Tuesday, July 18, 2006

AIM's Losing Credibility

London's AIM has been an attractive IPO choice for smaller tech companies unwilling, or unable, to meet the higher qualification bar required by other markets, but many shares listed on AIM experience a price drop after their offerings. This indicates a lack of long term buyers and maybe even a quick way for owners to cash out. So far this year, eight of the 20 tech companies worldwide that filed IPOs on AIM, or 40 percent, are trading below their offering price.

Last year, the number was 34 of 68, or 50 percent, and in 2004, it was 45 percent. Companies and investors have to ask themselves if these smallish technology firms are using London's AIM IPOs as a financing event or as an exit. Especially for US technology firms opting for the AIM exchange, surely there must be good reasons why they could not get onto Nasdaq. AIM's small size makes it very volatile because large investors have a bigger effect on valuations. It could be choppy for the next couple of years as (AIM) earns its credibility or loses it.

Forty-one U.S. companies are listed on AIM. Since 2003, the percentage of U.S. firms filing for IPOs on AIM has risen from 2 percent of all AIM filings to 11 percent. A growing number of U.S. companies will go public on AIM because of corporate compliance and Sarbanes-Oxley regulations. However, the companies could be deem as inferior and AIM will eventually be known as a hit and run cowboy exchange for the young technology punks and young financial turks.

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