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With some trepidation, I made my way more carefully into the office this morning, being Friday 13th after all. It is certainly a bad day for London’s Initial Public Offering (IPO) market, with another exciting UK company heading overseas for its main listed marketplace.
Revolut boss Nik Storonsky has stated he would not list his business in the UK but would likely go to New York, stating that in his view the London market is “much worse” than global peers and therefore it is “not rational” to list there. Storonsky said the London-based banking company would consider a public debut “sooner or later” to raise cash and return money to shareholders in what could be a blockbuster IPO.
He argued the UK market “can’t compete” with the liquidity offered by the US, given the stamp duty charged on buying shares. “If you look at trading in the UK, you always pay a stamp duty tax which is 0.5 per cent. I just don’t understand how the product which is being provided by the UK can compete with the product provided by the US,” Storonsky told reporters. “If I get a better product from the UK, I’ll list in the UK, but so far if you just compare these products, one is far ahead than the other.” Pretty damning comments.
This news follows the decision by Cambridge-based chip designer Arm Holdings Plc to list in the US last year. The new Lord Mayor of London Alastair King said on Monday that the government should “look again” at the duty.
Fundraising from London initial public offerings has declined 9% this year to $1 billion, pushing the UK four spots lower to 20th place in a ranking of global IPO venues, according to data compiled by Bloomberg through the end of November. It has been leapfrogged by upstarts including Oman, a market that’s 1% the size of the UK, as well as Malaysia and Luxembourg. That is a big change from just a few years ago, when London would regularly feature among the top five venues globally.
The rankings show the depth of the challenges for the UK as the market has been undermined by low valuations, a risk-averse pool of local investors and growing competition from other financial centres.
Roughly a dozen firms have listed in London this year, with the largest raising just above £150 million ($191 million). The city didn’t have any listings among the top 100 globally, with Greece, Sweden and South Africa all hosting bigger offerings this year. A number of billion-dollar share sales have also come to major Middle Eastern exchanges as more countries seek to have national champions list at home to deepen their domestic capital markets.
While IPO volumes have been thinning, takeovers are shrinking the UK stock market at the fastest pace in more than a decade. Around 45 companies have left the London bourse this year due to mergers and acquisitions, according to data compiled by Bloomberg. That is the highest tally since 2010. Many of them are unloved mid-cap companies that have little analyst coverage and trade at low multiples compared to their peers in other markets.
These relative bargains are attracting interest from blue-chip private equity firms. KKR & Co. completed two buyouts of London-listed companies this year, snapping up a smart metering firm and a maker of network management software used by utilities.
Others have been leaving the London exchange after complaining of low liquidity. Food delivery group Just Eat Takeaway.com N.V. said in November it will delist from London and shift to just an Amsterdam listing. Ashtead Group Plc announced this week it will move its primary listing to the US, calling it the “natural” long-term venue for the construction-equipment rental company.
Activists want other companies to follow suit, with Palliser Capital recently ramping up demands for miner Rio Tinto to give up its London primary listing. Travel group TUI AG and drugmaker Indivior Plc are among firms that have already dropped their UK listings or shifted their main stock quotation to other markets.
Interestingly, Barclays Plc Chief Executive Officer C.S. Venkatakrishnan said at a conference this month that the UK equity market has been in “structural decline for over 30 years,” in part due to domestic pension funds’ risk appetite as they fail to buy local equities. Investors are also following suit with UK-focused equity investment funds recording 41 straight months of net outflows up to October and only returned to net inflows in November on slight relief on the way the chancellor was treating the junior UK market with regards to IHT relief.
Mark Garnier, the Conservative Member of Parliament and shadow City minister, said the government needs to double down on supporting the financial services industry with things like tax rule changes. “There’s no doubt about it, these numbers are worrying,” Garnier said. “The question of how we deepen City liquidity pools, attract more companies to list, and hike valuations is one that needs to be addressed — quickly — to maintain the UK as the world leading finance centre.”
Bankers might point out it’s not all doom and gloom. Fast-fashion giant Shein is preparing for a potential London IPO as soon as early 2025, but only after it previously failed to list in the US.
Perhaps with Trump’s potential tariffs threatening trade on products globally, the more services led UK economy can start to flourish once more. Prime Minister Keir Starmer has vowed to scrap regulations that are holding back economic growth as he seeks to soothe international investors, and certainly more does need to be done. UK authorities implemented the biggest overhaul of listing rules in more than three decades this year, making it easier for companies to have two classes of stock in a move aimed at attracting more tech listings. They’re also offering more flexibility on disclosures of significant transactions.
There should be an increased focus on getting Britain’s young and exciting new companies to list in the UK, rather than heading overseas, yet with a lack of flexibility in how executives making these decisions are compensated, this continues to be a difficult sell. The UK market is trading at a fraction of the valuation of its US counterpart, but it is easy to see why and with a gloomy outlook post the UK budget, you are struggling for reasons to get excited about increasing exposure to UK Equities. However, having invested in this market for more than 40 years, that is often exactly the point that one should start buying! Do have good weekend.
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