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Research on UK Tech Sector Acceptance of AIM

Less than a quarter of UK technology companies plan to list on AIM, despite growing demand from AIM investors for technology stocks, says new report from Nabarro

An AIM listing is the planned exit strategy for less than a quarter (23%) of UK technology entrepreneurs, according to new research from Nabarro, the international law firm. This is despite the strong demand from AIM investors for opportunities to invest in the tech sector. Technology sector stocks made up an average 31% of the portfolios of the investors interviewed by Nabarro, with 88% planning to increase (53%) or maintain (35%) their exposure to AIM tech stocks in the next five years.

The performance of tech companies on the AIM market is historically strong, with analysis from Nabarro demonstrating that technology stocks held their own during the last downturn and have since outperformed the market, with particularly strong results over the last three to four years.

However, although 82% of tech entrepreneurs agreed or strongly agreed that the AIM market is the natural home for fast-growing UK technology companies, listing on other markets is a much more popular ambition (48%) and a trade sale to a bigger tech company (21%) is almost as popular as going for an AIM listing (23%). This reluctance to list on AIM may signal that founders are holding out for a bigger, more ambitious exit further down the line.

The main reasons the entrepreneurs cited for potentially selecting AIM as their exit strategy include realising value for some of their stock (38%); access to capital markets (31%); and being able to grow more quickly (14%). Their two biggest fears were more regulation (56%) and loss of control (22%).

Alasdair Steele, Corporate partner at Nabarro, said:

“Our research shows there is an appetite for investment across the tech industry, but lack of awareness of the benefits of an IPO on AIM could be stunting growth in the sector. Businesses need to consider floating on AIM as a stepping stone to raise capital and profile, rather than focusing solely on the London Stock Exchange’s main market, or pinning their hopes on a trade sale to one of the ‘Big Five’ technology brands.”

Nabarro also surveyed current AIM investors to assess their appetite for technology stocks coming to the market. 59% of investors had up to a third of their current AIM investments in tech, while another 25% of investors had one-third to 50% of their current AIM investments in tech. Just under half of AIM investors (49%) expect an increase in the number of AIM IPOs in 2016. Over half (53%) of investors are set to increase their own exposure to AIM tech stocks, while 35% plan to keep their current weighting in the sector. So, overall investor sentiment about AIM’s prospects and the prospects for tech stocks in particular is positive.

The report also looked specifically at Fintech and Medtech as potentially vibrant areas of the UK technology market. 37% of investors see Medtech as the most attractive AIM investment opportunity over the next 12-18 months with Fintech/insurance tech favoured by 27%.

Guy Heath, partner and head of Technology at Nabarro, commented:

“Investor demand for AIM technology stocks is high, and set to increase over the next five years. If the ambitions of founders meet the increasing appetite of investors for tech stocks, then AIM could become a breeding ground for a new generation of UK and European unicorns.”