of options they have when it comes to seeking funding. This ultimately limits the growth potential for at least part of this cohort, leaving businesses either unable to achieve their goals because they are using inefficient financing structures, or because they find themselves bought out – at potentially deep discounts – by vultures.    

With that in mind, better cultivation of the ground on which these growth companies operate would see winners all round. Smaller businesses can get used to some of the structures which they would need to adopt if they were to eventually seek a full listing, investors would be granted better transparency over a company and its prospects, whilst exchanges and professional advisers would also have improved visibility over the future needs for their services. Formalising structures here in turn has the potential to ensure that even more growth businesses can graduate from privately held to allowing the public to take a share in their fortunes, either through a debt or an equity issuance.

The easy criticism may be to say that this will only see the junior market shrink, but the weight of companies out there seeking the correct routes to growth, combined with the volume of uninvested cash that continues to hunt for a meaningful opportunity suggests that there’s a world of untapped opportunity waiting here.

Avenir Registrars supports companies of all sizes – including public and private – in managing their securities registers throughout the lifecycle of the issuance. With a platform built from the ground up by a team highly experienced in constructing securities exchange infrastructures, Avenir’s systems already include a number of the efficiencies required to enable smaller issuers to easily and efficiently manage their ownership registers and meet their investor relations needs.

Hardeep Tamana, Managing Director, Avenir Registrars

This article originally appeared in the April 2022 version of AIM Journal. You can download a printable version here.

Back To Top