New issues make a strong comeback in the London market

David Hellier
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As the year comes to an end there’s definitely cause for celebration in London’s new issues or Initial Public Offering (IPO) market.

According to figures out today from EY, the advisory firm, there were 14 main market share listings this year, raising £5.2bn. That’s not exactly an avalanche of deals but the total represents a significant increase in activity compared to four IPOs during 2012 and seven in 2011.

In addition AIM, the junior market, had a strong year, with 45 IPOs, up from 32 in 2012, as the market continued to attract deals from overseas as well as with domestic businesses.

EY’s chief economist David Vaughan argues that investor confidence has returned, boosted no doubt by the average share price growth to date of 33 per cent since the newly floated groups’ initial placing price.

Vaughan believes the healthy pipeline of activity suggests that 2014 “will be the strongest market we’ve experienced in a long time”.

So we go into the New Year in a much more confident frame of mind than we entered 2013, when we only really had the success of RBS’s sale of shares in Direct Line as a base to build on.

2013 saw the flotation of a number of companies from different sectors, from estate agency to insurance to African finance.

If there is a grumble, it is that tech companies are still not drawn to the London capital markets. Just look at the decision by King, creator of Candy Crush Saga, to head for the US as evidence of that.

The London Stock Exchange has changed its rules to make it easier for tech firms to list here, so it would be good to have these tested in 2014. Perhaps Zoopla, the house-buying website, or JustEat, the takeaway food website, might be tempted.

And there’s an important proviso to the optimism. So far the IPO market as a whole appears to have shrugged off poor price performance post flotation for annuity providers Partnership and Just Retirement, given the success of so many of the other floats.
But realistic pricing of new issues is key to retaining momentum and it’s worth remembering that confidence is still probably only wafer thin.

Bids and deals, on the other hand, have been relatively quiet in 2013, with UK mergers and acquisitions at their lowest level for eight years and still below levels seen during the dot com era 13 years ago.

Having said that, the year has closed with at least one large deal being agreed, the £594m acquisition of the Lloyd’s broker Canopius by Sompo Japan.

Canopius is 95 per cent owned by the private equity group Bregal so essentially the deal involves switching from one dominant outside shareholder to another.

There’s little overlap between Sompo Japan’s business with Canopius so in theory it will be able continue its underwriting business much as it is.

Michael Watson, who led the management buyout of the group in 2003, is staying on. “I derive a lot of pleasure from being part of the team,” he told me yesterday after announcing the deal. He’s got no intention of replacing Inga Beale, who earlier this week left Canopius as chief executive to become the first CEO of Lloyd’s of London in its 325-year history. Instead Watson will effectively lead the group’s transition.

Graham Mackay, former chairman of SAB Miller, the world’s second largest brewer, has died at the age of 64. The business world was united in paying its tributes to him yesterday, with many describing him as inspirational. Our thoughts are with his family.
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Allister Heath is away