Although the full economic impact of COVID-19 may not have made itself felt yet, 2021 has witnessed an extremely buoyant IPO market so far.
In the United States, this has been driven in part by an extraordinary increase in the number of SPAC IPOs: more SPAC IPOs completed in the United States in the first quarter of 2021 (300) than completed in the whole of 2020 (248). On listing, these special purpose acquisition companies have no ongoing operations but raise funds to identify and pursue acquisitions within a limited time period.
For regulatory reasons, a similar 'SPAC attack' has not been seen in the UK market, where any post-listing acquisition by a cash shell is likely to constitute a reverse takeover, triggering suspension of the SPAC's shares and a requirement to publish a new prospectus or admission document. Nonetheless, the UK markets have also proved resilient, with 35 companies having joined AIM by the end of June, compared to 32 in the whole of 2020 and 23 in 2019. Perhaps more significantly, new money raised in the first half of 2021 already stood at £409 million, which compares favourably to the total of £486.6 million of new money raised in 2020.
So, what is at the root of investor appetite for AIM listings and which companies have been attracting most interest?
The recent IPO of Victorian Plumbing Group at a market cap of £850 million was the largest AIM admission since the market launched in 1995. This Skelmersdale-headquartered e-retailer of bathroom products and accessories saw its business thrive as those stuck at home because of lockdown embraced refurbishment projects and had no choice but to make product purchases online. The company continues to be led by its founder and CEO, Mark Radcliffe, whose brother Neil is a key member of the senior management team.
Just a few weeks before the Victorian Plumbing IPO, the Edinburgh-based Artisanal Spirits Company (ASC) - another company with a strong regional identity - joined the market. However, ASC (which owns the Scotch Malt Whisky Society) has a global membership base and made 69% of its 2020 sales outside the UK.
Accordingly, it is probably less a case of investors looking for home-grown talent and more, as it has always been, a case of investors responding positively to accessible products (whether shiny bathrooms or quality whisky) and a well-articulated story.
When seeking to understand any public market, including AIM, it is always tempting to try to identify the 'hot' sectors of the day. In the first half of 2021, new issuers represented a diverse range of businesses, from bar operator Nightcap to electronic goods recycler Music Magpie.
Yes, healthcare remains strong and tech continues to perform well, but the most successful IPOs, regardless of sector, tend to involve certain key ingredients.
First, an experienced management team which has - and can communicate clearly - a strong view as to why the company wants to undertake a public listing and why now is the right time for it to do so. Second, a credible and scalable business plan, perhaps relying on first mover advantage, but often based on an innovative product or service which is not too easily replicated. And, finally, an unambiguous vision of how funds raised will be put to work to implement that business plan and create value for shareholders.
As reporting obligations for public companies in the UK continue to expand, running the gamut from diversity policies to the impact of climate change, excellent communication becomes increasingly more important.
Any company considering an IPO has always needed to brace itself for greater scrutiny and transparency, but this was typically in the areas of director remuneration, financial procedures and risk management. Public companies today must discharge their duties to shareholders against a backdrop of ever-greater pressure to be a 'responsible' business, fully cognisant of their impact on the wider community and the environment.
This is a lot to juggle and, if ESG compliance is to be more than a box-ticking exercise, a significant shift in mindset will be required. But for companies that can explain in straightforward terms where they stand on these issues - and have the confidence to be honest about what is realistically achievable and appropriate to their business - investors are likely to respond with enhanced support and better valuations.
Melanie Wadsworth is a partner and ECM specialist at international law firm Faegre Drinker.