London’s share of IPOs has dropped to its lowest point in decades and CEOs are not happy: ‘Companies have just taken their business elsewhere’
Chief executives of some of the largest private financial technology firms are pushing for bolder reforms to the UK’s listing rules, saying an overhaul announced this week doesn’t go far enough to revive London share offerings.
Enhanced incentives for research, better policies to attract global talent, a friendly tax regime that supports employee stock options are among measures that could help “solidify London’s status as a premier listing hub,” said Paul Taylor, CEO of banking software firm Thought Machine. Others such as Jaidev Janardana, CEO of SoftBank-backed Zopa Bank, called for a wider range of investors.
Their comments came in response to new rules for initial public offerings unveiled by the UK’s Financial Conduct Authority on July 11 as part of a concerted effort to jump-start an equity capital market that’s been moribund for years.
The UK’s share of new offerings in Europe slumped to 2% in May — the lowest in decades — amid a worldwide drought in deals, even though London still remains the continent’s main IPO venue. A recovery could be months out, with investors waiting for clarity on policies from the new Labour government under Prime Minister Keir Starmer.
The FCA’s revised rules will allow businesses to carry out more activities without putting them to a shareholder vote. They also make it easier for companies to have two classes of shares, a structure that’s often favored by entrepreneurs or early-stage investors who want to have a significant role in businesses even after they have gone public.
‘Less Onerous’
Some of the fintechs and startups that have plans for a public float eventually are seeking more easing of the rules and a more favorable environment.
Rishi Khosla, CEO of OakNorth Bank — a lender to small and medium enterprises — said policymakers needed to take a look at factors driving the higher “price multiple” premiums in the US, and adapt those to the UK.
“They could also look at how to make the first couple of years less onerous for new initial public offerings, so that businesses can ease into life as a public company,” Khosla said.
Meanwhile, Zopa’s Janardana, whose preferred option is to list in the UK, called for increased participation by giant institutional investors such as pension and sovereign wealth funds to improve “capital depth.”
The FCA proposed rewriting the listings rules in May 2023 in the midst of a highly-charged debate about London’s future that was sparked by Cambridge-based technology company Arm Holdings Plc’s decision to list in the US. In recent months, London has all but lost out to New York as the Swedish buy-now-pay-later firm Klarna Bank AB’s preferred choice of listing.
The co-founders of Revolut Ltd. — a fintech that’s seeking a valuation of more than $40 billion — launched a blistering attack on the UK’s regulatory regime in 2023, saying they wouldn’t consider listing in London. A year later, the company seems to be have softened its stance. Its UK CEO Francesca Carlesi suggested in March that London remains on their radar for an eventual IPO, though she warned that Paris and New York were competing to host promising finance startups.
“We do not believe the status quo is an option,” the FCA said in a policy statement. The new rules were a first step toward “reinvigorating” UK capital markets, Chancellor of the Exchequer Rachel Reeves said.
Undermining Protections
Some are disappointed with the changes for a different reason. Railpen, which manages around £34 billion ($44 billion) in assets for the 350,000 members of railway pension pools, noted the FCA move undermined protections for investors.
Others said regulators need to remain bold. The government “more generally should work to make the market more competitive” over issues including stamp duty, executive compensation and more pension funds investing in UK equities, said Claire Keast-Butler, partner at law firm Cooley, who specializes in capital market transactions.
But the UK market faces a tough challenge in efforts to reverse the trend. The number of publicly traded companies in the country plunged by about 40% from a recent peak in 2008, according to the UK Listing Review. Data show the UK accounted for only 5% of IPOs globally between 2015 and 2020.
David Jarvis, CEO and founder of London-based banking-as-a-service fintech Griffin, said the FCA’s move is “extremely encouraging,” adding he expected it to bring “some dynamism” back to the London markets.
“The status quo has achieved nothing – companies have just taken their business elsewhere,” he said. “Companies would rather list in their home markets.”
The UK must scrap stamp duty on shares traded in the main market, bringing it in line with the US, said Philip Belamant, CEO and co-founder of Zilch Technology. Serial entrepreneurs should be encouraged by increasing the so-called Business Asset Disposal Relief on IPO proceeds that are reinvested in their next UK venture, he said.
The fintech industry, which contributes half of all unicorn companies in the UK, has seen shrinking investment and greater global competition in recent years.
Janine Hirt, CEO at Innovate Finance, called for Starmer’s government to commit to delivery of the Mansion House Reforms aimed at spurring pension funds to boost investment in local assets “to increase access to growth capital.”
“The UK has a window of opportunity to forge ahead which it cannot afford to miss,” she said.
