Bizarro AIMo 2

Heard a great line this week from a local investment banker: “The AIM is a quasi-private market. It doesn’t trade.” It really is that private market formerly known as the AIM (sorry, Prince); see below.

The release of the most recent PWC promo material on the AIM couldn’t have come at a better time. An excerpt:

2006 was a record year for Canadian companies listing on AIM, a market operated by the London Stock Exchange, with 13 new issues raising C$425 million, according to a new study released today…. 2006 exceeded the previous record high set in 2004 in terms of both number of listing and money raised, which were 12 and C$198 million, respectively.

The 43 AIM-listed Canadian companies now represent approximately 14% of the 306 international companies listed on AIM, second only to Australia (16%). The leading industry sector for Canadian AIM listed companies by market capitalization is mining, but other sectors such as technology continue to grow.

“AIM offers an alterative to companies looking to raise capital to fund future growth and expand internationally. Given the recent activity in the Canadian market and the number of transactions in the pipeline, we expect to see more Canadian companies taking advantage of attractive valuation and financing opportunities combined with reduced regulatory compliance costs that AIM provides.”

In comparison to AIM activity, Canadian IPO activity on the TSX and TSX Venture exchange had a total 116 new issues worth $5.8 billion in 2006, off from the 119 new issues worth nearly C$7 billion in 2005. There were 54 new IPOs with a value of C$5.4 billion on the TSX in 2006 versus 74 offerings worth C$6.8 billion in 2005.

I wonder why we even discuss the AIM when it raised less than 10% than the $ raised by TSX IPOs during 2006. We don’t hear much about the AMEX, but several Canadian issuers recently listed there. But since we are on the AIM topic, here is the AIM nugget of the week:

Some days AIM stocks don’t trade a single share for days at a time (and I’m not referring to the weekend).

I pulled up the November 2006 trading (most recent month available) stats for a random Canadian-based tech company with a market cap. over $200 million. The stock was up 20% in 2006, so investors must have been happy. Get this, during that month, the company’s shares didn’t trade almost 50% of the month. Not even 100 pence worth of stock changed hands on those days.

It didn’t trade a share on the 1st, 2nd, 3rd, 13th, 15th, 17th, 20th, 23rd, 24th, 27th, 28th nor the 29th. For 12 of the month’s 22 trading days the company was, in essence, a private company with a notional quote. And then of all the days that it did trade that month, there was just a single trading day where the volume represented more than $30k of stock or so.

If you were an institution, this means that you couldn’t have placed either an orderly buy nor sell order during an entire month. That’s a lifetime for a portfolio manager.

At least we can better understand why firms that list on the AIM invariably come home to list on the TSX as well (Sandvine) just a short time later — just as Open Text did when it started out with a NASDAQ-only IPO in the mid-1990s. How long before Redline does it? And if Redknee succeeds with their floatation, you can start the countdown for their TSX listing as well.

The AIM just isn’t a real market for most firms, assuming that investors expect liquidity for their shares. Isn’t it called a ‘LIQUIDITY EVENT”, after all? And without liquidity and share trading, which investment banks can afford to publish research of your company and dedicate capital to trade the name?

When will the service providers break the news to the clients?

MRM