An increasing number of companies are moving from the Full List onto Aim. Why do they do it, and are they worth backing?

There is little doubt that the Alternative Investment market is a resounding success. Since its inception in 1995, ambitious companies have managed to raise almost £7 billion from investors. The market is now home to 582 ventures and, despite the prevailing economic winds, 77 new companies have managed to join the market this year.

Not all of the companies that have joined though are really 'new'. Indeed, 19 of these supposedly 'bright young things' have moved across to Aim this year (for one reason or another) having previously been listed on the main board.

A fresh start

For Bill Brown, director of Aim equities at Friends Ivory & Sime, this new phenomenon is, to a certain extent, very welcome. Says Brown, 'I think it's positive that the benefits of Aim are being realised by Full List companies'. The benefits he refers to are the lower costs associated with an Aim listing and the ease with which Aim companies can complete mergers and acquisitions.

These were the reasons why K3 Business Technology moved to Aim last November.

In its past incarnation as garden gloves distributor RAP, K3 was sitting on annual losses in excess of £5 million. When the plan to sell up and move into e-commerce was made, it became clear to finance director David Bolton that 'Aim was the right home' for them, as the costs associated with a full listing would have been 'ludicrous'.

Since the move its shares have improved by nearly 20 per cent to 20p (£10.1 million), and the lighter regulatory framework has freed up management time and funds. It is expected to hit profits of £700,000 this year.

Cost, and the chance of reinvention seem to be the driving forces for the majority of Full List refugees. As Clive Gilham, chief executive of recently rejuvenated housewares group Aquarius explains, 'we are going through a rather complicated demerger process and it's much cheaper to do on Aim'.

Nigel Rogers, chief executive of engineering group Stadium, agrees with Gilham, noting that while the costs of being listed on the two markets are 'not materially different', on the Full List the types of transaction most businesses are looking to perform 'would be classified as Class One'. This means the company would be faced with the added expense of always consulting its shareholders ? in this respect Aim affords slightly less stringent rules.

Other successful transfers include Osprey Communications, into which Bob Geldof is in the process of reversing his 10 Alps media consultancy, and Tepnel Life Sciences, which actually raised £9 million during the move.

Institutional focus

Another alluring aspect of Aim cited by some is the tax breaks and the institutional investor interest it can drum up.

Victor Bellanti, managing director of engineering business Norman Hay, confesses that the decision for his company's move was made in the hope that Aim's added tax incentives would attract private investors.

Moreover, with major institutional investors showing less and less interest in smaller companies, Aim can solve financing problems as it boasts its own flotilla of institutional investors (at the last count there were 15 dedicated Aim venture capital trusts).

False starts

While Bill Brown claims that Aim is a 'dynamic market', he does caution that 'it would be a shame if it became inhabited by the living dead'.

Simon Brickles, the LSE's head of Aim, expresses similar concerns, saying, 'we are keeping an eye on the situation...to ensure that companies aren't moving for the wrong reasons'.

For investors in this area, the point both men are touching on is important. If companies are moving 'across' for the right reasons ? they have substantial plans in place which a move to Aim either facilitates or accelerates ? then the move should be welcomed. But if an Aim listing represents the last roll of the dice for a struggling business, the company is best avoided.

Although Brickles is adamant that at present 'we see no evidence of this', fears are growing. For instance, textiles venture Drummond, which only dropped down to Aim in July last year, and has now de-listed. Lonhro Africa's move to Aim was precipitated by its escalating debt and operational problems. Even more alarming is the case of cake manufacturer NFF, which called in the receivers after less than four months on Aim.

Another company struggling is The Ninth Floor (TNF). It transferred back in November with a view to securing a separate listing for Swansea City football club. By February chairman Alan Wix was admitting that TNF was now seeking a buyer for the club and earlier this month Swansea City's chief executive Mike Lewis stepped forward, acquiring the 99.15 per cent holding for £1. TNF has fallen 70 per cent since its move.

Executive search venture Constellation has also found the going tough since it moved to Aim to facilitate the disposal of its former retail business Upton & Southern. In the 17 months to December Constellation accrued a £3.4 million loss on account of Upton, but has since acquired Singapore-based BIPL as well as the remaining 49.9 per cent of Garner International. Despite shelling out a combined £5.5 million for the two recruitment firms ? both of which are historically profitable ? Constellation's finance director Kazia Kantor claims that it is 'perhaps too early in the changeover to have an informed view on its success'. Nevertheless, investors have shown little interest in the re-branded company so far and its share price has sunk to an all-time low of 0.75p as a result.