Bankers are gearing up for a burst of London IPOs next year after a rebound in the UK’s equity capital markets led to nearly $7bn in funds raised over the past four months.
The pandemic brought the market to a screeching halt, setting up what looked like an even slower year than 2019, which was overshadowed by Brexit jitters and a general election. In the first eight months of 2020, only a handful of companies floated their shares.
Activity has come back to life since September, however, with companies raising $6.7bn on UK markets, Dealogic data show. The $7.4bn annual total has eclipsed last year’s $6.9bn as companies such as The Hut Group and music publisher Round Hill Music Royalty Fund floated their shares.
Brighter expectations for the global economy sparked by the rollouts of coronavirus vaccines and successive rounds of government and central bank stimulus are expected to unleash pent-up demand early in 2021, said Tom Johnson, head of equity capital markets for Europe at Barclays.
The first six months of 2021 have the “potential to be the busiest first half for quite a few years in the UK”, he said.
Activity in London remains tepid by historic standards: the average annual value of deals in the UK between 2010-2019 was $14bn. And London’s 2020 listings have been dominated by a clutch of large IPOs, including The Hut Group’s $2.4bn float, and reinsurance company Conduit’s $1.1bn deal.
Still, the bounce back towards the end of 2020 offers a promising sign that companies can access this type of financing and that some have been waiting to pounce.
“We lost the first half of the year to Covid-19. The second half of the year has surprised people to the upside,” said Gareth McCartney, head of European equity capital markets at UBS. Listing activity picked up as the equity market and valuations rebounded from March lows, he added.
Bruce Garrow, co-head of corporate broking at Investec, said companies had been deterred from listing this year by the difficulty of proving to potential investors that their growth was sustainable and not simply the result of a pandemic bounceback. This has been “a better year than many would have anticipated”, albeit without a “stampede of deals”, he added.
Mr Johnson said the first wave of transactions in 2021 was likely to be dominated by companies that had been especially resilient throughout the pandemic, such as tech groups.
Despite the looming uncertainty of Brexit, London had the most IPO activity, by deal proceeds, of any listing venue in Europe each year since 2015, except in 2018 when Germany clinched the top spot, according to Dealogic. However, the UK is still dwarfed by Wall Street, which has attracted $160bn in IPOs this year, and China at $54bn.
London is “the market that has become and will continue to be the home for international companies looking to list in Europe,” said Mr McCartney. Companies are drawn to the City’s large and liquid investor base, and strong corporate governance standards, he added.
For some companies, choosing where to list is obvious, based on factors such as where their revenues are generated. Others are more agnostic about their venue. In the face of Brexit, those that might traditionally have chosen the UK capital “are being more analytical in making that choice,” said Mr Johnson. Although London is still dominant, Amsterdam is “an emerging competitor”.