UK listings fall as economic uncertainty rises in Brexit build-up
IPOs are in decline in the UK as Brexit fears combine with new regulations and a rise in takeovers and alternative sources of capital push more companies to leave the market than currently enter it.
A report by London-based consultancy Richard Davies Investor Relations (RD:IR) identifies several causes, including the need for increased legal support before and after going public, the likelihood of takeovers from more powerful competitors and companies going private to avoid arduous interactions with the market.
The report states that the London Stock Exchange acted for 3,274 issuers across its main board and Alternative Investment Market at the end of 2007, of which 2,586 were UK-domiciled companies. The number across both markets has since fallen by almost 1,000 to 2,225, of which 1,795 are UK-based.
Mark Robinson, head of EMEA issuer services at RD:IR and author of the report, says the decline shows the market is exercising discernment over shares of greater fundamental value versus those of lesser quality.
‘I think what we’re seeing here is a real increase in quality in stocks of the FTSE 100, which ties in with the level of shorting going on now,’ he tells IR Magazine. ‘If people are looking to short, it’s because they think certain stocks are overvalued.’
The same cannot be said for other indices, however, as uncertainty around Brexit could result in companies pulling IPOs from the market. ‘The FTSE 250 is a bit more difficult,’ Robinson continues. ‘The Brexit effect means there will be bets against that index and companies will struggle to list and attract the best quality people.’
He advises IROs of UK-domiciled firms to take an ultra-vigilant approach to managing market expectations while pervasive uncertainties around the impact of the UK’s withdrawal from the EU are ongoing.
‘Communicate with the market. Don’t hold on to news,’ he suggests. ‘If you have a negative view of the company, don’t shy away from the short-sellers and the hedge funds. They can see where you’re going wrong and potentially turn around what you’re doing. But if a short-seller doesn’t want to talk to you, that’s not good.’
World Bank figures quoted in the report show that the UK equities market is by no means an outlier among many countries broadly, both inside and outside of Europe. From 1999 until 2017, the number of US-listed issuers fell by 40 percent, while issuers listed in France or Germany dropped by 59 percent and 27 percent, respectively. Robinson says that across Europe, the trend of decline in equity issuer markets shows few signs of abating. He adds that the cost of debt is at historic lows, adding another factor to the fall in the number of listed companies.
Japan and Sweden are anomalies to the global trend. The number of listed issuers in Japan grew by 90 percent from 1999 to 2017, the report states, due to domestic consumption and a shrinking population from which the best young graduates are increasingly poached by listed firms. Meanwhile, Sweden’s issuers have grown by 37 percent on the back of firms backed by private equity and venture capital offering private investors an easier exit.