Tuesday, July 24, 2007

IPOs, U.S. Companies and AIM


In a July 18, 2007 publication entiled “IPO Executive Insights 2007” (here) the Nixon Peabody law firm published the results of its survey of 100 chief executive officers and chief financial officers whose companies conducted initial public offerings in the past three years. The report contains a number of interesting observations, but perhaps the most remarkable are in the summary of advice the executives have for companies now considering going public. For example, one survey respondent cautioned:

Going public is like standing in front of the X-Ray machine for every. Once one goes public one cannot go back. In other words, you are completely exposed; everything about the business is in the public domain and is in front of the competition. It is a very different environment than being a private company….Living under regulations like Sarbanes-Oxley can be crushing to a company that is not prepared to understand and manage such regulations.

A July 23, 2007 Wall Street Journal article further summarizing the survey results can be found here (subscription required).

The noted regulatory constraints might be a reason that some companies might consider listing their shares on the London Stock Exchange’s Alternative Investment Market (AIM) (here). Perhaps the most valuable part of the survey report is its brief discussion of the advantages and disadvantages for a U.S.-based company in listing shares on the AIM.

The report notes that “utilizing AIM does provide a company certain advantages due to its flexible regulatory approach, lower costs and streamlined admissions process.” However, the report also points out a number of risks for U.S.-based companies considering an AIM offering.” The risks include:

Number of Shareholders May Trigger Reporting Obligations: Once shares are issued, “a company may have difficulty controlling the number of shareholders of record who eventually own its stock.” The problem is that U.S. companies that have more than $10 million in assets “will become subject to the provisions of the Exchange Act” (including its periodic reporting requirements) if they have 500 or more shareholders of record.

Time Requirements: A company selling its shares on AIM must develop a relationship with institutions selling the company’s shares. Because of travel requirements and time zone differences, these requirements can be substantial.

Reduced Liquidity: AIM has a reputation for being illiquid, and as a result investors may have difficulty disposing of their shares.

Poor Post-IPO Performance: “Post-IPO Performance for AIM shares compare unfavorabley with companies listed on NASDAQ.”

AIM’s Limited Diversity: Mining and energy companies account for close to half of AIM’s total market value. A company that is not in one of these industries “may not garner the interest of institutional investors who buy AIM stock or the attention the company would otherwise get in another marketplace.”

In light of these limitations, it is hardly surprising that, as the report notes, “AIM’s growth has slowed in 2007.” According to the report, the number of AIM offerings during the first four months of 2007 was more than 50% below the number of offerings during the comparable period in 2006.



Book Note: We here at The D & O Diary are impatiently waiting for our household resident teenagers to hurry up and finish reading the recently released Harry Potter book so that we can get a crack at it. While waiting our turn, we have been fortunate to have found a terrific book that we are happy to recommend to our readers.

Some readers will be sure to recall the rich combination of modern physics, philosophy and drama in Michael Frayn’s Tony award-winning play “Copenhagen.” (Others may recall Frayn's superbly funny farce, Noises Off.) In his 2006 book The Human Touch: Our Part in the Creation of the Universe (here) Frayn returns to the overlapping area between theoretical physics and philosophy to examine, in brilliant and entertaining fashion, questions about the universe and man’s role in it. This book is as rich and rewarding as it is well-written. It would be difficult to capture the depth and breadth of this book in a single snippet, but I offer the following brief excerpt of an example of the book’s reach and elegance:

Our own particular speck of the universe, the planet we live on, is as irregular as everything else. A sphere, which seems a neat enough idea – but a sphere that isn’t exactly spherical, wobbling a little on its axis and spinning not quite regularly. With a surface as rumpled as an unmade bed, splashed with seas and lakes as haphazard as the spills on a bar, under a shifting blanket of air and water vapour as confused as a drawerful of tangled string.

The oddest feature of this wobbly spheroid, though, is one particular class of things scattered about amidst the rest: a range of entirely anomalous objects that construct themselves out of the material around them, and then replicate themselves – perhaps the only objects of this sort in the entire universe. Among these weird anomalies is a sub-group with a few thousand million members that are even odder, because they also have some inkling of just how odd they are.
Perhaps not everyone will find this kind of thing an adequate substitute for the urgent strivings of the adolescent wizards at Hogwarts, but I find it sufficient (at least for now).

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