What is a Nominated Advisor (NOMAD)?
A nominated advisor (NOMAD) is a financial services firm that assists with listing a company on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). The Alternative Investment Market is a specialized unit of the LSE catering to smaller, more risky companies.
The LSE requires that a company seeking a listing on AIM have a NOMAD, which the LSE itself must approve to carry out the functions. Once listed on the AIM, the NOMAD oversees the company and ensures it follows regulations. NOMADs are thus seen as the regulatory system for the less-stringent AIM market and are tasked with advising companies both pre-IPO and after listing.
The Role of a Nominated Advisor
A nominated advisor is a corporate finance advisor that is pre-approved by the London Stock Exchange to admit a company to the AIM. To become a NOMAD, a firm must meet the following criteria:
- Must be a firm or company – a NOMAD cannot be an individual;
- Practiced corporate finance for at least the past two years;
- Acted on at least three relevant transactions in the past two years; and
- Employ at least four qualified executives.
After being appointed a NOMAD for a company, the advisor becomes responsible for advising and guiding the company on the responsibilities it assumes to be admitted to the AIM. The responsibilities mainly include (the AIM officially imposes 45 rules):
- Retention of a Regulatory Information Service provider to ensure disclosure information can be notified as and when required (AIM Rule 10)
- Pay ongoing AIM fees set by the London Stock Exchange as soon as such payments become due (AIM Rule 37)
- Requirement to submit further admission documentation for additional issues of securities if the new issues require a prospectus, are seeking admission as a new class, or are undertaking a reverse takeover (AIM Rule 27)
- Requirement to publish annual audited accounts which must be sent to shareholders no later than six months after the end of the financial year (AIM Rule 19)
In addition, they will consistently advise the company of its obligations once it is on the AIM. To accomplish it, a NOMAD’s tasks will usually include:
- Performing extensive due diligence to ensure a company is a suitable fit for the AIM;
- Providing guidance throughout the flotation process;
- Preparing the company for being listed on a public market;
- Helping prepare AIM admission documentation;
- Confirming that the company is a proper fit for the LSE; and
- Acting as the primary regulator for a company throughout its time on the AIM.
So, to summarize, the NOMAD first begins by assisting the company in navigating the AIM listing process. The NOMAD will then perform due diligence to ensure the company is a proper fit for the AIM and that they will be successful after listing.
After the company is listed on the AIM, the NOMAD is responsible for monitoring the company and ensuring it continues to comply with the AIM Rules. More than 3,865 companies are listed on the AIM worldwide, so the need for NOMADs continues to be extremely important.
Nominated Advisor – Basic NOMAD Process
In addition to employing a nominated advisor, a company seeking to be listed on the AIM should also employ a broker, accountant, and legal advisor. They differ from a NOMAD in the following ways:
- Brokers specialize in bringing buyers and sellers together and are not involved with the extensive responsibilities of a NOMAD.
- Accountants are independent, third-party observers that aim to provide reliable financial information to shareholders. They assist the company in preparing the financial statements for distribution.
- A legal advisor assists with the verification of statements and provides direction and advice to board members of the company.
- As of May 2022, there are 27 NOMADs approved by the LSE.
- The following are noted criteria for an entity to be considered a NOMAD:
- It must be a firm or company, not an individual.
- The company must be involved in corporate finance for at least two years.
- It must have acted as a financial advisor in at least three qualified transactions in two years.
- The firm must employ at least four qualified executives.
Along with a NOMAD, companies that want to join the AIM should consider retaining a broker, an accountant, and a legal adviser. Brokers are also members of the LSE and are required to be from the same firm as the NOMAD. Brokers are responsible to bring buyers and sellers together. Accountants are independent of the company and monitor the company’s financials.
The accountant also helps the company prepare all financial documents required of it. Finally, the legal adviser takes care of any verifications of statements as well as provides direction and advice to the company’s board members.
Example of a NOMAD
Nominated advisors are essential to a company’s success on the AIM. In fact, the AIM requires the employment of a NOMAD to continue to be listed on the AIM.
On May 20, 2020, a casino supplier, Nektan, was removed from the AIM after it did not appoint a new NOMAD within one month of entering the exchange. It was in direct violation of AIM Rule 1, which states “admission of a company’s securities to trading will be canceled if a replacement NOMAD is not appointed within a month.”
Nektan’s original NOMAD, Shore Capital and Corporate, resigned in April 2020, and Nektan was unable to enroll a new NOMAD. As such, they were suspended from the exchange.