Private takeovers ‘biggest threat’ to London market, report finds
Private markets are a much bigger threat to the London Stock Exchange than the lure of an overseas listing, a new report has found, as it poured scorn on the “misleading” narratives that tempt fast-growing firms to drop London in favour of a New York IPO.
The US has welcomed as much as $676bn worth of European flotations in the form of IPOs and primary listing switches, a report by New Financial has found.
But the figure represents only 4 per cent of the total value of European stock markets and is dwarfed by the more than $1tn that has exited those markets in the form of delistings via takeovers from privately-held firms or private equity.
That amounts to more than 1,000 companies and represents as much as 40 per cent of all acquisitions of listed companies in Europe, a trend which the report called “the elephant in the room” in the debate over capital markets.
“While focusing on companies moving to the US makes for a more emotive argument to persuade European policymakers to think about how to address the problem, the challenges from delistings is the other side of the same coin,” New Financial said.
“European equity markets are seen as relatively unattractive for issuers and investors alike and addressing this issue will require a similar response as dealing with the challenge from the US.”
The research, which was commissioned by HSBC, also found that the perceived premium companies expect their shares to fetch in US stock markets rarely materialises to the extent imagined.
‘Myth’ of higher valuations in the US
The valuation gap between European and US companies almost disappears when adjusted for profitability, the report found, while the liquidity gap largely disappears when the structure of trading data is factored in. More than 70 per cent of companies that have migrated to the US are trading down compared with their IPO or listing price, with the same percentage underperforming the European market since they moved.
Ian Hall, chief executive of HSBC UK, said: “One narrative suggests that European and UK stock markets have lost their lustre amid a steady drip feed of news that yet another company has switched its listing to the US, or launched its IPO there, in the hope of higher valuations, better returns, and deeper pools of liquidity.
“[These] results suggest that much of the received wisdom about the potential benefits of switching may not be particularly accurate.
“While there is a cohort of companies for whom it makes absolute sense to move…the experience of others has been less rewarding.”
As many as 88 companies delisted or transferred their primary listing from London’s main market in 2024 while only 18 took their place, according to figures from the London Stock Exchange Group.