Tax Breaks Provide Sea Change for Junior Market4th November 2013
Markets are cyclical but for the smaller end of the equity market any hint of a turn has felt a long time coming. However, with budget announcements from earlier this year now with us, this market is likely to shift. From April 2014, the 0.5 per cent stamp duty tax on the trading of shares on AIM and ISDX is being removed and as of last month junior stock market shares can be traded through ISAs. This is a significant development.
A common criticism of small cap trading platforms AIM and ISDX has been lack of liquidity. The recent stamp duty waiver and wrapping of stocks into ISAs is likely to result in increased participation from investors and institutions on these platforms, as well as provide more buoyancy. It will be fascinating to see which sectors respond to the olive branches beyond the traditional mining stocks.
By way of example, we have just acted for AIM quoted real estate company Palace Capital Plc on its acquisition of a secondary property portfolio from Quintain Estates & Development Plc for £39.25 million, which raised £23.5 million through an equity placing and a £20 million debt financing with Nationwide. Such a deal would not even have been contemplated earlier this year.
Right now AIM has a resurgence of IPOs returning to the junior market. According to accountancy firm UHY Hacker Young, in the three months to 30 September 2013, the number of companies floating on AIM was higher than the number leaving the market for the first time since the third quarter of 2007. In the third quarter of 2013, 20 companies joined AIM while only 16 delisted from the market.
If it’s all about liquidity, then recent changes will mean the pickings should return in 2014 for wise investors in the quoted SME market. The nature of this market means there will also be some casualties. For example, an over invested small cap ISA in 2008, had such a vehicle existed, would probably have reflected the fact that AIM lost two-thirds of its value in that year. So while it now might be tax efficient to invest in the small cap sector, it will not change the nature of the ride.
Being informed reduces risk and we encourage those interested in the sector to get involved in our regular small cap quoted networking club, the Small Cap Club.
The Small Cap Club, in association with the London Stock Exchange and sponsored by Hamlins LLP, is for key participants, leaders and advisors of quoted companies in the UK on AIM and ISDX. It’s free to join and provides first-hand experience from thought leaders in the sector. We would welcome your registration. Find out more at www.smallcapuk.com
Daniel Bellau is a corporate finance partner and Head of Corporate at Hamlins LLP. He advises on all aspects of corporate law, specialising in public and private mergers, M&A, private equity investments and equity capital markets transactions.