Is London’s IPOs drought nearing an end?

As the first half of 2023 enters its final weeks, there are signs that London’s 18-month IPO drought is about to end.

In recent weeks, the stream of new companies listing in London has turned into a more promising stream, with optimism fueled in recent days as two would-be entrants announced their intentions to go public, with mooted valuations around or above £1 billion.

City brokers are muttering that the number of IPO filings has increased significantly over the past month, with a growing pipeline of companies monitoring market conditions after putting plans on hold for the past year and a half.

Looking at the stats, there have been more than a dozen initial public offerings since early April, including four in the first few days of June.

In the secondary market, Proactive’s research recorded 20 fundraisers over the past month by existing listed companies totaling just under £40m, the largest being just over £6m, the smallest £250,000.

Of the IPOs, there have been 13 since the beginning of April with £491m of new money – although the numbers are skewed by two bigger outliers.

Excluding this pair, an average of £3.2m of new money has been raised so far in the second quarter.

So companies have access to capital – just not that much.

Three of the IPOs and exactly half of the secondary fundraisers would be described as having keep-the-lights-on amounts of less than £1m.

Secondary fundraising of £5 million or more for value-added or expansion projects was rare, with three in the last month.

Of the IPOs, two were between £1 million and £2 million, five were between £3 million and £8 million.

There are several reasons for this, analysts say: Companies and their lenders don’t want to issue stocks at low valuations, as this could significantly dilute investors.

The alternative is that institutional investors are so risk averse that the pool of capital on AIM and London’s main market is non-existent.

Geoff Nash, director at finncap, a small-cap broker merging with former rival Cenkos, says: “We believe that with the right investment opportunity and the right broker, funds can be raised, although the price may not be too attractive. ‘

Another small business financier, Jon Levinson of SI Capital, said the bottom of the IPO market has been like “pushing rocks uphill” over the past year.

Institutional investors want more mature companies that can stand on their own feet, he says, “but now is a bad time for more mature companies, because valuations are not crazy – so you need a few winners, then you get followers.”

A classic catch-22 situation for the Square Mile.

But there are signs of investor demand for some new issues, with the arrival of Admiral Acquisition, a blank check worth $550 million, and the £30 million raised by the Ashoka WhiteOak Emerging Markets Trust.

Then in the past week we heard plans to float from WE Soda and CAB Payments, with the former citing ‘significant interest’ from potential investors as it aims for a £6bn valuation, with the latter estimated to be looking externally is to at least a valuation of £800 million.

The improved momentum is supported by Nick Smith, general manager in the capital markets team at PrimaryBid and former director at Barclays Investment Bank.

Since the PrimaryBid platform provides access to IPOs and secondary fundraising events, including six deals since early May, the company has a good understanding of how the market is moving.

“The second quarter was more active – especially in the last month, the number of inquiries has increased, albeit from a low level,” says Smith.

“You probably have to go back to 2021 to compare to the deal flow that is scheduled for June.

“If these deals do well, it will prepare us very well for a stronger period from September onwards.”

Finncap’s Nash says the company expects the mood in the city to improve over the course of the year.

“We expect it to be a quiet summer, but we are increasingly positive from September,” he says.

With CAB Payments and WE Soda announcing their plans to go public, he said London remains an attractive place to market a company.

Although these are very large companies, we also expect an increase in activity in the mid-cap sector. There is certainly no shortage of ambitious companies seeking a listing in London.’

This is a point Smith agrees with.

“All those companies that have considered going public in the last 18 months are still trading and growing in the background – so there is a real backlog of companies,” he says.

“A bit like London buses, we’ll probably see that if one comes, many more will gain the confidence to follow.”

While the IPO drought appears to have turned a trickle into a healthier stream, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said, “Don’t expect the trickle to turn into a flood just yet.”

She added: “Although more calm has returned to the markets after the jitters caused by the fears in the banking sector in the spring, there is still uncertainty about the direction of interest rates, which continues to make for uncertain trading going forward. can take care.’