Luxfer’s New York flotation shines light on London’s listing problems

David Hellier
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Another day, and another company that has its roots firmly in the UK decides to float in the US. In the past few weeks two companies normally associated with the UK market, Manchester United and Salford-based speciality metals group Luxfer, have chosen the US financial markets to list and raise new capital.

The latest figures for capital-raising in the UK as a whole against the US don’t make pretty reading for the London Stock Exchange.

In 2012 there have been a total of 32 London IPOs that have raised just $1.06bn, whereas in the US there have been 110 IPOs that have raised $38.9bn, according to the latest figures from Dealogic.

The London market does still seem to be able to attract resources-based groups. Glencore managed to successfully float in London last year and others look likely to follow, although the pace of share listings has definitely slowed.

There is also the current flotation of the insurance group Direct Line to lift the spirits, even though the valuation looks like being on the cheap side.

But in the broader market, and especially for what are known as growth companies, the London market is dead on its knees.

So why would a company such as Luxfer (its name is partly derived from the Latin word Lux, which means light) or the vacuum technology group Edwards, which pulled a London float last year only to go ahead in 2012 in New York, decide to cross the Atlantic to raise funds?

Easy, say bankers. The US has a wider investor base that understands growth companies and is prepared to give them much stronger valuations. Some say the multiples one can get in the US are three times valuations in the UK.

There were other issues associated with the Manchester United situation, whose US IPO was led by Jefferies. Here UK investors might have been less trusting than their US counterparts about the motives of the controlling Glazer family, but there is little doubt that US investors generally would have found United’s growth story highly plausible.

In addition, the US regulatory framework has eased with the introduction of new rules, such as Jumpstart Our Businesses, which allows companies to float less equity and produce accounts on a much more delayed basis.

Whereas US companies suffered from a regulatory handicap after the collapse of companies such as Enron and Tyco, UK companies are now the ones that complain they face the greatest regulatory burden.

But the UK market has also seen the necessary trust between the buyer and seller break down to a crippling extent. After a series of disappointing London IPOs such as Ocado, Debenhams and Betfair, UK institutions have taken the view that they are quite likely to be shafted by issuer companies and their advisers. The situation has only been made more tense by the emergence of independent private equity advisers whose job it is to advise sellers on getting the best possible price even if it means falling out with the book-runners in the process.

Such a state of affairs is deeply worrying for the London market and ways out of it need to be found quickly. London investment bankers, most of whom work for global banks, say almost universally that they cannot remember such a depressing period. Their banks usually get the business, wherever it goes. But they say that where the finance goes, the skills go too.