There is a lot of talk about companies being less keen to go public these days, but the 2018 global data does not prove this. Despite the downturn in global stock markets in Q4, 2018 as a whole actually saw positive momentum in global IPOs, with the total amount raised rising by 5% to over $200bn (FT 26 December 2018).
However, London does not appear to be getting a large slice of the IPO cake as the London Stock Exchange only had a 4% share of these funds raised. Our research shows that, in the second half of 2018, there were 22 IPOs on the Main Market, compared with 21 a year earlier. On the other hand, for the junior AIM market, only nine companies listed in the second half of 2018, compared with 32 a year earlier, according to our analysis.
And the reputations of both Main Market and AIM have come under some pressure. In the Main Market, the two bellwether IPOs at the end of the year, Aston Martin and Funding Circle, saw their share prices collapse. In AIM, several high profile names have come a cropper, with administrators appointed at Conviviality, the Serious Fraud Office investigating Patisserie Valerie, and even the high-flying darling Asos falling from grace with a year-end profit warning.
For companies already listed on the London Stock Exchange, this might give some pause for thought. With the UK stock market already overshadowed by Brexit uncertainty, will international investors give the UK a wide berth? Recent criticism of the UK Financial Reporting Council and of UK audit firms cannot have improved the UK’s standing here.
And for companies thinking about their future funding, the concerns might be even greater. Do you want to join a club that looks a bit discredited? In the UK, the burdens of corporate governance continue to increase for public companies, making PLC life less comfortable for directors. Furthermore, the Mifid ll regulation in European financial markets is already making it more difficult, particularly for smaller quoted companies, to get their story out to potential investors.
Yet perhaps life is not so bleak for quoted UK PLC. Brexit is creating its challenges, but the spoils look set to be shared amongst competing European cities, with none of these in a position to realistically challenge London as a global financial centre. In addition, recent regulatory moves have reduced the need for quarterly reporting in the UK, which should make it easier for both companies and investors to focus on creating value from a longer-term strategy. This is very different to the US, where quarterly reporting remains a quasi-religion. And do not forget that, with c. 50% of the FTSE 100 earnings outside the UK, the UK Stock Market continues to have unique attractions for global investors, with a much broader geographical footprint than most other exchanges.
Sure, as a quoted company under Mifid ll rules in the UK, you will have to work harder to get your story known to investors, but it looks likely that Mifid ll practices will be adopted by investors worldwide over time as it will undoubtedly save them money. And there is an advantage in being more in charge of your own messaging – there is less risk of the middle man getting it wrong!
With global Stock Markets seeing a sluggish start to 2019, it is unlikely that the IPO market, either in the UK or worldwide, will see much positive momentum in Q1. However, for quality companies with an attractive investment case, the UK has many attractions as the listing of choice. And as every savvy investor knows, when all looks doom and gloom, it must be time to step forward.