SUMMARY: The UK’s IPO landscape reflects subdued activity, with London’s appeal for tech firms facing challenges amidst doubts regarding market suitability. Despite government efforts to stimulate IPOs and potential for retail investor participation, there’s a need for a conducive environment to sustain London’s tech hub status. Private equity and regulatory updates offer alternatives, yet cultivating investor confidence remains pivotal for London’s listing attractiveness.
According to a recent report published by Ledgy, research reveals that 72% of UK tech firms prefer London for listing over overseas exchanges, seemingly reaffirming London’s appeal for IPOs.
However, recent challenges, exemplified by ARM’s Nasdaq listing, have prompted doubts about London’s tech market suitability, particularly due to investor reluctance towards tech firms. Even IPOs like Deliveroo and The Hut Group faced value struggles post-listing, raising concerns about London’s efficacy for maintaining company value. While initial aspirations favour London, practical concerns about post-IPO performance may alter perspectives, indicating a nuanced evaluation of the UK’s tech listing landscape.
Trends in the UK IPO Landscape
In general, the UK’s IPO landscape appears subdued, with fewer flotations on the London Stock Exchange since 2008/2009, and 21% of companies deprioritizing IPO plans, as noted by Ledgy’s report.
There have been government efforts to stimulate IPOs, including pension funds allocating 5% of investments to tech companies by 2030, which may further bolster investment prospects. Nonetheless, government initiatives such as these face key challenges. Among these challenges is a concern that the UK needs to cultivate a larger base of retail investors. These types of investors are often characterised as knowledgeable and supportive backers for innovative ventures, contrasting the traditional investment sectors. However, the growth of this investor community promises to be a gradual process.
Additionally, the slowdown of IPOs in the UK may be partially attributed to the prevailing macroeconomic environment, particularly concerning inflation and interest rates, which remain a crucial deterrent for companies considering IPOs. The softening of inflation and interest rates throughout 2024 are seen as necessary for a potential turnaround in IPO trends.
Regardless, Ledgy’s CEO, Yoko Spirig, sees potential for the London Stock Exchange to regain appeal for UK startups. Spirig suggests that constrained venture capital availability may prompt companies to focus on listing opportunities, potentially leading to more domestic IPOs.
As such, private firm confidence in stock exchange liquidity and growth capital availability remain crucial for sustaining London’s status as a leading tech hub. If IPOs become unfeasible, alternative avenues for growth funding should be assured in order to maintain London’s competitiveness globally.
Private Equity amidst Regulatory Reforms
Currently, businesses exploring growth funding (and exists) have alternatives including M&A deals or Private Equity, with the latter seen as a mature option in Europe, as many companies find private deals more appealing due to the time-consuming and costly nature of public listings.
Accordingly, efforts to streamline (and reduce the cost of) the listing process are underway, with the Financial Conduct Authority (FCA) proposing updates to listing rules to modernise London’s framework and attract more listings. Yet, remaining challenges include encouraging retail investor participation, with suggestions including regulatory changes and tax incentives, as well as ensuring a favourable valuation premium for IPOs.
The Road Ahead for UK Startups
Resultingly, while some UK startups prefer London listings, conducive conditions, supportive investors and future government initiatives are likely to be critical for their success.
Although the London Stock Exchange and its sub-market, the Alternative Investment Market, have made strides towards becoming a more welcoming option for UK tech startups, there remains a gap in the financial ecosystem which caters towards businesses looking for a straightforward and inexpensive growth funding or exit strategy which enables widespread investor participation.
