It’s probably only because I’m a Spurs fan that I noticed the story at all. Last month, Tottenham Hotspur football club announced it was planning to de-list from the junior Aim market.
Why? Because manager Harry Redknapp had met some bloke in a pub who promised he could make a market in the shares at half the price? Or because some Mongolian mining billionaire had decided he’d always had his heart in north London and planned to buy up half the Brazilian team and get them up to the Lane?
No. According to chairman Daniel Levy, it was because the firm wanted to press ahead with building a new stadium, but “the Aim listing restricts our ability to secure funding for [our] future development”. That’s crazy. A stockmarket listing should be all about raising new investment. If being on Aim actually makes it more difficult to raise money, there is hardly any point in it.
It’s no use pretending that a football club is a special case. There was a time when sport wasn’t a proper business, but that isn’t true anymore. The Premier League is one of Britain’s most successful industries, exporting itself around the world, and generating huge amounts of wealth for everyone involved. Tottenham, despite its air of world-weary resignation that tends to infect this supporter along with the rest of its fans, is one of the best-managed clubs in the League, both commercially and on the pitch. A new stadium holding another 20,000-30,000 fans should be just the kind of business opportunity the stockmarket exists to support. That Spurs decided to go for private funding instead shows something is wrong: the Aim market is dying.
Figures for last month showed that more companies left the market in November than joined it – ten were admitted, but 12 left. The total number of companies onthe market is down by 46 in the last 12 months, and is now at its lowest level for seven years. According to accountants UHY Hacker Young, even when they do list, the amounts of money raised are declining all the time. The average amount raised per initial public offering (IPO) was £8m in 2011, down 20% from last year.
True, this isn’t a good time for entrepreneurs. Typically, an Aim listing is going to be a three- or four-year-old company that wants to expand. So bleak were 2008 and 2009 that there are not many new companies coming through. And, of course, some companies are leaving the market for perfectly respectable reasons. Many Aim companies that do well get taken over by bigger rivals, and everyone makes money. That is all part of a healthy process. Yet even so, there is clearly a problem. The London market is doing well at attracting new Russian mining conglomerates. But it is doing a terrible job of supporting new British companies – which should be its real lifeblood. Can anything be done about that? Here are three good places to start.
First, offer Aim investors a genuine tax break. When the market started it wasfree of capital gains tax so long as you held the shares for a set period of time. Changes to the tax system mean that is no longer worth very much. So how about offering tax relief to anyone investing in an Aim IPO? The government has already launched a seed enterprise investment scheme to offer tax relief on start-ups. But a public market is actually a much easier place for people to invest in promising new businesses – and there are few better ways of attracting new investment than by offering a juicy tax break.
Second, cut the amount of regulation dramatically. One of the problems for Aim has been that more and more regulations have been piled on quoted companies. That’s fine for the likes of Tesco – it can afford to have a whole department filling in forms.
For a small company, though, the costs can be crippling. Even when it doesn’t cost money, compliance takes up time. Aim companies should be stripped of most of the reporting requirements of a senior listing. Sure, there will be more scandals. A few fraudsters will slip through the net, and investors will lose some money. But that’s life. An occasional scandal is better than a moribund market – and a dead economy.
Third, how about some fresh money? The latest round of quantitative easing launched by the Bank of England amounts to £75bn, and there might be more in the pipeline. Why not take 10% of that – £7.5bn – and use it to buy Aim shares rather than gilts?
The total value of the Aim market is £64bn, so even that relatively small sum of money would have a huge impact. Prices would shoot up. Investors would make money, and companies and fund managers would flock to the market at the prospect of more gains to come. A lot of new investment would be encouraged very quickly and, who knows, the Bank of England might even make a decent turn on some of the shares it buys.
The bottom line is that the London market needs a vibrant small-cap sector to keep it alive. And Britain desperately needs more capital going into new firms. Aim should be part of a revived enterprise culture. In the end, that is the only thing that is going to revive the economy.
• This article was originally published in MoneyWeek magazine issue number 567 on 9 December 2011, and was available exclusively to magazine subscribers. To read all our subscriber-only articles right away, subscribe to MoneyWeek magazine.