SMALL CHAPTER IDEA: Alliance Pharma Fails Amid AIM Reduction

Less than two weeks into 2025, we had our first AIM defection in the form of Alliance Pharma.

An agreed £350m bid from its largest shareholder, Isle of Man fund manager BAY Advisors, will see the specialty medicines company taken private.

Exiting the junior market after more than 20 years, Alliance, led by Nick Sedgwick, hopes to kick-start its buy-and-build growth strategy that has been stalled by a lack of access to growth capital.

As you will read below, this is a recurring problem that financiers, investors and policymakers are struggling to address.

In a statement announcing the 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 meant that Alliance does not has been able to continue Acquisition Opportunities in the last 24 months.’

In short, the low share valuation has prevented the group from raising cash through share placements, which has basically put any expansion plans it harbored on hold.

“The Alliance’s board of directors believes that access to private capital and support from DBAY will allow it to return to its buy-and-build strategy more quickly than if it remained in the public market,” the company said.

There was another reason cited for its acceptance of DBAY’s offer, which while offering a significant premium over the pre-bid 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 delist, move its listing abroad or succumb to a bargain-hunting foreign buyer.

In stark contrast, only 18 new companies joined the UK public market, leaving a huge gap.

Small fish swim away

While high-profile exits – such as plant hire group Ashtead and Paddy Power owner Flutter Entertainment – ​​have grabbed the headlines, a more worrying trend lies in the erosion of the lower echelons of the market.

According to data from accounting firm UHY Hacker Young, 92 companies left AIM (Alternative Investment Market) in the year to October, reducing the number of junior exchange members to fewer than 700 for the first time since 2001.

AIM, once celebrated as a vibrant marketplace for growing companies, has been hampered by long-standing challenges, including high costs and burdensome bureaucracy.

Listing on AIM typically involves start-up costs of around £500,000, with annual expenses for regulatory filings, legal fees and associated costs adding another £200,000.

For smaller companies, these figures are prohibitive and increasingly unsustainable.

Liquidity problems

Aggravating the problem of decreased liquidity. Investor preferences have shifted toward passive funds that track major indices, leaving riskier small-cap stocks starved of attention and capital.

For a market that has historically supported the business ecosystem (raising almost £135bn for around 4,000 businesses since its inception in 1995), this loss of focus is existential.

AIM no longer fulfills its primary function: providing growth capital to ambitious entrepreneurs.

The repercussions are clear. Instead of listing on AIM, a tech-savvy CEO with a promising startup is likely to court private equity, where funds are plentiful, valuations are attractive and bureaucracy is minimal.

Too little too late?

For those looking for a liquidity event, the US market offers a much more compelling proposition: deeper liquidity pools, more patient investors and higher valuations.

Policymakers and industry leaders have proposed several solutions, including reducing regulatory and listing costs, increasing research coverage of small businesses to improve their attractiveness, and enacting reforms to broaden attractiveness. of AIM shares for traditional funds.

While these measures seem promising, they may be too little, too late. After three years of rapid decline, the UK market must now deal with a harsh reality: it risks losing its relevance as a platform for innovation and entrepreneurship.

Without bold and immediate intervention, the next generation of entrepreneurs will look elsewhere, and with them the UK’s competitive advantage.

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