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Is the London IPO Market Dead?

With three companies scrapping IPO plans in quick succession, should investors be concerned?

  • Joe McGrath

At the beginning of November, two companies intending to float on the London Stock Exchange pulled their initial public offering at the eleventh hour.

Arqiva, a provider of wireless towers in the U.K., cited “market uncertainty” as its reason to not proceed, while Bakkavör, a supermarket ready-meal supplier, referenced “volatility in the IPO market.” Both decisions came a few days after outsourcing group TMF decided against listing in favor of being purchased by a private equity firm.

With the three companies having shelved plans to list in quick succession, London’s Evening Standard suggested that hedge funds had lost their appetite for new floats. The report followed an August study from Moore Stephens which stated that the number of technology companies listing on the London exchange’s Alternative Investment Market had fallen since the U.K.’s vote to leave the European Union.

[II Deep Dive: U.K. Tech IPOs Nearly Halt as Brexit Looms]

In the third quarter, however, the LSE hosted 16 IPOs, raising $1.7 billion and tying with Bombay’s stock exchange as the busiest exchange by deal flow, according an EY report charting IPO trends. The $1.7 billion in proceeds made it the third highest exchange by proceeds in the third quarter, after the Swiss Six Exchange and Bombay. And, according to the report, the U.K. pipeline for IPOs “is looking strong” for both the AIM and smaller main market listings. Still, EY suggested that U.K. IPO activity was likely to now “remain slow until the end of the year” while companies wait for “political instability” to decline.

Alasdair Haynes, chief executive officer at the Aquis Exchange, told Institutional Investor that this so-called political instability likely included a lack of clarity on cross-border investment regulations following the U.K.’s decision to leave the European Union.

“When people talk about the volatility of the IPO market, it is purely down to uncertainty of where people have to be, given the passport rules,” he said. “If there were a transition deal or certainty about the post-Brexit environment, that would bring more strength to the IPO market.”

The large amount of activity in the market and the abundance of choice could also be factors affecting investor interest in IPOs, according to Antony Isaacs, head of equity capital markets at investment bank Canaccord Genuity. “The smaller, high-growth businesses who are operating in high-growth industries with good differentiation are what investors are getting excited about,” he said. “We are still seeing a lot of appetite and interest from small- and mid-cap investors in the UK.”

Haynes agreed with Isaacs’ view, adding that investor appetite for U.K. listings remains strong, despite companies recently choosing not to list. He said London would remain dominant for companies coming to market in Europe, with investors likely to be “very supportive” of IPOs over the long term.