SMALL CAP IDEA: Alliance Pharma Defects Amid Shrinking AIM
Less than two weeks into 2025, we had our first defection from AIM in the form of Alliance Pharma.
An agreed £350m offer from its largest shareholder, Isle of Man fund manager BAY Advisors, will see the specialist medicines company taken private.
By withdrawing from the junior market after more than twenty years, Alliance, led by Nick Sedgwick, hopes it can boost the buy-and-build growth strategy that has stalled due to a lack of access to growth capital.
As you will read later, this is a recurring problem that financiers, investors and policy makers struggle to address.
In a statement announcing the go-private transaction, the company said: ‘Acquisitions have…been an important part of Alliance’s development and the current restrictive financing environment, leverage levels and a number of operational challenges have prevented Alliance from has been able to identify acquisition opportunities over the past 24 months.’
In short, the low share valuation has prevented the group from raising cash through share placements, effectively putting on hold any expansion plans it may have been harboring.
“The Alliance board believes that access to private capital and support from DBAY will enable the company to return to its buy-and-build strategy more quickly than if it remained in the public market,” the company said.
Commodities: Alliance Pharma specializes in consumer healthcare categories with few major competitors, such as eczema, scar care and eye health
Other reasons were given for the acceptance of DBAY’s offer, which while offering a significant premium to the pre-offer price, was still almost 50 percent below the April 2022 high for the stock.
Alliance’s departure follows an extraordinary exodus of companies from the market last year. On New Year’s Eve, DG Innovate became the 89th in 2024 to either delist, move its listing abroad, or succumb to a bargain-hunting foreign buyer.
In stark contrast, only 18 new companies entered the UK public market, leaving a yawning void.
Little boy swimming away
While high-profile exits – such as plant rental group Ashtead and Flutter Entertainment, owner of Paddy Power – have made headlines, a more worrying trend lies in the erosion of the lower end of the market.
According to data from accountancy firm UHY Hacker Young, 92 companies left the AIM (Alternative Investment Market) in the year to October, reducing the junior exchange’s membership to fewer than 700 for the first time since 2001.
AIM, once celebrated as a vibrant marketplace for growth companies, has been hampered by long-standing challenges, including high costs and burdensome bureaucracy.
A listing on AIM typically involves an initial cost of around £500,000, with annual fees for registration with the regulator, legal fees and associated costs adding a further £200,000.
For smaller businesses, these figures are unaffordable and increasingly unsustainable.
Liquidity problems
The problem of reduced liquidity is becoming even greater. Investor preferences have shifted toward passive funds that track major indices, leaving riskier small-cap stocks deprived of attention and capital.
For a market that has historically supported the entrepreneurial ecosystem – raising almost £135 billion for some 4,000 companies since its inception in 1995 – this loss of focus is existential.
AIM no longer fulfills its primary role: providing growth capital to ambitious entrepreneurs.
The consequences are clear. Instead of listing on AIM, a tech-savvy CEO with a promising start-up is likely to attract private capital, where funds are plentiful, valuations are attractive and red tape is minimal.
Too little, too late?
For those looking for a liquidity event, the US market offers a much more attractive proposition: deeper liquidity pools, more patient investors and higher valuations.
Policymakers and industry leaders have proposed several solutions, including reducing supervision and listing costs, increasing research coverage of small companies to increase their attractiveness, and implementing reforms to broaden the appeal of AIM shares to mainstream increase funds.
While these measures sound promising, they may be too little, too late. After three years of rapid decline, the UK market now has to grapple with a harsh reality: the market is in danger of losing its relevance as a platform for innovation and entrepreneurship.
Without bold and immediate action, the next generation of entrepreneurs will look elsewhere – and with it Britain’s competitiveness.
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