Has 2022 caused an AIM “permacrisis”?

With a strong rebound in 2021’s AIM activity buoyed by the economy’s recovery from previous year’s Covid lockdowns, most commentators were anticipating 2022 to be a year of economic stability and further AIM advances.  Russia’s war on Ukraine from the end of last February put paid to this optimism; reverses in most global markets followed as economies grappled with the impact of rising inflation and interest rate increases, as well as the continuing supply chain disruption arising from the pandemic.

For AIM, the 19 new company issues it recorded across 2022 represented the lowest volume since its creation in 1995.  Of those 19 transactions, only 12 related to new-to-market IPOs by UK companies; this compared to 87 new issues and 66 new-to-market transactions in 2021. 

The impact on AIM of Russia’s aggression is stark.  Half of the year’s new-to-market IPOs completed before the end of February, double the number of the equivalent prior year period.  The subsequent six compared to 63 across the equivalent ten months of 2021.

Looking back at the year

• The closing cumulative AIM market cap of 31 December 2022 was £93bn, £57bn (38%) lower than December 2021 – after eliminating new issues and cancellations, this equates to a £41bn (31%) loss of value across the companies listed on the market over the year.  Investor pain was widely shared with only five of AIM’s 42 reporting sectors registering a market cap increase in 2022.
• Reporting a 36 net company reduction, the 816 entities listed on AIM as at the 2022 year-end represents the lowest number since 2003 – although the number of businesses leaving the market in the year was comparable to 2021, the unusually low number of new issues proved the principal driver.
• Of the 12 new-to-market UK company IPOs which completed in 2022, alternative energy firm Clean Power Hydrogen reported the highest market capitalisation on its flotation (£142m), it was also the largest single fundraise, providing an additional £30m to the business. 

2022 winners and losers

While the overall picture for 2022 was gloomy, there were notable AIM market successes. The mixed picture most clearly demonstrated in two of the largest reporting sectors –software & computer services and pharma-biotech.

The largest absolute increases in company market capitalisation were both in the software & computer services sector:

• Wandisco and Emis Group achieved £0.35bn and £0.32bn uplifts respectively, increasing their combined values from £1.1bn to £1.8bn (strong revenue growth for the former and an agreed takeover, expected to complete in the first quarter of this year, for the latter).  
• Despite these gains, this sector was still one of the worst performing (ranking 40 out of 42 by market cap change) with a combined £3.6bn* reduction – the largest losses in the sector being reported by GB Group (reducing £1.06bn in value), Learning Technologies Group (£0.49bn) and Kape Technologies (£0.42bn), the share price reduction of all three following significant 2021 acquisitions.

For pharma-biotech, having reported the highest sector market cap increase of 2021, it reported the largest reduction (c. £5.5bn*) in 2022:

• Hutchmed retained its position as the most valuable AIM company (£2.28bn, albeit down from £4.58bn 12 months earlier, its £2.3bn reduction being the single biggest by a company over the year, reflecting delays in regulatory approvals and increased operating losses). 
• However, AIM’s ability to act as a steppingstone for successful and ambitious businesses was most notably demonstrated in this sector with Abcam moving to focus on a single listing on Nasdaq and Clinigen Group being subject to a £1.3bn takeover by private equity firm Triton (the combined market cap of the two businesses at the start of 2022 was £5.2bn).

How did new-to-market companies perform in 2022?

Of the companies which completed IPOs during 2022, eight did so in the first half of the year. Among these entities, EnSilica (a specialist ASIC chip manufacturer), reported both the largest absolute and biggest relative increases in value to the year’s close, up £32m (79%) to £72m.

In contrast, although joining the market in February with the highest 2022 IPO market capitalisation, Clean Power Hydrogen reported the largest absolute reduction post IPO of £60m (42%), as anticipated activity was delayed by supply chain and engineering issues. 

The differing experiences of these companies reflect the challenges of delivering additional shareholder value in a difficult economic environment – of the eight new-to-market transactions which completed in the first half of 2022, only three reported a net increase in market cap by the year’s end.  This trend was mirrored across the 2021 cohort where only 14 of 66 companies reported a higher market capitalisation at the end of 2022 compared to when they floated. A range of factors will be contributing but the trend highlights the challenge of managing and meeting the market’s value expectations – a challenge all businesses considering an IPO should consider as part of their “IPO readiness”.  

Outlook for 2023

Despite 2022’s challenges, we still see business owners and management teams identifying IPO as their preferred source of the development capital they need to deliver their growth strategies fastest.  Consequently, AIM remains a viable option.

The war in Ukraine has caused many of the challenges currently faced by businesses – rising energy costs, inflationary pressure and increasing borrowing costs amongst them.  An end to the conflict in the short-term seems unlikely and it appears periods of recession are possible in the UK, Europe and the US. 

There is, however, cause for optimism: Some economists believe any recessionary periods in these key markets are likely to be milder than would ordinarily be anticipated at time of double-digit inflation and there is evidence some supply chain costs are beginning to reduce, lowering inflationary pressure.

How AIM will be impacted in 2023 remains to be seen but there are enough indicators to suggest it would be premature to describe it as a market in permacrisis.  I, for one, look forward to seeing what lies ahead.

*Net movement in market cap after eliminating new issues and cancellations.