London is headed for its weakest quarter for IPOs in thirteen years as market turbulence gives investors the jitters and UK firms shun the capital following a series of high profile flops.
The first quarter is set to be the weakest for IPOs since 2009, according to Bloomberg data, as war in Ukraine and soaring inflation has sent markets into a spin and caused companies to pull back from planned flotations.
The data comes after the world’s biggest law firm Mishcon de Raya recently abandoned its planned IPO in London for a second time earlier this year, and firms that floated last year to much fanfare in London such as THG and Deliveroo have had a torrid time on the public markets.
Last year was a blockbuster year for IPOs in the capital as total value hit $9.9bn, but flotations in 2022 so far have hit just $0.5bn.
Analysts have said a plunge in IPO volume was to be expected amid the turbulence in the markets.
“The successful launch of an IPO depends to some extent upon market conditions and, in particular, investor confidence,” said Paul Jackson, Global Head of Asset Allocation Research at Invesco.
“When stock markets are falling, it is more difficult to persuade potential investors that buying an IPO will be a profitable venture, especially in the short term. Hence, demand for IPOs is reduced when markets are volatile.
“Further, companies looking to launch an IPO will prefer to wait until the market recovers, partly because they do not want their IPO to be a failure but also because they will feel the market now undervalues their company.”
But the fresh data today strikes a blow to Government ambitions to paint London as a premier destination for firms to go public.
Ministers have been looking to woo more firms into floating in the capital in recent months, with city minister John Glen courting a number of fintechs at Downing Street in February in an attempt to persuade them into a London listing.
Lord Hill, the former European Commissioner for Financial Stability, was also called in by the Chancellor to oversee a review of the UK’s listing regime with the view of tempting more firms to come to market in the capital.
The capital’s listing regime has suffered a damning series of rejections in recent months as UK firms look overseas to float.
The Japanese owner of British chipmaker Arm is lining the firm up for a New York listing after a takeover bid by rival Nvidia fell through.
Softbanks’ boss Masoyoshi Son said the Nasdaq was the favoured destination for a flotation due to the high valuations it would fetch the firm and the unparalleled access to investors.
Private equity giant CVC capital partners is now said to be eyeing up Amsterdam as its favoured destination for a flotation, after tech firm GP Bullhound similarly opted for Amsterdam to float a special purpose acquisition company (SPAC) there earlier this year.
GP Bullhound told City A.M. that investors need to change their mindset if London is to become a globally prominent destination for flotations.
“At the moment, there are still some challenges that London needs to address if it is to be the most desirable listing destination,” Manish Madhvani, Co-founder and Managing Partner at GP Bullhound said.
“So much great work has gone into creating unicorn companies and global household tech names – which we then eventually lose to the US markets. That is a core problem that needs addressing and we need to change how we perceive loss-making businesses.”
Madhvani said the UK would continue to lose firms overseas without addressing the mindset, adding that investors need to get “braver” in backing high growth businesses.