Forecasts Indicate Massive AIM Revenue Reduction, Anticipated Market Shrinkage by 20%
The Alternative Investment Market (AIM) in London faces a deepening listing crisis as it approaches its 30th anniversary, with £12.3 billion in market capitalisation expected following the departure of 61 companies.
This decline can be attributed to a mix of mergers, private equity takeovers, delistings, and promotions to the main market, which could result in a 20% reduction in the exchange's size if all current proposals are carried out.
Abby Glennie, co-manager of Aberdeen's UK Smaller Companies Growth Trust, expressed concern, stating that AIM has been severely impacted by outflows and is in a transitional phase to reassess its position. Aberdeen has advocated for the government to introduce financial incentives that encourage private investment to fuel growth, rather than mandating minimum allocations for pension funds. They also propose expanding beyond venture capital and private equity companies to encompass smaller businesses, private debt, real estate, and infrastructure.
In her maiden budget, Chancellor Rachel Reeves targeted AIM shares by removing inheritance tax exemption and reducing tax relief to 50%. This essentially sets the rate at 20%, with the changes slated to take effect from April 2026. However, a leaked memo obtained by The Telegraph suggests that Deputy Prime Minister Angela Rayner is pushing for more drastic measures. Rayner proposes abolishing inheritance relief on AIM shares entirely and closing the commercial property stamp duty loophole.
Aberdeen supports the intentions of the Mansion House Accord, which includes AIM in its list of qualifying assets. This initiative aims to boost demand for AIM shares by grouping them with the government's push to channel more pension and institutional capital into smaller, rapidly growing UK businesses. Glennie, however, cautions that expanding the compact to include AIM-listed stocks would be meaningless if the AIM market shrinks to an uninvestable size for institutions.
The current AIM landscape is marked by increased interest from private equity players, particularly from the United States, and government initiatives designed to boost capital flow and liquidity in this market. Private equity firms are increasingly active in targeting UK companies listed on AIM and other segments of the London stock market, often paying premiums above market price but close to fair value for companies trading at discounts to net asset value. The trend towards private equity takeovers reflects these firms' role in repositioning companies away from public market pressures, especially when standalone strategies seem risky or underfunded by existing management.
The London Stock Exchange (LSE) is actively working to strengthen AIM's future through a consultation paper released in April 2025, seeking feedback on regulatory frameworks and growth opportunities. The LSE aims to "increase the flow of capital into AIM" and diversify sources of capital to maximize liquidity, recognizing AIM's significant economic impact. However, AIM faces challenges such as net outflows from UK equities and rising audit and compliance costs, which deter companies from listing or maintaining listings on AIM. In response, the LSE proposes amending the definition of 'Public Interest Entity' to raise thresholds, reducing audit burdens on smaller AIM firms and potentially lowering costs.
British International Investment (BII) also plans to continue opportunistic, impact-aligned investments in 2025, emphasizing sectors aligned with government priorities, which could complement private equity activity and support AIM companies. The outcome of contested bids like Assura's could establish precedents for whether promising AIM companies remain public or transition to private ownership, impacting market confidence and investor attractiveness.
The future of London's AIM will depend on the interplay between private equity interest and government/LSE efforts to modernize market regulations. This balance will determine whether AIM evolves into a more liquid, growth-oriented public market or witnesses a contraction in public listings due to buyouts, with significant implications for the UK's capital markets ecosystem.
- The decline in AIM's market capitalisation could force smaller businesses, real estate, infrastructure, and other sectors to seek financing options in alternatives to the stock markets, impacting the overall economy.
- In an effort to improve liquidity and boost demand for AIM shares, the London Stock Exchange (LSE) is proposing to modify the definition of 'Public Interest Entity', potentially lowering audit and compliance costs for smaller AIM firms.
- As private equity players show increased interest in targeting UK companies listed on AIM, the outcome of contested bids will set precedents for the future of the market, determining whether these firms remain public or transition to private ownership, impacting the investing landscape.
