Fortune favours the bold: Listing on AIM during so-called worst year for business
9 min read
08 February 2017
There are several reasons companies go public. Sometimes it’s to raise capital, or simply to acquire more business. But given the uncertainty miring the corporate landscape, curiosity about recent IPOs got the better of us. We asked bosses what made listing on AIM an attractive bet in 2016.
A look at PwC statistics unveils the value of European IPOs in 2016 decreased by 51 per cent. What’s more, only five companies reached the €1bn mark, compared to the 11 pre-IPO startups valued at $1bn or more born in 2015. But was it really, as most suggested, the worst year for business? Those with a listing on AIM (the Alternative Investment Market) suggest otherwise.
The Telegraph maintained in its AIM review that only 38 companies enlisted on the junior market in 2016. The year before saw 61 admissions. But despite this decline, the amount of capital raised by businesses listing on AIM was £30m – a record average.
While on the surface 2016 might not have seemed the best time to pursue an IPO, investors never stopped adding companies to their portfolios. This belief is the primary reason bosses took the plunge in a year dubbed “the worst for business”.
After all, whatever the year and whatever the macro environment, there will always be appetite for businesses displaying the fundamentals for a successful listing – a value proposition, a growth record and compelling unit economics. This is according to Steve Flavell, co-CEO and co-founder of remote meetings company LoopUp, who told Real Business why 2016 was the opportune time to go public.
“Prior to our listing on AIM, we were growing strongly and had been consistently for the prior three-year period,” he explained. “Obviously the repercussion of Brexit spread far and wide, but the fundamentals of our business were barely impacted by the vote.
“In the end business people still need to meet remotely – the crux of our company – Brexit or no Brexit. We were confident in our value proposition, so we pressed ahead and were delighted the City backed us in spite of the uncertainty that 2016 brought.
“Of course, what helped was that we dedicated time pre-listing to developing relationships with investors. This preparation helped put aside any concerns associated with the outcome of the referendum vote and paved the way for a successful IPO less than eight weeks later.”
It’s not the first time Flavell led a company to IPO success, having ensured GoIndustry went public in 2011. The public route, he found, added credibility to a company’s sales and marketing activity, and it was something he wanted to replicate for LoopUp.
Likewise, for media company Time Out Group it was all about finding the right moment to list the business – and it just happened to be 2016. It has a monthly audience of 137m across 108 cities and 39 countries – its largest readership in its 48 years of history.
“We were bold enough to IPO a few days before the Brexit referendum, but we wanted to leverage our audience as we transitioned into the next stage of growth,” said Time Out CEO Julio Bruno.
“As you would expect, we explored our options and decided this route would better support the company’s growth strategy than other finance alternatives. There are opportunities we believe we can capitalise on more effectively as a listed company.”
Advice from Bruno can be found on the next page.
Time Out defied the doom and gloom heralds and went on to raise net proceeds of £59m after listing on AIM in June 2016. It hasn’t stopped Bruno from claiming the IPO journey had been a rollercoaster. Even if economic conditions don’t get in the way, there’s plenty to contend with.
“It’s a huge team effort to complete the process, from filing out the right paperwork to managing the investor roadshow,” he said. “You need to be prepared to sell your plans to dozens of investors. Understanding what motivates each one is not easy and you need to listen and be prepared for rejection.”
But if you believe in your idea, then the message will be well received – even if they decide not to invest at that time, Bruno advised. He shared further pearls of wisdom with Real Business: “It is important to keep the doors open, and post-flotation, keep ‘banging the drum’ of what your company is accomplishing and how you are delivering against your original plans.
“In my experience, what investors are usually more worried about is execution. They ask themselves: ‘Can this team deliver what they promise? Do I trust them?’. Once you IPO you are in the public domain, so be prepared for even more scrutiny and a faster pace than ever.”
We also spoke with Ed Molyneux, the co-founder and CEO of accounting software company FreeAgent, who further drove home that a listing on AIM had been on the table for quite some time. While Brexit certainly threw some hurdles into the mix, investor activity didn’t suddenly disappear.
Molyneux believed the company, which was founded in 2007, stood as good a chance of success in late 2016 as it would have done by waiting. What’s more, it proved a more appealing source of finance.
“All businesses have different funding needs, but technology companies in particular finance for growth,” he said. “This is primarily where venture capital funding comes into play for companies such as ours – but a venture capital investor tends to need a business to suit their model, whereby they invest in a number of companies and are potentially relying on one single outsize success to deliver all the returns to the fund. In my opinion, that better suits consumer technology products and services.
“In our case, pre-IPO, we had already raised £8m in external equity finance plus debt. However, by going public we believed we could pursue our ambitious growth plans with non-venture capital money. Being listed also gives us credibility in the market.”
The company raised £10.7m after listing on AIM, garnering a market capitalisation of £34.1m. It’s also been suggested that it’s the first time a company took the public route after a round of equity crowdfunding. FreeAgent secured £1.2m on Seedrs in July 2015.
It shows that if you know your market will enough, you’re on the route to success – even in a year the world seems to go crazy. Just be prepared to tackle the challenges head on.
“Tackling 2016 just happened to be part of the challenge we set ourselves as a company and I’m glad we did it,” Molyneux explained. “We’re really in a great place in my opinion, but there is always work to do, much like there was in our journey to this point. I’m really looking forward to next few years and the challenges and opportunities we will face.”
As they say, fortune favours the brave.