Calling all UK AIM-listed board directors! Instead of donning a Christmas jumper, put on your body armour, dust down your bid defence manual and start sweet-talking shareholders to keep them on-side.
That’s the brutal conclusion from the devastating warning by Peel Hunt which forecasts a blitz that could see a third of firms on the Alternative Investment Market taken over next year.
Peel Hunt’s flashing red light comes with its report, aptly called Barbarians At The Gate.
After taking soundings from the City, Michael Nicholson, Peel Hunt’s head of mergers and acquisitions advisory, predicts almost a third of AIM’s 695 listed businesses valued between £50million and £250million are vulnerable.
While the sheer scale of Peel Hunt’s forecast is shocking, the reasons why are not in the least bit surprising, or mysterious.
They have been well-rehearsed by market participants and critics for years now. It’s quite straightforward – companies in this size bracket are so vulnerable because of the junior market’s lack of liquidity, depressed valuations and their reduced ability to utilise the capital markets.
Taking AIM: Peel Hunt forecasts a blitz that could see a third of firms on the Alternative Investment Market taken over next year
There’s another factor that Nicholson points out, one not often made but which is becoming more pertinent.
Unless boards give shareholders clear intelligence, they expose themselves to public criticism and challenges from investors who do not believe their best interests have been followed. It’s a fair point.
Yet the broader picture is clear enough. A certain level of takeovers is good for business and the wider economy – creative destruction and all that.
But the level of AIM-listed companies leaving the exchange is not healthy because so many are being sold too cheaply or going because costs are so high while regulations are too tight.
Around 90 left this year, a 23-year low. It’s not only AIM that is suffering.
The main London Stock Exchange (LSE) has also witnessed an exodus of companies crossing the Atlantic: 88 have either de-listed this year with only 18 taking their place.
It’s the biggest net exodus for nearly two decades. And the number of new listings is set to be the lowest for 15 years.
Rio Tinto is the latest company to be under pressure from investors to drop its dual listing in London and Sydney, and unify its structure in Australia.
Activist investor Palliser Capital argues that the current dual listing takes £40billion off the mining group’s valuation.
London’s stamp duty on share trading is being blamed as one of the biggest factors behind the exodus.
As we have been reporting, top financiers want the 0.5 per cent levy to be scrapped, claiming the Government is ‘taxing the stock exchange out of existence’.
Behind the scenes, the LSE’s top bosses, David Schwimmer and Julia Hoggett, agree the share tax is perverse, particularly when Labour made such a song and dance about growth.
They also claim to be pulling the levers necessary to improve market conditions with the regulators while pension reforms should make investment in growth companies more attractive.
Yet this will take time, and time is running out if the LSE is to be restored as one of the world’s great international capital markets and AIM as one of the most dynamic growth exchanges.
One thing is for sure. If the LSE’s bosses don’t do more to show they are on top of the problem, you can bet that there will be new rival markets springing up to take their place.
DIY INVESTING PLATFORMS
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.