The Alternative Investment Market

The Alternative Investment Market (AIM) is a ‘junior’ stock exchange run by the London Stock Exchange (LSE), which also runs the significantly higher profile FTSE. But what's AIM for? Who uses it? And why does it matter?


AIM was set up in 1995 to replace the Unlisted Securities Market (USM), which had been operating since 1980. The USM was characterised by loose regulation, and AIM’s regulations are looser still. The LSE’s main market requires potential listees to have existed for at least three years, have a market value of at least £700,000, float at least 25% of their share capital, and have enough working capital for at least a year’s trading. AIM doesn’t have these requirements, which means smaller, fast-growing entrepreneurial companies use it to seek outside investment through a stock offering.

Essentially, AIM allows small companies with an idea and a dream to seek funding, grow, throw themselves at the mercy of the market and, occasionally, go bust.

Loose regulation and the compact size of listed companies means that, in theory, AIM shares are riskier investments than those on the main market. AIM was hit hard when the dot-com bubble burst in 2000, losing almost half its value between 2000 and 2005 (compared to the FTSE All Share Index, which fell just 16% in that same period).

When the credit crunch hit in 2008, dozens of companies abandoned AIM or were forced to leave because of things like a takeover, insolvency or financial stress due to the pool of capital drying up. Market de-listings doubled in 2008/09 compared to previous years. In 2008 just 34 companies joined AIM, raising £537.14 million against the 77 with combined new capital of £2.1 billion that joined in 2007.

Companies continued to leave the stock exchange in 2009, and although numbers stabilised a little in 2010, the government still felt the need to stimulate AIM in its 2010 budget. To plug a gap in available funding for small and medium enterprises (SMEs) that typically inhabit AIM, the government enabled ISAs (Individual Savings Accounts offering easy access tax-free savings) to be invested in AIM shares.

AIM is a dynamic market. It currently lists over 1,100 companies and has seen hundreds more pass through its books since it opened. In fact, more than 3,600 companies from various parts of the globe have joined AIM at some point since its launch in 1995. Together those companies have raised over £60 billion in new and further capital fundraisings. Many companies that list on AIM leave within a year, either taking the money and running or graduating, as many do, to the LSE’s main market. Some companies, attracted by the looser regulations and favourable tax rules, do the reverse and switch to AIM from the main market.

AIM, like its older sibling on the LSE, the FTSE 100, is not reserved for British businesses alone. Over 220 companies listed on AIM are from outside the UK, including New Zealand oil and gas prospector Kea Petroleum. Drilling for oil isn’t cheap, so it’s a fair guess that without its AIM listing Kea would not have the cash it needs for its global fossil fuel adventures.

Still, AIM counts as the 'mid-market', and the sums of money at play are generally slightly smaller than on the LSE main market. SMEs that list on AIM generally hope to raise between £1 and £50 million. It competes – at the lower end of this scale in particular – with angel investors and venture capital funds as the cost of listing on AIM isn't cheap, and low valuations of companies provoked by the depressed market mean that many want to hold on to their equity.

AIM is a very good example of the market deregulation that has characterised the UK economy for the last 25 years or so. It allows more companies to take the plunge into the market, which means more entrepreneurship and more risk. Which begs the question: is this a system that allows for a dynamic, open and fast-growing economy, or is the risk too great to take with the wealth of a nation? Whatever the answer, it’s a fact that many City and national law firms assist companies on their AIM listings and fundraisings. If you’re interested in working for one of them, a big part of your job will be following and understanding developments in the market.

One law firm which has a particular focus on AIM work is Memery Crystal – its corporate team is dominated by AIM listings and other work for AIM-listed clients.