Nearly £3bn worth of initial public offerings (IPOs) were pulled in London at the end of last year.
Deals that were announced but then failed to make it to market include debt collector Cabot Credit Management, professional services business TMF Group and phone mast company Arqiva.
In the six months to December companies that had announced plans to collectively raise almost £3bn backed out of flotations.
Marco Schwartz, managing director of capital markets for accountancy firm KPMG, said: “What happened was that as we got towards the end of the year there was fatigue building up on the buy side. They became very price sensitive in a way that caught issuers by surprise.”
On 3 November both Arqiva and Icelandic ready meal company Bakkavor cancelled announced floats. Arqiva cited “market uncertainty” for its decision while Bakkavor blamed “volatility in the IPO market”.
A week after cancelling its float Bakkavor returned with shares priced at 180p rather than the 195p to 235p range it had previously been marketed at.
James Wootton a corporate partner at law firm Linklaters argued that there was no market blip last year and that pricing issues were generally behind cancelled floats.
“There was no market wobble that made London less attractive, it has always been the case that if you undertake an IPO there is no guarantee you will get it away. People have pricing expectations and other things can go wrong.”
Head of equity capital markets at law firm Herbert Smith Freehills Charles Howarth agrees that an expectation mismatch on pricing can often be a culprit behind failed floats.
“People can get stuck on the initial valuation guidance given by bankers. On one deal the chairman had decided it was a billion dollar company and that he wouldn’t do it for less so he hasn’t done a deal,” he says.
Howarth says that sometimes bankers can be overenthusiastic with their price estimates in the early stages of an IPO when they are pitching for the work.
“People tend to be positive at the start of deals, but it may not always make sense to listen to the highest valuation. It is like when you are selling your house where the least good estate agent will always tell you the best pricing,” he says.
The equity capital markets are also not the only route to realising the value of a business.
Many business owners, whether formally or informally, run dual-track processes where they simultaneously prepare for a float while looking for a buyer.
In October professional services firm TMF had announced that it planned to float in London before agreeing to a €1.75bn (£1.55bn) bid from private equity firm CVC.
Neil Glover of accountancy firm EY says: “If private equity can step in and make a full acquisition that can be preferable for owners as it means they get their money off the table in one go.”
Lucy Tarleton, capital markets director at accountancy firm PwC, says that “dual-track processes are increasingly common,” arguing that “the dual-track process is attractive as it can help shareholders and issuers reach a successful outcome while hedging against the volatility in public markets.”
While market conditions at the end of last year were arguably volatile, advisers are generally positive about the outlook in 2018, despite a drop in the value of deals in the first quarter compared to the same period last year.
In the first quarter (Q1) of 2018 there were 16 IPOs raising £1.3bn compared to 20 IPOs raising to £1.8bn in Q1 2017, according to data from PwC.
Tarleton says: “Q1 is typically a quieter quarter in terms of UK IPO activity, and last year it was boosted by a backlog of IPOs after a pause in activity following the EU referendum.”
Eversheds Sutherland corporate partner Alison Starr, who advised on professional services firm SimplyBiz’s admission to London’s junior market last week, says: “We are finding the market very busy at the moment, we are receiving almost an instruction a day.”
With a numbers of sizeable floats telegraphed for the remainder of the year advisers are confident that 2018 will be a strong one for the London IPO market.
Wootton says: "London as a market remains not only open for business but encouragingly strong in terms of the pipeline of IPOs across all sectors and all issuer types."
Potential IPOs in the pipeline this year include mobile phone company O2, cinema chain Vue, sports car maker Aston Martin, peer-to-peer lending company Funding Circle, broker AJ Bell and law firms Rosenblatt and Knights.
London is also in the running - alongside New York, Hong Kong and Singapore - for a slice of the flotation of Saudi Arabia’s national oil company Saudi Aramco which could attract a mind-boggling valuation of $2 trillion (£1.5 trillion).
Tarleton says: “The outlook is promising and issuers continue to be attracted to the UK market with a number of cross-border IPOs set to launch in London. ”
There is also the potential for a number of the companies that aborted floats last year to return for a second go, particularly if market conditions look favourable.
Glover says: “There are a number of household names that could come to market in May or June, if they come to market that will in itself bring other companies back to market, particularly those that aborted at the end of last year or put plans on the back-burner.”
Howarth agrees that one big float may boost market confidence.
"There is a sentiment that the market is waiting for a biggie – say an O2 happened or Vue or one of the other multi-billion ones that might open the gates,” he says.
While a substantial market correction or a Trump-inspired global trade war could torpedo the London IPO market, advisers remain positive about the outlook for now.
Schwarz says: “It should be a good first half, there is the potential danger of a correction, but if everything remains on track we will see a strong Q2.”