Bulge bracket banks move away from AIM advisory role

With Bank of America Merrill Lynch joining Deutsche Bank and UBS in dropping ‘nomad’ services, it seems the bulge bracket banks are withdrawing one after the other from the Alternative Investment Market (AIM).

A look at the list of registered nominated advisers – or ‘nomads’ as of December 2014 shows a large number of smaller firms, with the notable exceptions of Citigroup, Macquarie, RBC and JP Morgan. In fact, the total number of nomads has contracted by a third since the financial crisis, partly because of a natural consolidation among smaller advisers, such as Seymour Pierce or Oriel Securities.

While the junior exchange relies on these advisers to assess potential issuers and ensure members follow reporting, disclosure and governance requirements, its parent group, the London Stock Exchange (LSE), has worked to improve the quality of advice and new issuers on AIM.

One reason partially explaining the deflated number of bulge bracket nomads is the decrease in prominent oil and gas listings, a sector larger institutions have traditionally focused on. In 2014 there were four oil and gas IPOs on AIM, raising £53 mn ($81.6 mn), a sharp decline from 2011 which saw 18 listings raise £265 mn, and 2007 when 22 oil and gas IPOs raised a total of £353 mn.

In addition, with nomad work generating a relatively modest fee, bigger investment banks have understandably opted to focus on larger, main market-listed clients to whom they can offer more lucrative services such as corporate finance advisory, corporate broking and sales.

Larger banks moving away from the junior exchange does not mean business is dwindling however. IPO figures have been strong, with 2014 coming in as the fourth highest year on record for money raised on the exchange. ‘Over the last few years AIM has continued to see increased demand, with both investor and company interest remaining strong,’ Marcus Stuttard, head of AIM at the LSE, tells IR Magazine. ‘The pipeline for future IPOs has been robust, and AIM remains the world’s leading growth market for small and mid-cap companies.’

The listing bout comes in spite of AIM’s underperformance against the main market, explains the Financial Times. Several high profile firms such as Asos, Quindell or Blinkx saw their share price plummet last year, leading to a nearly 20 percent loss for the alternative exchange’s index, compared to a 0.56 percent decrease in the FTSE350 over the same period.

Companies listed on AIM are commonly viewed as riskier investments, as regulation is much lighter and issuers are not required to justify three years of activity nor to have a minimum level of capitalization. The exchange’s rules, however, stipulate that each company should have both a nominated adviser and a broker, with the latter required to ‘use its best endeavours to find matching business if there is no registered market maker’.

The lack of red tape, as well as the market’s international outreach, has certainly helped attract smaller-sized, yet fast-growing businesses looking to raise capital, and the exchange now boasts more than 1,100 members – though the figure remains far from its 2006 peak of 1,700. ‘This success is a reflection of the market’s ability to provide a balanced approach to regulation, a strong network of advisors giving experience and support, as well as an international investor base that has the knowledge and understanding to effectively provide capital,’ explains Stuttard. ‘Dynamic, growing companies from across the world continue to be attracted by all these benefits.’