UK flotation market sinks to four-year low amid Brexit uncertainty
Activity on the UK’s flotation market has sunk to a four-year low amid Brexit uncertainty.
However, while the main market has struggled, London’s junior market, the Alternative Investment Market (Aim), has thrived this year.
Overall, there were 41 initial public offerings (IPOs) in the first nine months of the year, the lowest number since 2012.
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The new listings have raised £948m, down 42 per cent on last year. However, the value of listings on Aim are up 47 per cent.
The figures have been compiled in a report by Henderson Managed Investment Trusts, which noted that activity “ground to a complete halt” after the UK’s Brexit vote, following an already-slow start to the year.
In recent weeks, Biffa was forced to cut the price of its IPO, while TI Fluid Systems and Pure Gym pulled theirs altogether.
“The chilling effect of the Brexit vote noticeably cooled companies’ enthusiasm to list on the stock market, and we have yet to see IPO activity reheat despite market conditions settling somewhat,” said Colin Hughes, of Henderson Opportunities Trust.
“It’s actually surprising activity was not even quieter ahead of the vote, and that perhaps reflects the unexpected Leave result in the referendum.”
He added that the struggles of the IPO market may be no bad thing for investors because “it means it’s a buyers’ market: new listings have to compete for investor cash and that means keener prices”.
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Explaining the comparatively strong performance of Aim, Hughes noted that smaller companies “are typically less sensitive to market conditions”.
Hughes added:
Owners are usually looking for additional capital and strategic shareholders to support growth, making them less price sensitive than a main market listing more likely to have private equity owners who want the best valuation for their stock; moreover, smaller companies tend to see more collaboration with fund managers in the book building process – they often won’t have direct listed competitors, so finding the right valuation is not just a question of comparing against the valuation of similar listed companies.