Lowest levels of M&A since the credit crunch. 52% drop in money raised in AIM IPOs over the last year. Concerns over China slows activity.
AIM has experienced the lowest level of M&A since the credit crunch with the number of mergers down to just 3 in the last quarter from 13 in the same quarter the previous year, and 20 in 2010 says UHY Hacker Young, the national accountancy group.
UHY Hacker Young says that the lack of M&A activity in the last quarter reflects a wider slowdown in AIM activity, with only 7 IPOs launched by companies on AIM in Q3 2015 compared to 19 during the same quarter in 2014.
The fall in commodity prices, much of which has been caused by concerns over the slowdown of China's economy, has had a particular impact on activity on AIM as it proportionally has a far higher exposure to mining companies than the main market. The Chinese slowdown has also directly affected AIM as Chinese companies looking to IPO on the junior market have backed away from that for the time being.
Whilst M&A activity is still at healthy levels amongst larger companies, AIM companies have suffered more acutely from the reduction in risk appetites amongst both corporates as well as investors.
AIM has also seen 13 companies delist in the last quarter – four AIM companies delisted due to financial stress and three because of resignations of their NOMADs. AIM listed companies need a Nominated Adviser (NOMAD) to represent them – these NOMADs may resign their position of they feel the company has become a reputational risk to them.
UHY Hacker Young says that shares in AIM companies, and their economic performance, will inevitably be more volatile than those on the main market since AIM is a growth market and the main market comprises many larger companies than are commonly found on AIM. Therefore, when investor confidence is low, as it has been since the Chinese stock market started to tumble in June 2015, plans to acquire AIM companies or to float AIM companies can quickly be put on hold.
Levels of M&A dropped significantly in Quarter 3 of 2015
UHY Hacker Young says weakening demand from China has dragged commodity prices down – with copper prices reaching a six year low.
Laurence Sacker, partner at UHY Hacker Young comments:
"When FTSE 100 commodity companies begin to struggle, investors will inevitably steer clear of their far smaller peers on the AIM market."
"The financial turbulence in China has hit AIM activity particularly hard as there has been a flight to more stable blue chips and in particular away from resource and mining companies – where AIM has built such a strong representation."
UHY Hacker Young says the last year saw a drop of £1.2bn in money raised by IPOs on AIM, a decrease of 52% on the figures from last year. One company who chose to list on AIM in the third quarter of 2015 is model train brand Hornby. Its IPO raised £15m in August.