IPOs - A tale of two cities

By Adam Lloyd

New York and London are home to two of the world’s most important stock markets and both continue to play a central role in providing the finance needed to keep the world’s commercial and economic wheels turning.

Despite being united by a common language with many economic, political, and governance similarities between them, the  U.S. and the U.K stock markets are probably notable as much for their differences as their similarities. These differences are no more evident than the stark contrast in the listing of new entrants - IPOs (Initial Public Offerings).

In the US it has been a bumper year for new issues, despite the pandemic and all the uncertainty Wall Street has been booming with over 190 IPOs which in total raised a phenomenal $68 billion of new money. That’s the most since 2014 and the second best year for almost a decade. Not only that, had an investor bought shares in all the US IPOs at their issue price they would be sitting on a very healthy return of 80-90%.

By contrast the London market, be it the Main market or AIM has been very slow for new listings. According to the London Stock Exchange there have been 26 companies that have launched an IPO in London since the start of 2020, 14 on the UK Main Market and 12 on AIM. Those IPOs have collectively raised £2.16 billion (£1.92bn Main and £0.24bn AIM) and had a combined market cap at listing of £9.24 billion (£8.2bn Main and £1.04bn AIM).

The reasons for the often opposing fortunes of the London and New York markets have a been a subject of long standing debate but in recent years the UK has been dealing with prolonged uncertainty caused by Brexit (2016), three general elections (2015, 2017 & 2019) and now the pandemic. As bad as 2020 might seem for the London IPO scene, 2019 was actually worse.  Even though uncertainty is likely to continue for the foreseeable future the outlook for new market entrants is improving. The pace of listings picked up noticeably in September and there are now at least 14 IPOs pencilled in for early 2021, the largest of which appears to be Darktrace, a cyberspace AI business which is targeting a valuation of £3.8 billion for its London listing. That figure is undoubtedly an underestimate as it is typically the case that only the larger issues flag their intentions early to drum up support.

So the outlook for 2021 is encouraging, even though there are things that can still happen to derail that optimism. With vaccines being rolled out, Brexit negotiations concluded, whatever the outcome, and the economy able to start its recovery we should be in for a better year in 2021 than the previous two.

A big uptick in the London market’s IPO activity will mean a lot more deals for investors to consider and with plenty to choose from they are likely to be as careful with their decisions as ever. The key for all those eager businesses, looking to begin their life as a publically listed company, will be to make sure their story is a compelling one that stands out. Companies stepping on the IPO escalator will need to ensure they appoint the right advisors and get their brokers and financial PR on board early to get them ready for the big marketing push. A strong and properly communicated investment case with a clear vision and a strategy for delivering will be vital in separating the successful IPOs from the rest. 

Here’s to 2021.