London's Junior AIM market set for a 20% contraction due to harsh blows from takeovers and exits.
London's junior AIM market faces a significant contraction of nearly 20% in capitalization this year, due to a growing number of companies departing or transitioning from their listings. According to data collated by Aberdeen Asset Management and broker Peel Hunt, 61 companies, worth a staggering £12.3 billion, have announced plans to migrate away from the AIM market, representing 20% of the market by value.
Several factors contribute to this exodus, including:
- Companies moving to the senior Official List or opting for private ownership, driven by concerns about the viability and attractiveness of the AIM platform.
- Rising regulatory and compliance costs, aggravated by a 127% increase in audit fees since 2018, discouraging smaller companies from maintaining or joining the AIM market.
- Excessive regulatory burdens, such as audit and public interest entity rules, are proportionally more stringent for AIM companies, making it a less attractive destination. The London Stock Exchange has proposed raising threshold limits for these rules (e.g., for companies with 750+ employees and at least £750m turnover), potentially alleviating some of the pressure on smaller entities.
- Shifts in market dynamics, with the reduced size and liquidity causing some companies to become less desirable for select investors, further exacerbating the capital drain.
Despite its vital contributions to the UK economy in terms of value and employment, the combination of these factors is forcing the contraction of the AIM market in 2025.
As Abby Glennie, co-manager of Abrdn UK Smaller Companies Fund, echoes the concerns, she points out that "AIM was once a thriving market, but it has been brutally knocked back by recent outflows." The migration of the major and best-performing AIM companies to the main market serves as an ominous sign, potentially leaving a minuscule, illiquid market in its place. While this might be manageable for individual investors, it poses significant challenges for attracting large-scale institutional investment required for the growth of future UK companies. Glennie rhetorically asks, "How are we going to nurture the next generation of big UK companies without AIM's exporting capital?"
To buoy the AIM market, proposals aimed at boosting its competitiveness were included in the recent Mansion House Accord, which persuaded pension funds to allocate 5% of their funds towards UK assets. While the agreement primarily targets private assets rather than publicly listed shares, the latest versions will now include AIM and Aquis shares, its main rival junior market, in the 5% allocation, potentially injecting some much-needed investment.
Overall, the significant decline of London's junior AIM market is primarily due to increased compliance costs, excessive regulatory burdens, and widespread company departures, resulting in a projected 20% shrinkage in market capitalization.
- The contraction of London's junior AIM market in 2025 is largely due to companies moving to the senior Official List, opting for private ownership, or migrating away from the AIM market, as the regulatory and compliance costs, and the excessive regulatory burdens have become a significant deterrent for smaller companies.
- The shift in bigger AIM companies to the main market signals a troubling trend, as it might leave the remaining AIM market minuscule and illiquid, posing challenges for attracting large-scale institutional investment necessary for the growth of future UK companies.
- Efforts to boost the competitiveness of the AIM market include proposals to include AIM and Aquis shares in the 5% allocation of pension funds' investments, which could potentially inject significant investment into the junior stock market.
