It’s not hard to imagine what Canadian dealers see in London’s Alternative Investment Market. Canaccord Capital Inc. is already mining the AIM for healthy profits. But grabbing gold isn’t likely to be as easy for others who hang up a shingle in the City.

The AIM has been a particularly wonderful place to play in the past year. The market, which celebrates its 10th anniversary this month, really took off in 2004. The number of listings on the AIM grew 35% in that year, and the market cap soared almost 75% in the same period.

Before that, the market had been fairly quiet.
After a modest début, capital-raising on the AIM ticked along quietly for several years before booming in 2000, along with the tech bubble. With the bursting of that bubble, it fell quiet again in 2001 and only really took flight last year.

Canaccord’s London-based subsidiary, Canaccord Capital (Europe) Ltd., has been a big participant in that growth. In 2004, it raised £715 million for AIM-listed firms, up from £204 million the previous year. For the fiscal year ended March 31, 2005, the parent firm reported revenue from its British business of more than $116 million, up from just $28.5 million in fiscal 2003. The company has also been so well treated by the AIM that it’s planning to list its own stock there by the end of June.

Not surprising, Canaccord’s competitors have taken notice. Several of the big bank-owned dealers already have shops in Britain, and they’ve been involved in the odd deal on the AIM. Smaller firms are sniffing around, too. Vancouver’s Haywood Securities Inc. and Toronto-based Westwind Partners Inc. recently opened offices in London. GMP Capital Corp. is reviewing the idea of establishing a London branch but has yet to make a decision.

Should other dealers be diving in? “Any opportunity to grow business profitably is worthwhile,” says CIBC World Markets Inc.
analyst Mohammad Saleem. He notes the AIM’s development and Canaccord’s steady growth in the business. “I believe this has attracted Haywood and, perhaps, GMP to it,” he says. Saleem, however, won’t factor any contribution from this segment into his analysis of the brokerage business “until we see something tangible in that regard,” he adds.

The attraction for dealers is obvious — the market is booming with new-issue activity and the economics are rich. The secret, reveals Neil Johnson, managing director and head of corporate finance at Canaccord Europe, is that offerings on the AIM generally don’t rely on syndicates. Rather than getting a tiny portion of a deal in a 10- or 12-dealer syndicate, as has become the norm in bigger Canadian offerings, dealers are keeping all of the 5% or 6% commissions that they charge for bringing firms to market on the AIM.

Some deals are substantial. Canaccord raised more than £136 million for online money transfer firm NETeller in three successive offerings in 2004. Oriel Resources PLC raised more than £40 million, and Oilexco Inc. joined the AIM in a £35-million deal in December 2003, following up with a £35-million offering in 2004.

For prospective issuers, the advantages of the AIM are obvious. It provides all the basic advantages of public listing, including a higher profile, deal currency, liquidity for employee incentive compensation and an exit strategy for early-stage investors.

More important, the AIM offers access to a large and sophisticated market in which companies can raise money fairly quickly and cheaply. It doesn’t impose onerous listing requirements; there are no prerequisites, such as float minimums or trading history. All a company needs to list is a nominated advisor, known as a “nomad,” to review and vouch for the company’s suitability for listing. There are relatively modest disclosure requirements, no hold periods nor quiet periods, and British investors may enjoy tax breaks for buying the stocks. The result is efficient access to capital for young and growing companies.

It’s also a rich market in which to raise capital. Overall market capitalization is about two and a half times as large as Canada’s.
The value of equity trading is almost eight times as large and there’s a high concentration of institutional investors that buy small-cap stocks. “These guys invest in African oil. They invest in Russian mining and they invest in Sierra Leone diamonds,” Johnson says.