Against all the odds, the London IPO markets boomed in late 2020 and 2021, defying the uncertainties of Brexit and the pandemic to bring 126 new companies to market: 60 on the main market and 66 on AIM. In addition to the sheer volume of deals, there was an encouraging pivot to technology, as a raft of high-profile and high-growth tech companies found homes on the London Stock Exchange’s markets, with tech IPOs doubling in aggregate deal value compared to 2020.
London was not the only city riding the IPO wave, and competition from other markets is difficult to ignore. Domestic companies will not necessarily plump for their local market if they see the possibility of a higher valuation elsewhere. This was clear in February, when semiconductor and software giant Arm – a Cambridge based company – announced its intention to float on Nasdaq.
Similarly, Private Equity house CVC’s announcement that it was planning a Euronext listing in Amsterdam was seen as a missed opportunity for the capital.
So how much competition does London face from New York and Amsterdam, and will current and proposed reforms be enough to keep such competition at bay?
With the influx of tech stocks to London in 2021 – a record £6.6bn was raised in technology IPOs – the LSE’s balance of old-fashioned income investments and growth stocks is improving. Growth technology stocks have a greater opportunity to shine on the LSE’s markets than on Nasdaq, which is heavy with new technology issuers.
Although not all the major UK tech flotations were successful in the aftermarket, there are notable examples, such as Auction Technology Group, whose market cap has almost doubled since float and which used the proceeds from the IPO and subsequent further fundraising to buy a large US tech competitor (LiveAuctioneers).
Above all, London’s attraction as a prestigious listing venue with access to a deep pool of capital and stable investor base, underpinned by a mature legal and regulatory system, has not gone away. What’s more, the FCA and the LSE have a few tricks up their sleeves.
Recent and proposed reforms to the listing and prospectus regimes, to increase flexibility and simplify capital raising, will help London to fend off competition from the US and Europe.
The FCA has relaxed its rules for Premium Listing which prevented founders from protecting their position by way of shares giving enhanced voting rights. There are calls to further widen the scope for such protections, which are particularly popular with founder-led companies. It has also reduced the required percentage of a company’s shares which must be in public hands, to better align with competing markets.
The FCA has also removed some of the main obstacles to SPAC listings, which were a feature of the US markets last year. Although there is a fear that these tweaks to the listing regime may not be enough to reassert London’s position, more far-reaching reforms are under discussion. This includes proposals to expand concessions to the revenue track-record requirements for listing to enable more high-growth companies to access them.
The Treasury has also published the outcome of its prospectus regime review, setting out its plans to cut time and costs in raising capital and to level the playing field for retail investors. This will allow them to access equity in listed companies on the same basis as institutional investors. Amongst the government’s litany of so-called Brexit opportunities, divergence from the EU prospectus regime, if carefully executed, could be one genuine advantage for issuers raising capital on the London markets.
Ultimately, companies will list on the market that “fits” for them in terms of investors, geographic nexus, structure and corporate governance culture. However, the recent and proposed changes to London’s listing and public offer regimes make London more than a match for the competition.