Investing in AIM stocks (Alternative Investment Market) can bring quite good returns for the investors. However, before making investments in AIM, it is advisable that you understand how it works. In the following article, we will briefly discuss investing in AIM.
What is AIM?
AIM (Alternative Investment Market)is a submarket for the LSE, set up by LSE (London Stock Exchange) with the objective of helping small companies to have access to capital through a public exchange more easily. It came into existence in 1995 with ten companies. In the beginning, the exchange was quite small, its total market cap was £82 million, at that time the London Stock Exchange had a market cap of £2.3 billion. Since then more than 3600 companies have raised cash via investors on AIM. In addition, the exchange has grown to over £115 billion within the timeline.
Companies Listed Down in AIM
Companies that list on the AIM have often exhausted all private options but are not yet substantial enough for an FTSE initial public offering (IPO). As a result, they have an IPO on the AIM, which allows them to access funds and markets with fewer regulatory constraints.
Companies seeking to float on AIM generally strive to raise between £1 million and £50 million through an initial public offering (IPO). While this may appear insignificant, there have been some remarkable bigger fundraising in excess of £100 million.
Pros & Cons of Investing in AIM Stocks
The major motivation for floating on a public market is to have access to funds. However, with institutions now routinely participating in AIM, the proper company can attract even more expansion capital.
A public listing, on the other hand, is about more than just money. A listing on the Alternative Investment Market will undoubtedly increase the company’s visibility. This, along with the cachet that comes with being a Plc (public limited company), will provide the company with an advantage when dealing with suppliers and attracting new customers.
A public listing will also allow the company to purchase other firms with its shares if they want to embark on the acquisition trail. Also crucial is the fact that if a stock option program is included in the wage and benefits package, publicly-traded shares are far more appealing to essential employees.
There are a few drawbacks to think about. Managing a publicly-traded company differs significantly from managing a privately held company. The company should be ready to meet shareholders’ governance expectations as well as market regulators’ needs. Also, keep in mind that a short-term drop in performance might have a negative impact on the stock price.
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