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August 13, 2006

IPO Performance on AIM is Worrisome

Lots of venture investors are looking to IPOs for portfolio companies on the AIM as one way to get some liquidity for their struggling private portfolio. There is a new study out showing that AIM IPOs suffer badly in the years after an IPO, making it a lot less palatable to VCs treating AIM as anything other than a fund-raising event:

After two years, AIM companies lost 57%, versus a positive 12% for Nasdaq. After the third year, returns for AIM companies fell to a negative 65% versus a negative 26% for Nasdaq. After the fourth year, AIM IPOs were down 75%, while Nasdaq ones were down 33%. At the end of the fifth year, AIM values recovered somewhat to a negative 60%, while Nasdaq companies recovered to a negative 19%.

Indeed, Nasdaq companies tend to be more richly valued than AIM ones. Analyzing tech companies with more than $20 million in revenue, Gebaide found that the median AIM software company is valued at an Ebitda multiple of 7.1 versus 13.2 on Nasdaq, and that is despite a steeper growth rate for AIM software companies ...

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