International public offering

LONDON -- Here in the shadow of St. Paul's Cathedral, American companies have found an unlikely haven.

Since 2001, 52 American firms have raised $3.6 billion by going public on the London Stock Exchange's market for smaller firms known as AIM, formerly the Alternative Investment Market, in the city's storied Paternoster Square. Four high tech companies from Massachusetts have arrived since March.

Executives say they came across the Atlantic to get more attention from investors, analysts, and underwriters than they would at the New York Stock Exchange or the Nasdaq Stock Market, the traditional home of American start-ups.

"Nasdaq's interests have turned away from the small and midsized companies," said Anne Moulier, a London exchange manager. London, she says, "has what the US had 25 years ago."

The US firms on AIM join scores of companies from Russia, the Caribbean, and elsewhere. Last year, London drew more initial public offerings than the exchanges of New York or Hong Kong, according to New York research firm Thomson Financial.

US investors have piled in as well. AIM's single largest institutional investor is Boston mutual fund giant Fidelity Investments, whose funds hold more than $2 billion in AIM securities, a 67 percent increase from the end of 2005.

The trend worries American politicians and business groups that say tough US securities rules put American exchanges at a disadvantage to the AIM, which requires companies to report financial results twice a year instead of quarterly and holds them to minimum financial standards.

For instance, even Nasdaq's new category for smaller firms, called the Nasdaq Capital Market, requires companies to meet minimum standards such as maintaining a market value of at least $1 million and a share price of at least $1. AIM, by contrast, leaves it up to a network of advisers to decide which companies are ready to sell public shares and sets no minimum.

Many argue that the lure of overseas markets is due in part to tough new laws such as the Sarbanes-Oxley Act, passed in the wake of corporate scandals such as the collapses of Enron Corp. and WorldCom, which make it costly for small companies to go public in the United States.

In interviews, however, Massachusetts executives say that AIM's looser rules weren't as important as the greater interest they got from London's investment community.

"I couldn't get a hearing on Wall Street, and I could in London," said Elliot Entis, chief executive of Aqua Bounty Technologies of Waltham, which is developing genetically modified fish for aquaculture.

Investors in London weren't put off by Aqua Bounty's unusual ambitions, he said, and they held a long meeting with him. In contrast, when he made the same presentations to potential underwriters on Wall Street, he said, "you get 15 minutes and shown the back door."

In March, the company sold stock in London worth $30 million, money it will use to expand in Asia.

Jarvis Coffin, chief executive of Burst Media in Burlington, also settled on London's AIM for its IPO, raising $67 million. More stock analysts were interested in following his small company there than in the United States, where the analyst pool has been shrinking as institutional investors have balked at paying their high fees. "We knew we would get analyst coverage there and hope to be treated like a stock, as opposed to these days in the US," Coffin said.

Coffin and Entis both said they saved money listing their shares in London, but said that wasn't their main goal. Scott A. Pearson , chief executive of Southborough fuel cell developer Protonex Technology Corp., estimates it costs him about $1 million a year to trade in London for costs like compliance reviews and mailings to investors, versus about $3 million it would cost to be on the Nasdaq. But the bigger problem is that his company is worth around $80 million, and Wall Street underwriters want to work with companies worth several times that, he said.

"It's unfortunate that US companies like mine have to go overseas for capital," he said "Nasdaq used to be a market that was well-suited for early-stage technology companies, and it's not anymore."

Mark Turrell, chief executive of Boston software maker Imaginatik PLC, said his company spent $1.2 million to sell shares on AIM in December, a pittance by New York standards. "A lot of investment banks on Wall Street won't get out of bed for that," he said.

Nick Wells, manager for Artemis Fund Managers in London, the second-largest institutional investor on the AIM, said its growing stake in companies listed there is natural given its focus on start-ups . "It isn't that we invest in AIM, it's that we invest in companies on the AIM," Wells said.

Nasdaq executives decline to discuss the criticism of their market, which is home to giant tech firms such as Intel Corp. and Microsoft Corp. But they have responded in a different way: In November, Nasdaq offered to buy the 71 percent of the London Stock Exchange it doesn't already own in a deal that valued the whole exchange at $5.3 billion.

Even before the bid, in a speech in Boston in September, Nasdaq chief executive Robert Greifeld argued that "Nasdaq doesn't compete with AIM. In fact, we see it as a potential feeder market for us when the best of those firms are ready for prime time." The London Stock Exchange's board rejected the bid, calling it undervalued, and as of Friday the two sides were still arguing their case to shareholders.

The AIM was first meant for high technology companies when London Stock Exchange executives set it up in 1995, but it has since attracted firms from other sectors, such as former state-owned energy companies from Russia and Eastern Europe . Skeptics say many of these firms are simply too risky for investors and many should not be publicly traded.

One problem is that so few shares trade in some companies that a single trade or event can dramatically affect prices. Shares in Burst Media fell to almost a third of their value on Sept. 11, 2006, for instance, after the company said it would miss revenue targets. Also, AIM's chief index fell 25 percent from its high in May of 2006 to the end of the year, reflecting the poor results of its largest sectors, including minerals and online gaming.

Russ Landon, managing director for Canaccord Adams, a Canadian firm that has become a major adviser to American companies moving to the AIM, says the declines also reflect the riskier nature of smaller stocks. But he noted growing investments from American institutions like Fidelity, Goldman Sachs, and Merrill Lynch.

"What that says to me is, if you've got a good market for good companies, the institutional money will find its way there," Landon said.

Ross Kerber can be reached at kerber@globe.com.