The AIM market has had a challenging time in recent years says Dan Harlow, Head of UK Equity at AXA Investment Managers, as he shares his thinking as to why it’s not all doom and gloom for AIM the future in the following analysis:
London’s junior stock exchange has materially underperformed both the FTSE 250 and FTSE Small Cap indices, and its constituent numbers have continued to fall: by the end of October 2024 there was net decline of 60 companies to 693. At its 2007 peak, AIM had almost 1,700 constituents.
It is not all doom and gloom, however.
While the IPO market has continued to be quiet, we have been encouraged to see a pick-up in companies coming to the market for secondary fund raises. There have been some very interesting recent deals that have seen over £100m from new and existing investors, highlighting the support that exists for sensible, earnings accretive deals. For the companies involved, these deals generate interesting synergy, cross-sell opportunity as well as greater scale that materially enhances both the operational capability and the profile of the parent.
The performance of the names central to these deals is a salient reminder of the merit of AIM to a stock picker and highlights why the market remains an important fundraising mechanism. Below are three standout deals (and a take-over) – all of which we have invested in – that highlight why we believe AIM should remain on investors’ radar.
Kitwave / Creed
Kitwave is a UK wholesaler specialising in impulse products, frozen, chilled and fresh goods. With just 2% of a £33.5bn market, the company operates in a sizeable and fragmented market which has enabled it to grow both organically and via acquisition. It recently completed its 15th and largest deal as it seeks to build out truly national coverage.
The purchase in September 2024 of Creed in the south of England for £70m means Kitwave now operates from 37 sites. The company’s focus on smaller, independent retailers and foodservice providers means it rarely competes against the big beasts (Brake Brothers, Booker, Bidvest) who are optimised to service much bigger accounts. Additionally, the company’s well invested delivery network and IT systems help drive first class service which is a key differentiator versus its smaller family-owned peers. The Creed deal propels group revenue to over £800m.
Mpac / CSi
A high-speed packaging specialist, Mpac creates automation ecosystems that develop and optimise manufacturing processes for companies in food and beverage, health and consumer goods industries. In September the company made a transformational acquisition of CSi Palletising for £49m, which strengthens and expands its global product and service offering.
The combined entity will have over 6,500 global machine installed base across a range of blue-chip companies, including Pepsico, Proctor and Gamble and Unilever. This new ‘end of line’ capability extends the company’s offering and drives opportunity for market expansion and greater cross-sell. Additionally, the core group can leverage CSi’s long-established and low-cost manufacturing and assembly facility in Romania. The company raised £29m in a market placing to partly fund the acquisition.
Cohort / EM Solutions
Cohort is the parent of six businesses that provide a range of services and products for domestic and export customers in defence and related markets. The two divisions; Communications & Intelligence and Sensors and Effectors, have been built via acquisition over 18 years since it listed in 2006. In November the company added to its capabilities with the acquisition of EM Solutions, an Australian based producer of satellite communication terminals.
The business provides Navies with the ability to track all satellites in difficult sea states, offering considerable proprietary technology that can be cross sold to its existing base in Europe where the country has typically been under-represented. EM Solutions has a strong order backlog and the margin is accretive to the group’s existing profile. Cohort raised £41m for this £74m acquisition, which its largest to date.
Aquis Exchange / SIX
A fund holding since its IPO in 2018, Aquis’s recent takeover for a 120% premium by Swiss exchange business SIX reminds us of the merits of long-term investing and the value that remains on offer at the bottom end of the market cap spectrum.
Six years from IPO revenue has grown nearly 500% and the company delivered a profit of more than £5m in 2023. Its innovative and disruptive subscription-based exchange offering pan-European cash equities trading has grown to be the seventh largest in Europe. While growth in its technologies business has slower than anticipated, the pipeline is exciting, and a much larger peer in SIX has undoubtedly recognised the company’s ability to execute on these medium/long term opportunities.
