By Paul Clarke and Lina Saigol
Of Financial News
U.K. equity markets are shrinking faster than any of their
European rivals as more companies choose to remain private and shun
public markets.
The number of companies listed on the London Stock Exchange fell
by 21% in just eight years, according to a report for the European
Commission by economics consultancy Oxera.
The decline of 378 between 2010 and 2018 was the largest
numerical fall among all European markets, the data shows. Across
all exchanges in the European Union, there was a net fall of 12%,
or 854 companies.
"London has borne the brunt of the public equity market
shrinkage in Europe," said Reinder van Dijk, partner and head of
the financial services team at Oxera. "The benefits of listing a
company aren't as clear to businesses as they once were and as a
result many firms are seeking to raise funds in the private markets
instead."
Of the major European markets, only Frankfurt saw a steeper
percentage decline than London, with companies on the city's stock
market falling 34%. The number of companies listed in Paris tumbled
by 14% over the same period.
However, Stockholm saw a 77% rise, with 241 companies added to
its exchanges, while Milan recorded a net growth of 52 companies, a
19% increase.
"While London Stock Exchange is still Europe's biggest equity
market, its lead isn't as secure as it once was," Mr. Van Dijk
said. "The Euronext group of exchanges seems likely to become
bigger in the near future. These trends in growth are now very
well-established, and it is difficult to see them changing in the
short term."
The shrinking U.K. equity markets have prompted several large
investment banks to establish capital markets teams in Europe
dedicated to helping raise money for private companies as they turn
their backs on public markets.
Citigroup launched an alternative capital team in July, led by
senior banker Giacomo Ciampolini.
"Companies are raising greater sums of money privately--firms
that would have previously waited a couple of years and then IPO'd.
This is a long-term trend that is here to stay," Mr. Ciampolini
said at the time of the launch of the new team.
The relative high cost of raising public-equity capital compared
with private-equity markets has been a main driver of the shrinkage
of London's equity markets, Oxera's findings showed.
Technology companies are spending less time on stock markets, as
private-equity firms, armed with a record amount of dry powder,
move fast to take them private.
The median time from initial public offering to buyout since the
financial crisis has narrowed to around six years, according to
recent data by PitchBook.
At the smaller end--for deals worth $400 million to $1.25
billion--the time to buyout nearly halved from 12.2 years since
2015. Meanwhile, for companies worth between $1.25 billion and $4
billion, the median time to being taken private fell from 9.8 years
to 6.4 years over the same period.
Private-equity buyouts have also accelerated the trend. For
example, the buyout of U.K. cybersecurity specialist Sophos by U.S.
private-equity firm Thoma Bravo in March 2019 for 3.9 billion
pounds ($5.15 billion) was one of the largest delistings in recent
years.
The number of companies being taken off the U.K. market aren't
being replaced with new IPOs, a trend exacerbated by the Covid-19
crisis this year.
Hopes were raised in September that more tech listings would
follow that of THG Holdings PLC, which saw its shares soar on its
stock market debut in what was the country's second-largest ever
tech IPO, but this has yet to happen.
Before the Hut Group, there were just nine IPOs worth a combined
$3.2 billion in the U.K. in the year to date, according to
Dealogic. Over the same period in 2006--the peak of the past 20
years--there were 193 IPOs of U.K. listed companies worth $36.2
billion.
The U.S. market, by contrast, has seen a flurry of tech listings
in recent weeks.
Regulatory demands have also stopped small and mid-cap companies
from debuting on stock markets.
The second iteration of the Markets in Financial Instruments
Directive, introduced in 2018, prevents investment banks from
charging clients for execution and investment research
together.
That has triggered a decline in the amount of research produced
on small and midcap companies, further reducing investor demand for
small and midcap equity, Oxera's report noted.
"Small and mid cap companies in particular now find it
particularly difficult to justify a listing, given the fees,
regulatory burden and comparatively high costs relative to private
markets," Oxera said.
Website: www.fnlondon.com
(END) Dow Jones Newswires
November 16, 2020 08:53 ET (13:53 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
London Stock Exchange (LSE:LSEG)
Historical Stock Chart
From Apr 2024 to May 2024
London Stock Exchange (LSE:LSEG)
Historical Stock Chart
From May 2023 to May 2024