SMALL CAP IDEA: Alliance Pharma defects amid shrinking AIM

Less than two weeks into 2025 we’ve had our first defection from AIM in the form of Alliance Pharma. 

A £350 million agreed bid from its largest shareholder, the Isle of Man fund manager BAY Advisors, will see the specialty drugs company taken private. 

In retreating from the junior market after more than 20 years, Alliance, led by Nick Sedgwick, hopes it can kick-start is buy-and-build growth strategy that has been stalled by a lack of access to growth capital. 

As you’ll read later this is a recurring issue – and one financiers, investors and policymakers are struggling to address. 

In a statement announcing the go-private transaction, the company said: ‘Acquisitions have…been an important part of Alliance’s development and the current restrictive funding environment, leverage levels and a number of operational challenges have meant that Alliance has not been able to pursue acquisition opportunities over the past 24 months.’

In short, the lowly valuation of the stock has prevented the group from raising cash through share placings, essentially putting on hold any expansion plans it harboured. 

‘The Alliance board believes that access to private capital and DBAY’s support will allow it to return to its buy-and-build strategy more quickly than if it remained on the public market,’ the company said. 

Goods: Alliance Pharma specialises in consumer healthcare categories with few major competitors, like eczema, scar care and eye health

There were another of other reasons cited for its acceptance of DBAY’s offer, which while offering a significant premium to the pre-bid price, was still almost 50 per cent below the April 2022 high for the stock. 

Alliance’s exit follows an extraordinary exodus of companies from the market last year. On New Year’s Eve, DG Innovate’s became the 89th in 2024 to either delist, shift its listing overseas, or succumb to a bargain-hunting foreign buyer.

In stark contrast, only 18 new businesses joined the UK public market, leaving a gaping void.

Small-fry swim away

While high-profile exits — such as plant rental group Ashtead and Flutter Entertainment, owner of Paddy Power — have grabbed headlines, a more troubling trend lies in the erosion of the market’s lower tiers. 

According to data from accountancy firm UHY Hacker Young, 92 companies exited AIM (Alternative Investment Market) in the year to October, reducing the junior bourse’s membership to fewer than 700 for the first time since 2001. 

AIM, once celebrated as a vibrant marketplace for growth companies, has been hobbled by long-standing challenges, including high costs and onerous bureaucracy. 

Listing on AIM typically entails initial costs of around £500,000, with annual expenses for regulatory filings, legal fees, and associated costs adding another £200,000.

For smaller firms, these figures are prohibitive and increasingly untenable.

Liquidity issues

Compounding the issue of diminished liquidity. Investor preferences have shifted towards passive funds that track major indices, leaving riskier small-cap stocks starved of attention and capital. 

For a market that has historically supported the entrepreneurial ecosystem — raising nearly £135 billion for some 4,000 companies since its inception in 1995 — this loss of focus is existential. 

AIM is no longer fulfilling its primary role: providing growth capital to ambitious entrepreneurs. 

The repercussions are clear. Instead of listing on AIM, a tech-savvy CEO with a promising start-up is likely to court private capital, where funds are abundant, valuations are attractive, and red tape is minimal.

Too little, too late?

For those seeking a liquidity event, the US market offers a far more compelling proposition — deeper liquidity pools, more patient investors, and higher valuations. 

Policymakers and industry leaders have proposed various remedies, including lowering regulatory and listing costs, increasing research coverage of small companies to enhance their attractiveness, and enacting reforms to broaden the appeal of AIM stocks to mainstream funds. 

While these measures sound promising, they may amount to too little, too late. After three years of rapid decline, the UK market must now grapple with a harsh reality: it risks losing its relevance as a platform for innovation and enterprise. 

Without bold and immediate intervention, the next generation of entrepreneurs will look elsewhere—and with them, the UK’s competitive edge.

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