LSE:

There are no specific requirements or additional steps needed under the AIM rules for US companies.
However, due to the fact that AIM has a very high level of institutional investor participation,
and these investors are the key participants in the funding process at IPO,
there might be a certain set of criteria that investors will look for in a company.
For a US company, investors are usually far more receptive to firms
that have assets or operations outside of the US for instance.

The 'joining AIM guide' provides practical information on floating on the market:
~ AIM is now the world’s leading market for smaller, growing companies
~ is built on a simplified regulatory environment, specifically designed to make the process of going public as smooth as possible
~ as a result, over 2,000 companies have joined AIM since the market’s launch in 1995, raising almost £20 billion
~ over 2,000 companies have chosen to use the market to gain a public quote
~ AIM also benefits from being an integral part of the portfolio of markets offered by the London Stock Exchange

Why join a public market ?
~ to provide access to capital for growth
~ to create a market for the company’s shares
~ to place an objective market value
~ to encourage employee commitment
~ to increase the company’s ability to make acquisitions
~ to create a heightened public profile
~ to enhance status with customers and suppliers

Why AIM ?
entry criteria tailored to smaller/younger companies,
~ giving a wide range of companies access to a public market at an earlier stage of their development
~ no trading record is required
~ there is no requirement for a particular percentage of shares to be in public hands

streamlined regulatory regime
~ allows businesses to learn to deal with life as a public company without the full discipline of the UKLA’s rules

easier acquisition rules,
~ facilitating growth through acquisition

unquoted status for tax purposes,
~ which may be an advantage for some companies

Main Market
• minimum 25% shares in public hands
• normally 3-year trading record required
• prior shareholder approval required for substantial
acquisitions and disposals
• pre-vetting of admission documents by the UKLA
• sponsors needed for certain transactions
• minimum market capitalisation

AIM
• no minimum shares to be in public hands
• no trading record requirement
• no prior shareholder approval for transactions*
• admission documents not pre-vetted by Exchange nor by the UKLA in most circumstances.
~ The UKLA will only vet an AIM admission document where it is also a Prospectus under the Prospectus Directive
• nominated adviser required at all times
• no minimum market capitalisation

Indexes
~ FTSE AIM Index Series comprises
~ the FTSE AIM UK 50 Index,
~ FTSE AIM 100 Index and
~ FTSE AIM All-Share Index
~ The objective of these indices is to attract additional investment in AIM securities,
~ thereby improving liquidity, by providing the ability for investors to benchmark AIM securities

AIM’s approach to regulation
~ A company can join AIM, regardless of country of origin or sector of activity,
~ with the main requirement being that the company must be appropriate for the market.
~ This judgement is made by each company’s nominated adviser (or Nomad), a firm of experienced corporate finance professionals
~ approved by the Exchange to act as Nomad
~ a company looking to join AIM must first appoint a Nomad to support its application to AIM,
~ and to help it meet the AIM requirements on a continuing basis

The nominated adviser or ‘Nomad’
~ will judge whether the company is appropriate for the market
~ will explain the AIM rules to the company’s board, and ensure that the directors are aware of their responsibilities and obligations
~ this is especially important because directors are ultimately responsible for their company’s compliance with AIM’s regulations,
~ including the accuracy of the information in the admission document
~ once the company has been admitted to AIM, the Nomad will continue to give advice and guidance on the AIM rules on a continuing basis
~ the role of the nominated adviser is so key that should the AIM company cease to have a Nomad,
~ trading in its securities will be suspended until a new Nomad has been appointed

The broker
~ is a securities house which is a member of the London Stock Exchange,
~ and which may be the same firm as the nominated adviser (if the company so chooses and such firm is an approved Nomad)
~ The broker will play an important role in bringing together buyers and sellers of the company’s shares, and
~ in making a success both of the flotation and the after-market trading

The legal adviser
~ will oversee issues such as due diligence on behalf of the Nomad,
~ changes to directors’ contracts and verification of the statements in the admission document and
~ should also provide ongoing advice to the board on its continuing legal obligations

The reporting accountants
~ will conduct an independent review of the company’s financial record and
~ will assist in preparing the financial information required to be published

The company may also choose to appoint public/investor relations advisers to manage the flow of information during the flotation.
Depending on the nature and needs of the business, it may also decide to draw on a range of specialist advisers
including resource sector experts, property surveyors, security printers, actuaries and insurance brokers

Each company applying to AIM must:
• appoint an approved nominated adviser
• appoint a nominated broker
• have no restrictions on the free transferability of its shares
• be registered as a plc (public limited company) or equivalent – and be legally established under the laws of its country of origin
• prepare an admission document
• pay a fee according to the current tariff

AIM designated markets: the fast-track route to AIM
~ companies who have had their securities traded on an AIM Designated Market for at least 18 months can apply to be admitted
~ to AIM without having to publish an admission document
~ At the time of writing, the AIM Designated Markets are the main markets of:
• Australian Stock Exchange
• Euronext
• Deutsche Börse
• Johannesburg Stock Exchange
• Nasdaq
• NYSE
• Stockholmsbörsen
• Swiss Exchange
• Toronto Stock Exchange
• UKLA Official List

Questions before taking a view to satisfy Nomad
~ does the company have a management team with the experience to run a public company and
~ can the management team members demonstrate their integrity and financial probity

~ does the company have a viable business model such that it is likely to grow and deliver value to investors ?

~ if the AIM admission involves a fundraising, is there a realistic possibility that the broker will be able to raise
~ the funds at a valuation acceptable to existing shareholders ?

Management Team
~ has a clearly defined structure, with a clearly identifiable leader
~ has a full set of skills encompassing finance, operations, marketing and sales
~ operations include procurement, human resources, production and distribution
~ in most cases, a capable finance director is essential to the success of a quoted company
~ there is strength in depth
~ its team members can demonstrate relevant experience in business generally and specifically in the sector in which the company operates
~ its members work well together
~ it is able to provide accurate, reliable and comprehensive management information in a timely manner
~ the accounting policies selected by the management team should err on the conservative and should be consistently applied
~ it should have strong nonexecutive directors who are experienced in City practices and are
~ able to impose proper public company practices on their colleagues

The Nomad will review each director’s curriculum vitae, from which information will also be taken and included in the AIM admission document.
References will be taken and detailed background searches will be made.

AIM companies are required to appoint and retain a Nominated Adviser (Nomad) at all times.
More information on the role of the Nomad can be found at:
~ the Sarbanes-Oxley corporate governance reforms in USA have increased the compliance costs of a US listing
~ with no significant benefits beyond those that already apply under the London regime

This report outlines many of our achievements in lowering the costs of listing and trading and in the provision of capital:
~ It acknowledges that our cost of capital, both for IPO issuance and direct cost of trading is lower than our major rivals.
~ It highlights that our standards of corporate governance are the best in the world and strengthen investor confidence in our Main Market.
~ Furthermore, it underlines the success of AIM, the most successful growth market in the world,
~ in offering unrivalled access to public equity capital at an earlier stage in a company’s development cycle

The report demonstrates, through the US experience with Sarbanes Oxley, that
~ burdensome legislation can damage international competitiveness
~ The same is true of taxation.
~ Although London has the lowest direct trading costs of all the exchanges in the sample,
~ when Stamp Duty is added to the equation the picture is reversed!
~ Stamp Duty is grit in the wheels of the UK market and the Government should take steps to abolish it.

The comparative cost of raising equity in London
~ The European exchanges in 2005 raised more new money from initial public offerings (IPOs) and
~ attracted more international IPOs than the US exchanges.
~ The increase in European IPO activity was largely driven by activity on the LSE, in particular the AIM,
~ which accounted for 52% of total European IPOs in the year
~ The LSE saw more IPOs than the US exchanges combined, and
~ currently has the most active market in IPOs in the world.

Costs at IPO stage
• direct costs
• underwriting fees
• professional fees
• initial listing fees
• other direct IPO costs
• indirect costs
• IPO price discounts

Ongoing costs
• direct costs
• regulation, corporate governance, professional fees
• annual listing fees
• indirect costs
• trading costs

Underwriting fees
~ fees—when going public (as well as when raising additional equity capital)
~ companies pay fees to investment banks which underwrite the deal and guarantee that,
~ should the issue not be fully subscribed by other investors,
~ they will buy a certain number of shares in the companies’ new issues
~ The fees compensate the banks for their underwriting risk and are levied as a percentage (gross spread) of the total amount issued;

Professional fees
~ professional fees—companies pay fees to the legal advisers, auditors and reporting accountants;

Initial listing fees
~ fees—upon IPO, companies need to pay the exchange and competent authority (where appropriate) for admitting securities to listing;

Other direct IPO costs
~ costs—these include expenditure on marketing, printing, etc

Transaction Fees
~ The same bank would indeed charge higher fees for a transaction on Nasdaq and NYSE than for a flotation, say, on London’s Main Market
~ fees for US listings are considerably higher than those in the UK and other European countries

Underwriting Fees
~ underwriting fees are very standardised, and not different for foreign issuers
~ for an issue of £20m (USD 30m), the typical underwriting fee in the UK, Germany and France would be about £700,000 (3.5%),
~ compared with more than £1.3m (6.5%) in the USA
~ average first-day returns vary appreciably across exchanges,
~ appearing highest on AIM (11.2%), followed by Nasdaq (6.6%)

IPO Discounting
~ refers to the empirical regularity of a significant difference between the IPO offer price and
~ the closing market price on the first day of trading
~ various reasons have been proposed to explain the existence of the discount
~ for example, underwriters want to be sure that the offering is fully subscribed,
~ requiring a discounted offer price in particular for companies that are perceived to be a higher risk;
~ they want to please investors and avoid any risk from being sued because of evidence of overpricing

Stamp Duty
~ overseas issuers are subject to stamp duty only if they have a register in the UK.
~ In other words, stamp duty payment is associated with the geographic location of registration,
~ rather than the location of listing and raising capital

Listing requirements in General
~ For admission to the LSE’s Main Market, companies must meet requirements such as
~ a minimum of 25% of shares being in public hands,
~ a three-year trading record (normally), and
~ pre-vetting of all admission documents by the UK Listing Authority (UKLA),
~ which is part of the Financial Services Authority (FSA) and
~ responsible for primary market regulation in the UK
~ in the USA, to list on NYSE or Nasdaq, companies need to register with the Securities Exchange Commission (SEC)
~ although less stringent requirements apply on Nasdaq, listing rules on both US exchanges specify admission criteria,
~ which include minimum levels of shareholder equity and market value,
~ minimum number of publicly held shares and shareholders, and a minimum operating track record
~ minimum listing requirements also apply on Euronext and Deutsche Boerse

Listing requirements in AIM
~ For small companies, a second-tier market, such as the AIM,
~ provides the only option of raising public equity capital and relaxing longer-term financing constraints
~ that might be present if finance sources were restricted, for example, to private equity or bank finance
~ The demand by some companies—in particular, small and growing companies—for a listing venue that
~ offers a speedy and flexible regulatory environment is evidenced by the recent success of AIM
~ in attracting IPOs of both domestic and foreign companies
~ AIM has become the world’s leading market for small-cap stocks.

Corporate Governance
~ Quarterly reporting is a general requirement for listed companies in the USA
~ this has not been the case, at least traditionally, in the UK and other countries,
~ although interim reports may be required for certain types of company or
~ as a condition of admission to trading on some segments of a market
~ a number of companies interviewed expressed concerns regarding the volume of work and resources
~ evidence is available that the compliance burden imposed by SOx has had a negative impact on IPO activity in the USA
~ there is evidence of fewer international companies seeking a secondary US listing
~ there is also evidence of UK companies de-listing from US markets
~ the evidence reviewed above suggests that SOx has made listing on US stock exchanges less attractive for companies

Pool of equity capital
~ given the size of the USA, it has by far the largest source of investor funds
~ however, the UK has established itself as a leading international centre for fund management,
~ in particular for institutional clients
~ funds managed from the UK are larger than those in France and Germany combined
~ although the USA, given its size, leads the UK overall, fund management activities in the UK are concentrated in a single location (London)
~ rather than geographically spread over different centres—e.g., saving issuers the time and cost of travelling to multiple centres during beauty parades

Openness and integration
~ reflects the willingness of local investors to invest in foreign companies,
~ geographical and cultural proximity, and more generally economic and financial links
~ foreign listings: NYSE exceeding 20%, the LSE ust over 18%, Nasdaq and AIM 8.2% and 6.4% respectively
~ the three most important countries of origin of foreign listings for the LSE’s AIM are the USA, Ireland and Australia,
~ countries which share a common language and have cultural and legal similarities with the UK

Company-specific
~ unless a company has presence in the USA, it is very difficult to sustain interest of US investors in the company
~ the US private equity house backing the company had a preference for flotation on a US exchange

Industry expertise and peer presence
~ there is considerable evidence showing that the information environment has direct implications
~ for the share prices and companies’ cost of equity
~ investors are less willing to invest, and require higher rates of return for investing, in companies they are less familiar with
~ lack of investor familiarity is likely to be particularly acute for companies
~ intending to list and raise capital in markets where their presence is not
~ supported by sufficient information and market understanding
~ particularly in technology or higher-risk sectors,
~ the availability of such skills may substantially affect the availability of equity finance and the terms at which it is available
~ better analyst coverage of such industries is likely to broaden understanding in the primary market,
~ promote investor interest, and ultimately deliver higher valuations of the companies
~ If industry expertise is an important determinant of where to list and raise capital,
~ one would expect to observe companies in the same industry clustered in exchanges that deliver this expertise
~ previous studies have indeed found that companies opt for listings where industry peers are already present
~ To the extent that specific companies benefit from the existence of such clusters
~ e.g., greater industry expertise and experience of analysts and investors),
~ this may explain their preference to issue equity and list on particular markets
~ the impact on the cost of equity is difficult to quantify
~ Importantly, the impact is company- or industry-specific, and
~ cannot be used to draw general conclusions about the comparative cost of capital
~ see Textron /Bell Helicopter