Brexit uncertainty casts shadow over London IPO market

UK IPO activity has seen a decline in volume and value in the third quarter by 47 per cent and 71 per cent respectively, according to the latest EY IPO Eye.

The global accountancy firm said Main Market saw eight IPOs, which raised £780m, while five flotations on the AIM raised £257m in total.

This compares with the last quarter, Q2 2018, which had a total of 17 IPOs (Main Market – six, AIM – 11) and the same quarter last year, Q3 2017, which had a total of 30 listings (Main Market - 14, AIM – 16).

According to the EY report, the low deal volume and proceeds largely reflects the lack of investor appetite for IPOs in a volatile and uncertain market combined with the continued low value of the British pound.

Financial services was the most active sector by deal number, claiming 6 of the 13 IPOs on UK exchanges in Q3 2018 and raising £743m.

Cross-border activity in the UK market boosted IPO volumes and proceeds this quarter, with companies coming inbound from the Philippines and the Netherlands to list on UK exchanges. London’s Main Market and AIM exchanges secured the 10th spot among the top 10 stock exchanges globally by volume and by proceeds and were ranked fourth for cross-border IPOs in YTD 2018.

Mike Timmins, EY Scotland’s IPO leader, said: “Brexit uncertainty continues to cast a shadow over the London market making it hard to predict how IPO activity will unfold over the next few months.

“IPO candidates are keeping an open mind when it comes to exit strategies, which can lead to lower IPO volumes in 2018. For example, companies considering an IPO have accepted an acquisition offer instead, either from corporations looking to add to their portfolio, or from cash-rich PE firms. However, the market has responded well to those that chose to list. Overall, recent IPOs had positive first-day returns and some very strong performances post-listing continue to demonstrate the quality that London Main market and AIM present to investors.”

Despite ongoing geopolitical uncertainties and trade issues, IPO activity levels in the first nine months of 2018 (YTD 2018) are significantly above the 10-year median in volume and proceeds raising US$145.1b, a 9% increase year-on-year. In Q3 global IPO activity was lower than in the previous quarter and significantly down from Q3 2017 volumes. However, an increase in unicorn IPOs in Q3 2018 pushed YTD 2018 global IPO proceeds 9% above YTD 2017.

Mr Timmins added: “Although the UK backdrop remains uncertain, from a Scottish perspective, we continue to see a relative uptick in the number of Scottish IPOs in recent years.

“There is a clear resilience in Scotland’s businesses with growth ambitions and, while Brexit is clearly a factor, many are looking to the public markets as a viable option for the next source of capital. The continued strong performance of our more established AIM companies provide excellent role models.”