Market analysis – Q3 3034
So, there we have it. A new UK Government has been elected in line with expectations and completed the first month of its five year stretch. The country voted for “change” and appears to have got stability. As with all new winds, the change in management brings the promise of something new and refreshing and brings a much needed sense of vitality. Could it be time to draw a line under the doldrums of the recent years and come back to our desks after the summer holidays with a bit of optimism?
And not before time. According to a recent report in The Times, 37 companies listed on AIM were acquired, many by US private equity firms, in the last year – the highest level of mergers and acquisitions for 12 years – mostly driven by low stock market valuations. Notable examples include Keywords Studios takeover by EQT and HIG Capital’s acquisition of DX Group. A combination of 36 consecutive months of outflows from UK equity funds, low valuations, high interest rates and a poor economic outlook had many companies questioning their reasons for being listed and others reflecting on the attractiveness of an IPO.
The markets’ response to the change in Government combined with other factors, such as a predicted cut to interest rates, seem to be timidly signaling the start of a new AIM cycle.
Immediately following the General Election result share prices rose in expectation of a prolonged period of stability. The FTSE 250 rose by 1.8 per cent to achieve its highest level for over two years before falling back slightly. Sterling, too, rose 0.1 per cent against the dollar to $1.27 – the highest level since mid-June – and was up 0.01 per cent on the euro at €1.18. Sky News reported that: “On a trade-weighted basis, the pound is now back where it was in 2016.” Although not earth shattering swings – a Labour Party win was “priced-in” by many – these indicators taken together suggest a more positive outlook for the equity markets. Companies can start to have a bit more confidence and take steps now that the ground looks to be more solid.
Reset Health, the digital healthcare firm, certainly seems to think so and has flagged a possible AIM listing in the near future. It is one of many new IPOs that are beginning to back-up in the pipeline, according to many advisers.
It remains to be seen if any of Labour’s yet to be detailed plans, will shift the dial still further. A potential change to capital gains on private equity companies selling company shares could diminish the appetite of private equity firms for the UK’s smaller cap companies and consequently, make the equity markets more attractive.
Equally, the new Chancellor’s national wealth fund, energy reforms and green strategy aimed at turbo charging green technology companies and job creation – all of which fall within AIM’s sweet spot – could further stimulate the market and provide a literal, green light, to companies looking to IPO and enthuse private investors to invest their cash where they have previously had limited opportunities.
Company management teams and their advisers will have (hopefully) spent these years in the doldrums getting their houses in order. Now is the time to start exploring new options and opportunities, decide what you want to do and put yourself out there. The return to the office after the summer holidays and the run into Autumn promises to be very busy and will be a peak time for the market.
However, breaking the inertia of the last few years and the mindset of hedging your bets and treading a careful path will be difficult for some and completely new for many. Executives need to start working their neglected contact books and building them up if they have let those contacts slide. Pound the pavements. Expand your horizons and look outside your group of core contacts. Meet new people: advisers or fellow-AIM company executives, to identify opportunities, source new deals and understand the processes. Network and sharpen-up your selling skills.
With any luck we’re at the beginning of a new and positive cycle on AIM. Make sure you can hit the ground running.
This article was originally published in the Q3 2024 AIM Advisers Rankings Guide. For more information, please contact Joseph Archer.
