Bizarro AIMo

Here are six things that you might not know about the much hyped AIM market (and they get more bizarre as you go down the list):

1. Unlike a local IPO, a Company can put out press releases while they are marketing an AIM IPO to investors. At home, everything that gets publicly discussed, starting weeks before the filing of the preliminary prospectus, must be referred to in the prospectus. No customer win announcements, no glowing CEO interviews with the local media, nothing that could be seen to be “influencing” the market. If the regulator thinks you’ve doubled your firm’s radio or billboard ad buy during the roadshow…expect a seriously mean letter from the OSC.

2. The Investment Bank (Nomad as it is called) leading an IPO is also the regulator for the Company in question. Not only are they responsible for quality control (as there are in North America), they also have to ensure that the firm’s accounting and legal standing are up to snuff.

3. As part of the marketing of the AIM IPO, the research analyst working for the lead underwriter (Nomad) puts out a “pre float note”. And the note often includes forecast financial statements. Huh? In Canada, a software analyst employed by the lead underwriter can’t even have lunch with the IPO candidate’s CEO prior to the roadshow, and he/she certainly can’t talk to the i-banker about forecasts; even with a compliance lawyer standing in the room.

4. Once the Company is public, the Nomad is now responsible for putting out your press releases. Have an earning miss release to put out? Fax it to the i-banker at the Nomad to read, edit, consent and issue. Have a material acqusition to laud? Fax it to the fellow/gal that might not have been advising you (ie., no fee) on the exciting transaction. And if your draft release should get mislaid at the fax machine, send it again. How’s that for confidential? If big firms can lose data files between cities, or fax confidential info to foreign scrap yards, how long before a top secret fax gets mislaid?

5. While it might not have been your goal when you marketed all over Europe, Canadian institutional money managers are still allowed to buy your AIM IPO shares. Even if the stock is only going to be listed on the AIM. As long as you planned to sell most of your shares overseas, you don’t need to file a prospectus with your local regulator. And even if more than half the deal winds up in Canadian hands, there’s still no prospectus required.

6. The most incredible thing of all is that — for competitive reasons — several local investment banks have been forced to set up shop in the U.K. as Nomads, even though they’re responsible for regulating their prospective client base as a result. The dicotomy is incredible. A Canadian research analyst at, for example, a bank-owned dealer isn’t allowed to go to lunch with his own i-bankers unless a compliance lawyer is present; and that analyst certainly can’t be involved in marketing an IPO. If that analyst has lunch with the client’s CEO in the lead up to the IPO some dealers won’t allow that analyst to cover the Company going forward. Yet a U.K.-based research analyst working for the same Canadian parent institution puts out a note during IPO marketing, complete with projections based (undoubtedly) on lengthly discussions with the client involved. A different planet than the local scene for sure.

As with the tech bubble of 2000, the ability to move your Fortune 500 corporate HQ to Bermuda in 2002 to avoid paying U.S. tax, the 2004 off-balance sheet strategies of Bulge Bracket Wall Street firms involving Nigerian barges, and the Income Trust party of 2003-06…this unsustainable model will also come to an end in its current unregulated form.

MRM