Government should take ‘direct action’ to block firms floating outside London, City broker claims
The government should grant itself powers to step in and block some companies from floating overseas or force them into dual listings in London, a top City broker has said.
In a note to investors today looking at how to revive London’s IPO market, Peel Hunt, the stock broker and investment bank, said that ministers should consider taking “direct action” to stop firms floating outside the UK after a drop-off in new IPOs in the past two years.
Any mechanism to prevent firms could be drawn up in the mould of the government’s National Security & Investment Act, Peel Hunt’s head of research Charles Hall wrote, which allows the government to intervene in takeovers it thinks may pose a threat to national security.
“A similar mechanism could be established to ensure effective ownership does not move overseas,” Hall wrote.
“The lack of tools to persuade ARM to list in the UK was clearly apparent. There could be a mechanism where approval for certain businesses to list overseas is required or at least a secondary listing in the UK is put in place.”
Peel Hunt has been increasingly vocal over the health of London’s markets in recent weeks after a bruising two years in which profits have plummeted on the back of a downturn in capital markets activity. The firm said separately today US firms are poised for a wave of takeovers of UK firms this year and last week described the take-private trend in the capital as “relentless”.
Its calls for stronger government intervention come after the Cambridge-based chipmaker Arm snubbed London to float across the Atlantic in New York despite a major charm offensive from government and regulators to woo the firm back to London’s markets.
Until 2016, Arm was listed on the London Stock Exchange but was taken into private hands by Japanese investment giant Softbank in a bumper $32bn deal.
No conditions were placed on the deal to mandate a London listing should it shift back onto the public markets, an oversight pointed to by Financial Conduct Authority chief Nikhil Rathi as he mounted a defence of the regulator’s role in the loss of the chipmaker.
“When Arm was taken over by Softbank in 2016, the takeover panel applied certain conditions… [but] retention of a capital market nexus in the UK was not one of the conditions,” Rathi told a group of MPs in March.
However, a move to begin strong-arming firms into floating in London would be seen as a drastic measure to stem the flood of firms away from the Capital.
The Treasury denied that it was considering such a ploy today and said the National Security & Investment Act only “gives the government powers to scrutinise and intervene in business transactions in the instances it’s necessary to protect national security”.
“We are not considering powers to prevent businesses from moving overseas where there is not a national security risk,” a spokesperson added. “One of London’s biggest strengths is its open and international markets and we continue to maintain the UK’s position as one of the most attractive destinations in the world for investors.”
The downturn in capital markets activity has hammered firms like Peel Hunt, which have seen fees and profits dry up since 2021. In its half year results in December, the firm notched a pre-tax loss of £0.8m, down from a £0.1m profit in the same period last year – which itself was a 99 per cent plunge from 2021 when dealmaking and IPOs were booming in London.
Regulators and grandees have been grappling with measures to make London a more appealing place for companies to go public.
The call for direct action was among a list of recommendations from Peel Hunt today, including increasing demand from the UK’s top institutional investors with regulatory tweaks, boosting the appeal of the market with better corporation tax incentives and slashing costs involved the process.
Encouraging active fund management in the City and enfranchising retail investors should also be top of the agenda for regulators and policy makers, Peel Hunt added.