Is London’s Alternative Investment Market (AIM) the new Nasdaq? This is the question being asked in the US by VC’s such as Charley Lax, of GrandBanks Capital.
The figures speak for themselves. Last year some 519 companies sought a listing on AIM, while there were just 45 IPOs on the Nasdaq.
Why is this happening? The Nasdaq is a larger market, so wouldn’t that be a better place for many VC-backed US companies?
Apparently not, because...
a) it costs about 30% less to float your company on AIM, compared with the Nasdaq, and...
b) Section 404 of the Sarbanes-Oxley Act (SOX) is a massive headache for many smaller companies, and some bigger ones too.
Lax thinks it is even worse than that. “SOX has effectively killed the classic U.S. technology IPO," he says in an article on PE Week Wire.
“SOX compliance costs, along with the added Nasdaq listing costs, require an EBITDA hit of nearly $2-3 million.”
This has turned the once-mighty Nasdaq into an untenable option for many IPO wannabes based in the US.
“We have to take into account the effect that 404 compliance rules have had on the IPO market. Today, our venture-backed companies need to possess yearly revenues between $80 and $100 million to even consider the Nasdaq IPO path. So where then can venture-backed companies turn?”
They can turn to London, where companies last year raised $11.5bn through IPOs on AIM. That compares with about $2bn raised on Nasdaq during the same period.
AIM also has “a streamlined listing process and company-friendly requirements”, says Lax, making it even more attractive to VC-backed companies.
Meanwhile, according to a piece on the back page of today's FT: “Almost one-fifth of European companies listed in the US are contemplating an exit from the country’s stock markets”.
The reason? “To escape the strictures of the Sarbanes-Oxley Act.”