But there are reasons to believe AIM will still be rewarding those who keep the faith

Barely into 2007 and already it seems a long time since the Alternative Investment Market (AIM) was somewhere everyone wanted to be. Yet only a few months back, London's junior market was booming, driven by high investor confidence and the queue of foreign companies waiting to list. As such, a sector once derided by bluechip advisers was being actively courted by the likes of Norton Rose and Ashurst, not to mention US players such as O'Melveny & Myers and Hunton & Williams.

However, the twin shadows of market indigestion and the long-simmering concerns regarding the quality of some of the companies floating have finally called a halt to the AIM express.

Perhaps in retrospect lawyers should have spotted the high watermark of the bluechip-to-the-bone Linklaters advising copper mining group Nikanor on a $1.5bn (£770m) AIM listing in July 2006, with Freshfields Bruckhaus Deringer, no less, acting for JP Morgan Cazenove. It may have been the highest-ever AIM valuation but it also pretty much marked the end of the current head of steam that has driven the market the last three years.

Of course, newspaper headlines regarding the current Serious Fraud Office and the London Stock Exchange (LSE) investigations into AIM-listed software provider Torex Retail have also taken their toll, though regulatory concerns had been brewing for months.

Little wonder that the lawyers that have in recent years been mining AIM's rich seam are being very cagey when asked how they currently fill their days. The more candid concede the poor state of the market after what was dubbed a 'disastrous' fourth quarter in 2006. And current indications are that the market is not going to be recovering until well after the spring at best.

Goodbye, abort fees

Still, as bad as it looks, there are a number of reasons to believe that the market will come good for those advisers that are really committed to the sector. For a start, there is still no shortage of companies wanting to float and the more bearish investor sentiment has still left the market open to the more credible end, cutting out more of the deadwood, cash shells and dodgy foreign-listers.

Likewise, the current slowdown looks more dramatic because of the substantial expansion of AIM in recent years. There were 14 floats in January, against the 21 managed in the booming January 2006 and last year as a whole is still a record year in terms of capital raised.

In addition, advisers are currently pushing to cut back the use of abort fees and tough discounts that were a regular feature of the boom time because of the sheer number of advisers vying for a piece of the action. This goes double when dealing with the smaller companies that are most likely to struggle to raise capital. AIM firms with decent mid and upper-market corporate coverage are also able to nudge some of the larger clients on their books towards a full listing.

The current betting is that AIM will remain a highly significant market for City lawyers, particularly since its main international rival, Nasdaq, is regarded to have made a hash of its protracted LSE bid. But advisers will have to ride out a not-inconsiderable period of "necessary correction", as one glum lawyer last week dubbed it. "We are paying the price for the number of deals done in 2005 for companies of questionable quality," says another. "It is a vicious circle – people are talking themselves into it."