Nick Winters, Client Partner at business and tax advisers Vantis is urging companies to exercise caution when considering a move towards list on AIM, the alternate investment market.
“The success of a recent string of technology and telecommunication flotations on AIM has put the tech and telco market back in the spotlight. The number of tech and telco companies joining AIM is rapidly growing (43 of the 371 companies that joined AIM in 2006 were from this sector). Despite the apparent attractiveness of AIM as a route to raising funds, I would urge founding shareholders/directors to take a critical look at their businesses – and themselves – before setting off down what can be a costly and soul destroying route if not carefully thought through in advance.
Being able to finance expansion or attract new talent by seeking an external cash injection via flotation may sound straightforward, but the personal and emotional effects of bringing outside influence into a business which may have been tightly controlled by its founders should not be underestimated.
In addition, the fact that the typical cost of an AIM flotation starts at approximately £300,000 means that companies need to be sure it’s the right move for them. Embarking on the process only to regret the decision part-way through will prove extremely costly both emotionally and financially.
To resolve this potential downfall, the management team should prepare itself to embrace some degree of outside influence and the impact of effectively relinquishing some control of the company should be properly understood. It is vital to have an external, independent assessment of the company carried out by professionals and to be honest about how those currently at the helm are likely to feel about flotation. Personal characteristics that will ease the path to flotation include: a willingness to embrace change, the ability to set clear goals and strategy, the ability to communicate effectively the strategy to others, and a readiness to accept advice and direction. Business owners should also be realistic about valuation: a business is only worth what someone is prepared to pay for it.
Taking the right advice at an early stage can ensure the company is well positioned for flotation, with all the correct procedures and necessary people in place. This can help save unnecessary cost and assist the management team in the transition from private to publicly quoted company as they will then understand the full implications of flotation and the changes it will bring to company structure, processes and personality.”