Sunday 22 May 2016 3:58 pm

London set for IPO market recovery after referendum… but it may have to wait until the autumn

The UK’s flagging flotation market is expected to recover from a slow start to 2016 – but not until the autumn.

Activity on London’s initial public offering (IPO) market has dropped significantly on 2015 levels, with uncertainty around the upcoming EU referendum widely cited as being one reason for the slowdown.

The state of the global economy has also led to slow starts across the world. However, there have been recent signs to suggest other markets are picking up.

In the US, May has already been the most active month – in terms of the number of listed IPOs – since November last year, according to Dealogic, which expects five more IPOs to be priced this week.

And in Europe, there has been a recent flurry of announcements: Philips Lighting is set to float this month in the Netherlands, in a deal that could value the company at up to £665m; Maisons du Monde is set to launch France’s first IPO of the year, valuing the company at more than €1bn; and Dong Energy expects to complete Europe’s biggest float of 2016 in Denmark.

“Towards the end of this quarter, [Europe] will be exciting, but purely from a mega-deal standpoint,” said Vivienne Maclachlan, PwC’s director of capital markets, accounting advisory and structuring. “I think that the smaller and mid-sized companies are still waiting.”

London is Europe’s largest IPO market, but Maclachlan predicts that it will be “neck-and-neck” with the Netherlands in the first half of 2016.

“In London, definitely, it’s the referendum. But I think there are also general market jitters across Europe,” she told City PM “I think investors are jittery. I think that if the outcome is to leave then that then changes a lot of companies’ strategies and how they do business if they are Europe-trading.”

She suggested that the only deals going ahead in Europe currently are those considered to be “too big to fail”, adding: “They’re scared that if they go now, they’ll end up with pricing pressure. So waiting until September – waiting until the markets have settled down – will actually help them get the valuations that they’re aiming for.”

According to PwC-compiled figures, 28 IPOs have priced in London so far this year. The figure for the first six months of 2016 was 55.

Private equity firm 3i, which announced plans to float Basic-Fit in the Netherlands last week, has noticed a slow start to 2016 for IPOs, especially in the UK. But the firm expects a pick-up in activity after the referendum – no matter which way the vote goes.

Chief executive Simon Borrows told City PM: “[Europe’s IPO market is] less impacted by Brexit but there will still be caution around that vote, I would think.

“IPOs are happening in continental Europe. I’m not sure how many are happening in the UK at this precise moment.”

EY has also noticed a slowdown. Scott McCubbin, IPO leader for the UK and Ireland, told City PM: “The UK IPO market may have experienced a slowdown in the first half of the year, but that followed a flurry of activity during the final quarter of 2015. Even at this slower pace, the Main Market and AIM accounted for 45 per cent of European listings and hosted two of the top five largest IPOs globally in 2016 so far.

“The UK is still outperforming its European competition and globally is second only to the US in terms of capital raised. As the clouds of uncertainty clear and confidence returns, the UK market is set for a stronger end to 2016.”