London needs somebody to gamble on an IPO

 
David Hellier
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WITH the Edwards vacuum technology company heading for a £1bn flotation in the US and Mayfair-based jewellery retailer Graff also preferring a Hong Kong listing to braving the UK new issue markets, only one thing is certain: the London IPO market is in a pretty bad way.

Bankers that I’ve been speaking to say they know of a significant number of companies thinking of floating in the US or Asia rather than in the UK. Interestingly, they add that this is not just a phenomenon at the “trophy” end of sectors, such as luxury goods.

“At the moment there are much better places for companies to list than in the UK,” says one banker.

For the global investment banks, who benefit from IPOs wherever they take place in the world, there may be little to be concerned about.

But some UK-based bankers feel a certain sense of patriotism about the whole issue and would like business to be resumed in London for a host of reasons, not just because they have big teams here that need to be occupied.

“We have a whole team of TMT [technology, media and telecoms] analysts who spend much of their time talking to companies about accessing private financing in the US but there’s a need to be able to grow technology companies in the UK,” says one.

He fears that inevitably senior people within companies gravitate towards where the funds and investors are, leaving limited expertise in the UK.

So what can change things? Much of the problem is due to a slew of IPOs, such as Ocado, Promethean and Betfair, where growth expectations have failed to materialise, sparking institutional scepticism and risk aversion.

“One big deal and the floodgates will open. Eventually a private equity house will agree to take a discount and if you get that sentiment will change,” says another banker.

The law firm DLA Piper yesterday produced a report suggesting that bankers’ fees on IPOs should be tied to the aftermarket share price rather than the issue price, which might not be sustainable. That might be one way forward.

Whatever the solution, London cannot afford for this impasse to go on for too much longer.

Meanwhile over at Bank of America Merrill Lynch, Simon Mackenzie-Smith has a big job on his hands right now. Mackenzie-Smith, a veteran of the industry known affectionately as SMS, finds himself needing to shore up a recently denuded UK corporate broking team that last week was stunned by the departure of its head, Mark Astaire, to the massively ambitious Barclays Capital.

Friends says Astaire’s head was turned not just by the size of the package but by a sense of real momentum at BarCap. He was thought to have been also courted by HSBC for what most think will be his last big City job.

His departure comes on top of the enforced exit of Andrew Osborne, a good friend of Astaire’s, who fell foul of the regulators on the Punch Taverns’ £375m fund-raising, and also that of Simon Fraser, who fell for the charms of farming instead of broking after a couple of decades in the industry.

Merrill Lynch is said to be interested in making some hirings to boost its team, which is in desperate need of broking experience. Ed Peel, one of its most exciting prospects, is still learning the ropes after a career at Nomura in equity sales. Merrill will need loyalty and more than a little luck to persuade its 29 FTSE 100 broking clients to stick with the firm during what is clearly a difficult time.

david.hellier@cityam.com