The conditions for London’s IPO market are worsening, with fundraising totals falling short of those from less prominent markets.
In London, initial public offerings have dropped by roughly 9% this year, amounting to about $1 billion. This decrease has positioned the UK in 20th place in a global IPO ranking, according to Bloomberg data available until the end of November.
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Countries like Oman, which is only 1% the size of the UK market, along with Malaysia and Luxembourg, have now surpassed London in IPO activity. This is a notable change from just a few years back when London was consistently among the top five global IPO hubs.
The current standings reveal the considerable obstacles the UK faces: low valuations, a hesitant local investor base, and growing competition from other financial centers. Despite recent updates to its listing regulations, both investors and industry experts contend that further actions are vital to rejuvenate the historic exchange.
So far this year, around a dozen companies have launched IPOs in London, with the largest one raising just over £150 million ($191 million). None of these listings made it to the global top 100, as countries like Greece, Sweden, and South Africa had larger offerings. In addition, several billion-dollar public offerings have occurred on major exchanges in the Middle East, as more nations strive to have their leading companies listed domestically to bolster their capital markets.
“Governments are actively trying to attract more companies, intensifying competition,” remarked George Chan, EY’s global IPO leader based in Shanghai. “Without alterations to the landscape, it will take a considerable amount of time for the UK to regain its premier status.”
Emerging Successes
IPO activity this year has been largely focused in the Middle East and Asia, which together account for over half of the total fundraising, featuring five out of the ten largest deals worldwide.
Last month, Talabat Holding Plc, a subsidiary of Delivery Hero SE, wrapped up a $2 billion IPO in Dubai, marking it as the largest tech IPO globally this year. In October, Lulu Retail Holdings Plc completed a $1.7 billion offering in Abu Dhabi, while an affiliate of Oman’s state oil company raised an additional $2 billion.
Asia has also seen impressive offerings, such as Tokyo Metro Co’s $2.4 billion IPO in October and Hyundai Motor Co’s flotation of its Indian subsidiary valued at $3.3 billion.
“London, like other European markets, is now under greater competition from domestic markets than it has faced in the past 8 to 10 years,” noted Chris Laing, HSBC Holdings Plc’s head of equity capital markets for Central and Eastern Europe, the Middle East, and North Africa.
Gaining Valuations
An illustrative case of this trend is ADES Holding Co, a Middle Eastern oil and gas driller that debuted on the UK market in 2017. Its market value halved by 2020, falling below $400 million, leading to its privatization in 2021 by a consortium linked to the Saudi sovereign wealth fund.
Since then, ADES has experienced substantial expansion, reintroducing itself on the Saudi market last year with a valuation of about $5.5 billion, and trading at 24 times its projected earnings—essentially quadrupling its worth since its time in London. Today, around $30 million worth of its stock is traded daily, over 100 times its average volume during its last year in London, and it now attracts double the number of research analysts.
Although IPO numbers have decreased, the UK stock market is witnessing a significant fall in listings because of mergers and acquisitions, occurring at the fastest pace in over a decade.
According to Bloomberg, around 45 companies have exited the London exchange this year through mergers and acquisitions— the most since 2010. Most of these are mid-cap firms with low analyst coverage and trading multiples that lag behind their competitors in other markets.
Such favorable valuations have attracted significant interest from major private equity firms. KKR & Co has implemented two buyouts of London-listed companies this year, acquiring a smart metering firm and a network management software provider for utilities. EQT AB has also completed two deals, joined by Brookfield Asset Management, CVC Capital Partners Plc, and Fortress Investment Group, all privatizing UK companies.
Contraction of the Market
Many companies have opted to leave the London market, pointing to a lack of liquidity. Recently, food delivery service Just Eat Takeaway.com NV confirmed its decision to delist from London in favor of a single listing in Amsterdam. This week, Ashtead Group Plc announced plans to shift its primary listing to the US, branding it as the “natural” long-term venue for the construction equipment rental company.
Activists are pushing for other companies to follow suit, with Palliser Capital escalating its calls for mining company Rio Tinto to drop its London primary listing. Firms like travel group TUI AG and pharmaceutical company Indivior Plc have already exited their UK listings or moved their main stock quotes to other markets.
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At a conference this month, CS Venkatakrishnan, CEO of Barclays Plc, commented that the UK equity market has been undergoing “structural decline for over 30 years,” partly due to the risk appetite of local pension funds. He humorously expressed a desire for “more dynamic” firms on the London exchange as opposed to a bank with a history spanning three centuries.
Meanwhile, promising tech startups that London aims to attract are looking to other markets. Nik Storonsky, CEO of fintech firm Revolut, recently mentioned his preference for an IPO in New York, dubbing the London market “far less favorable” and saying it would be “irrational” to list there. His remarks come after chip designer Arm Holdings Plc, located in Cambridge, England, opted for a US listing last year.
Companies are avoiding the London market due to inadequate valuations, according to Liad Meidar, managing partner at Gatemore Capital Management. The number of companies that have delisted from the London exchange for various reasons this year has now surpassed the number of IPOs by over tenfold, according to Bloomberg. Additionally, UK-focused equity funds have endured 41 consecutive months of net outflows through October, only managing to return to net inflows in November, as reported by Calastone Ltd.
“There’s stagnation in the UK—the outlook on capital markets is detrimental,” Meidar noted. “Global investors find it easier to access capital in the US market.”
Consolidation in Brokerage
The sluggish state of London’s IPO market and the declining number of UK-listed firms have adversely affected local advisory firms that facilitate capital raising and investor relations. Shore Capital Group Ltd., a UK corporate broker, reported a striking 69% drop in pretax profits within its capital markets division for the first half of the year. Another competitor, WH Ireland Group Plc, sold off its capital markets business in an attempt to regain profitability.
These challenges have spurred increased consolidation in the sector, while several firms are broadening their service offerings. Peel Hunt Ltd. has highlighted the proportion of its revenue derived from mergers and acquisitions as its trading operations have slowed recently. Panmure Liberum has initiated debt advisory services and established a specialized team to assist firms in acquiring private capital.
However, industry analysts suggest that the outlook isn’t completely negative. Equity capital markets are still robust beyond IPOs, with total share sales and rights offerings witnessing a 60% increase this year to $30.8 billion, according to Bloomberg data. London has also attracted some international listings, even if they did not involve capital raises. In August, CK Infrastructure Holdings Ltd., based in Hong Kong, achieved a secondary listing, while French conglomerate Vivendi SE plans to spin off its pay-television unit Canal+ SA on the UK exchange this month.
The fast-fashion brand Shein is considering a London IPO as early as 2025 after previously experiencing difficulties listing in the US. Other companies, including Canopius Group, an insurer at Lloyd’s of London backed by Centerbridge, are reportedly targeting a £3 billion valuation for their planned listings for next year. Furthermore, the private-equity-owned consumer credit company Newday is contemplating a London share offering in the latter half of next year, which could value the firm at over £1.5 billion, according to informed sources.
A spokesperson for the London Stock Exchange Group Plc stated that IPOs are not the only measure of the health of UK capital markets, claiming that the overall volume of primary stock offerings exceeds that of other European exchanges.
“We remain optimistic about the influx of companies preparing for IPOs and anticipate increased activity following the implementation of the new listing regulations earlier this year,” the representative stated.
The UK government is actively working to revitalize the market. This year, it introduced the most significant updates to listing rules in over 30 years, enabling the formation of dual-class stock structures to attract more tech firms. Plans are also in place to allow greater flexibility concerning major transaction disclosures. Prime Minister Keir Starmer has vowed to remove regulations impeding economic growth in a bid to assure international investors.
Alexandra Jackson, a fund manager at Rathbones Group Plc, remarked that limited fund inflows into the UK are hindering the execution of IPOs. Listing candidates are likely to wait for more favorable conditions before attempting an offering, although she observed that investors are keen to finance promising businesses.
“While there isn’t an abundance of candidates currently in the pipeline, we hope to see more emerge,” Jackson said. “We need to reignite enthusiasm in the UK.”
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