This year has seen a significant improvement in the market environment for UK initial public offerings (IPO). The principal reason for the momentum in UK IPO activity has been market sentiment, rather than the structural changes that have been touted as a solution for the dearth of IPOs in the past two years.
One of the key reasons for the improved sentiment has been the return of US investors to the UK market, which has improved overall appetite for new issuance. Recent equity deals have seen around 40 per cent allocated to US investors. Yet while the IPO environment has improved substantially, the UK and Europe more broadly remain well behind the recent IPO activity in the US. In 2013, over $30bn (£19.1bn) has been raised in the US compared to just $9bn in Europe.
It is clear that public market investors in the UK and in Europe are not getting access to the flow of interesting, high growth, founder-backed opportunities that their US counterparts get. But this is hardly the result of structural weaknesses of the European IPO process.
More importantly, other constituents such as private equity have become formidable forces and are competing with public markets for the limited pool of the most attractive investment opportunities. For public markets to continue to appeal to the best and most promising investment opportunities, we need to look well beyond the weaknesses of the IPO process itself and evaluate this alternative against a private equity alternative or a strategic sale.