London IPO activity plunges as market volatility puts a stop to listings boom
The amount of cash raised via initial public offerings in London plunged in the first half of the year as firms pull back from the public markets amid extreme volatility and historic levels of inflation, new data has revealed.
The total proceeds of IPOs in the capital plunged 94 per cent in the first half of the year as 26 firms raised a total of £595m, a sharp slump from 47 issuers raising £9.4bn in the same period in 2021, according to data from big four firm EY.
London’s main market hosted just six IPOs in the second quarter, raising £192m in total, whilst the Alternative Investment Market (AIM) saw one admission which raised £6m.
The data underscores a torrid six months for equity markets as a cocktail of inflationary pressures, war in Ukraine and rising interest rates cause investors and firms to pull back from the public markets.
‘Perfect Storm’
Scott McCubbin, EY UKI IPO lead, said it had been a “very difficult start to 2022” for the City’s IPO market.
“There is a perfect storm of geopolitical pressure creating a challenging macroeconomic landscape, which are compounded by inflationary pressures focused on high energy and commodity prices leading to associated interest rates rises,” he said.
“We expect a weak IPO market for the remainder of 2022 due to these challenging conditions.”
He added that the pipeline of firms looking to come to market in the UK remained “healthy” however, as a number of firms delay IPOs due to the market turbulence.
“This provides a more positive medium to long-term outlook, although the timing of a rebound is hard to predict given the uncertain geopolitical and macroeconomic landscape,” he added.
The slowdown in IPOs has proved a speedbump in ministers’ plans to promote the Capital as a premier hub for IPOs, following a major review of the UK’s listing rules conducted by Lord Hill last year.
The government and London Stock Exchange bosses have pushed through a number of measures in the past 12 months to boost the appeal of London’s public markets, including the introduction of dual-class share structures and plans to abolish the current premium and standard listing segments.
Capital markets expert at investment bank Numis said the right firms could still find a route through the volatility in the coming months however.
“The combination of a challenging macro backdrop and volatile stock markets has meant many businesses considering an IPO in H1 have pressed the pause button, although we continue to see the potential for a rebound in H2 for businesses with the right characteristics,” said Jamie Loughborough, Head of Equity Capital Markets at Numis.
Global slowdown
Fears of a permanent slowdown in London will be tempered by wider global slump in IPO activity however, with all markets recording 630 IPOs at a cumulative value of $95.4bn in the first six months of the year – a 58 per cent valuation drop on 2021 and 46 per cent lower in terms of flotation numbers.
Global energy IPOs led the way globally in terms of proceeds, with $27.9b raised – more than any other single sector. Technology and life science IPOs, which had been a major driver of growth in recent years, saw a marked decline, with 197 IPOs compared to 504 in the first half of 2021.
Debbie O’Hanlon, EY UKI Private Leader, said that the slump in technology stocks in the first half of the year had scuppered a number of planned tech listings.
“The previous driving forces of technology and life science stocks have seen reductions in share price, leading to a weakening in investor sentiment,” she said.
“These sectors have been trumped by the energy market as the leading sector for global IPOs.”