The crippling drought plaguing London’s stock market has seen just five new listings in the third quarter, but advisers see market momentum building in the Square Mile and around the globe.
A total of £359.8 million was raised from flotations on the London Stock Exchange in the three months to September 30, taking the total to just over £1 billion for the year to date's 23 newcomers.
Flotation fundraising in the past quarter was down 36% compared to the same period in 2022 when eight issuers raised £565.5 million, according to an analysis by Ernst & Young, and down 37% for the year to date.
The largest IPO in the third quarter went to fintech platform CAB Payments Holdings PLC (LSE:CABP), which raised £291.5 million in a main-market listing in July.
Only one other main-market listing occurred in the quarter when RegTech Open Project PLC (LSE:RTOP) debuted on a £60 million valuation via a direct listing, where no new money was raised.
The AIM growth market saw three admissions drum up a total of £13.3 million, with the most recent being Tribe Technology PLC, the Northern Ireland-based designer of autonomous mining rigs, which raised £4.6 million.
Elsewhere, Metals One PLC (AIM:MET1), which raised £2.2 million. Metals One’s shares rose to a quick premium such was the paucity of new arrivals this year, while Tan Delta Systems PLC (AIM:TAND), a specialist in real-time equipment monitoring and data analysis, also saw its shares move to a first-day premium following its £6 million debut in August.
Reasons for optimism?
Despite the lacklustre quarter, Scott McCubbin, EY’s IPO leader for the UK and Ireland, believes there are plenty of reasons to be positive.
“Several companies which had delayed their IPOs earlier this year are now making plans to be ‘IPO ready’ for when headwinds ease,” noted McCubbin.
“Furthermore, there is an uptick in activity in the US IPO market, which normally has a positive knock-on impact in other markets, so we anticipate a rebound in activity in 2024.”
In the US, third-quarter IPOs have included Arm Holdings and Instacart (NASDAQ:CART), with Birkenstock also due to step statewards shortly.
But London “still has the fundamentals required to be an attractive global destination to list”, McCubbin contended, citing a strong global financial advisory sector, a well-regulated stock exchange and a liquid investor base.
Furthermore, the Financial Conduct Authority’s efforts to streamline and simplify the listing regime is a welcome move, though McCubbin is hoping for a pragmatic touch.
“It is important that we strike the right balance between reducing red tape while continuing to safeguard protections for investors and other stakeholders,” he said.
Global IPO activity momentum builds
EY’s data set shows that globally, the first three quarters of 2023 recorded 968 IPOs with US$101.2 billion of capital raised, a respective 5% and 32% decrease year on year.
But “market momentum is building”, said EY, with the third quarter “witnessing a notable improvement in post-IPO share price performance compared with previous quarters”.
The Americas experienced a robust performance, boasting a 159% surge in proceeds and accumulating $19.3 billion year on year in the first three quarters of 2023.
This was, of course, weighted heavily to SoftBank’s IPO of British semiconductor designer Arm Holdings PLC (NASDAQ:ARM), which raised nealt $5 billion alone.
In contrast, Asia-Pacific saw an 8% decline in volume and a 41% drop in proceeds in the same period.
EMEA recorded 286 IPOs, bringing in $21.9 billion, marking a 2% annual increase in volume but experiencing a 44% cut in proceeds.
Tech dominated IPO activity in the first nine months, though the sector would have actually seen a decline in proceeds if not for Arm’s blockbuster IPO. Industrials came in second.
Debbie O’Hanlon, EY’s private leader for UK and Ireland, commented: “Tighter liquidity and the rising cost of capital means investors are turning their attention to companies with strong fundamentals including a robust balance sheet and healthy cash flow.
It is vital that IPO candidates are agile with business models and can demonstrate financial health and the potential for value creation.
An understanding of ESG concepts and the ability to embrace new technologies will also be important to safeguard their business post IPO.”