Uncertainty surrounding Brexit is contributing to holding back the execution of IPOs of technology companies on London’s Alternative Investment Market (Aim), despite the market overall showing robust growth in valuations and fundraising activities by already listed companies since the Brexit vote, according to Dougie Hunter, associate director at Moore Stephens.
In its recently published Tech Aim Barometer, the accounting and advisory firm noted that the value of technology companies on Aim rose 21.3% in the first half of the year, while the gain since the Brexit referendum was some 51%. However, the IPO market for Aim tech companies has collapsed, the research also suggested, despite a higher level of secondary fundraising in the first half of 2017 than through all of 2016 (£275m versus $224m).
Investors are prepared to invest in existing listed tech companies, but less so for companies seeking IPOs, Hunter stressed.
“That’s the stage they are interested in – existing tech companies with track records.”
“It’s a bit of a contrast, because usually when secondary fundraising is successful you also see IPOs.”
The mixed fortunes of tech companies on Aim is important as the valuation gains in the sector have been a key driver of the overall Aim index’s performance relatively to broader indices such as the FTSE.
Hunter said that it was not possible to determine through the available data to what extent foreign investors may have been driving the gains in Aim tech stocks, but that “I think it’s right that with the FX movements over past 12 months, these UK stocks have become cheaper for investors who work in dollars and euros.”
However, it is also the case that some 90% of the tech companies listed on Aim are predominantly UK business focused; “so they have not necessarily benefited from overseas earnings growing by the falling pound,” Hunter added.
More fundamentally, the relatively limited market capitalisation size – the average enterprise value is around £90m – means that it does not take a lot of additional investor interest to shift share prices, Hunter notes.
Looking forward, he said that as the Brexit landscape becomes clearer then there would be more tech IPOs on Aim.
“The secondary fundraising levels are going up. Prices are going up. There is plenty of cash out there to invest in these companies.”
“Nobody knows at the moment, but we certainly hope through rest of the year that the landscape will become clearer. The hope is by early 2018 to see more tech IPOs on aim.”