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What the London market needs, mused one banker at an event last year, is one or two sizeable listings where the shares perform strongly. That, he added, “may be fantasy”.
It certainly was last year. Initial public offering activity slipped to more than a decade low globally amid fears of a recession. With US markets at record highs and growing confidence that economies can skirt a slump, 2024 is shaping up better — though not perhaps in London.
Just $120bn globally was raised from IPOs in 2023, according to S&P data, the lowest in at least a decade. Global figures were flattered by buoyant markets such as the Middle East and China. Just $24bn of new shares were sold on the US market, down from $200bn in 2021. Softbank’s Arm accounted for more than a fifth of the total.
London managed just over $1bn, having lost the former UK-listed chip designer to New York. Listing and governance rules are being reformed to boost UK market competitiveness; there are attempts to refocus pools of capital, such as pension funds, on the domestic stock market.
Arm shares, despite ups and downs, are trading well above the listing price. US housebuilder Smith Douglas kicked off this year’s IPO efforts stateside this month; its shares are still about 15 per cent above the listing price.
Longer term, this is more the exception than the rule. An analysis of 1,700 US IPOs over the past decade shows that just 39 per cent of those still listed trade above their listing price. The same figure for 400 UK IPOs analysed by Lex over the period is that about a third are higher today.
Figures for the IPO boom year in 2021 make tougher reading. Only 12 out of 100 UK deals where data is available are trading above their debut price. That doesn’t include companies such as furniture maker Made.com, which has since folded. The US crop has fared better with 42 per cent above their listing prices today. Neither cohort has done well overall: average performance was down about 38 per cent in the UK and 33 per cent in the US.
One issue for London may be who is trying to raise money and for what purpose. UK listings are more likely to include a secondary share sale, where existing shareholders sell out. Over the past decade, 40 per cent of London IPOs included this compared to just 12 per cent in the US.
Investors can be wary of listings that look to take money off the table, rather than raise funds for future growth. Deals in London also came with larger secondary share sales, perhaps to generate a bigger free float. On average, these accounted for a fifth of shares issued, against 5 per cent in the US.
The risk is that quality leads quantity lower. London’s IPO market still appears to be in a vicious circle that will be hard to break.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
