Analysts look to follow-on funding for London Stock Exchange IPO revival
Amid a dearth of London Stock Exchange IPOs there’s one area where the UK is leading Europe, so-called secondary or follow-on fundraising.
In 2024, London’s stock exchange fell to 35th in the world for money raised from IPOs, bringing in $576.7m (£459m), just 0.53 per cent of the global market.
However, when including follow-on fundraising, the UK shot up to fifth as the country raised $28bn (£22bn) across 73 issues, a 53 per cent increase from 2023.
This included two $3bn follow-ons from Haleon, both of which were among the top ten largest follow-ons globally in 2024.
2025 has gotten off to a similar start, but the gap between the weakness of IPOs on the stock exchange and the strength of follow-on fundraising has continued to puzzle analysts.
Tim Cockcroft, founder and executive chair of Singer Capital Markets, credited the collapse in IPOs to the lack of capital coming to markets, pushing down valuations and leaving firms to stay private for longer.
He said that he would expect a surge in secondary placings before new IPOs begin flooding the market, as they can more quickly take advantage of improving valuations.
In the last two weeks, a pair of UK companies announced plans to list on the stock exchange, and were joined by Puma AIM VCT, the first AIM-focused VCT float in the last 18 years.
“It is great to see a couple of significant IPOs announced in the last week, which hopefully shows signs of the IPO market reopening following some positive movement on tariffs and financial markets recovering strongly,” said Nick Davis, London office co-managing partner at Haynes Boone.
But the start of the year hasn’t been quite the success that capital markets experts had been hoping for, due to disruption around tariffs.
“We were previously expecting UK IPO activity to pick up after Easter,” Peel Hunt analysts wrote. “The recent market volatility has caused many issuers to rethink near-term timetables, particularly those targeting second quarter transactions.”
A report from the British Venture Capital Association revealed that private capital firms largely raised cash from public offerings throughout secondary fundraising during 2024.
However, only six per cent of cash brought in by private equity exits came from fundraising during the year, compared to 46 per cent from sales to another private equity firm.
Venture capital trusts
Venture capital trusts (vcts) are one frequent participant in secondary fundraising. These trusts are not allowed to buy shares on the open market but can only invest through fundraising rounds.
“We do get a lot of opportunities across our desks on a daily basis, but in reality, we turn down a lot more than we take advantage of,” Simon Like, manager of the Oberon AIM VCT, told City PM.
“For the ones we invest in, the pricing anomalies are extremely attractive so you’ve got to take advantage of it,” he added.
Like explained that low valuations in the market currently meant that many small companies were reluctant to float, instead chasing capital from private sources.
With private markets booming and trillions waiting to be deployed into firms, it’s understandable why many are waiting on the sidelines to raise cash rather than deploying onto the main market to unsatisfactory valuations.
“However, when you are already quoted, you are committed to the valuation of your company so you’ve got to take the valuation there,” explained Like.
Like also noted that some companies may be holding off on IPOs due to the increasingly important role that VCTs plan on the micro-cap end of the market, as many asset managers have grown too big to invest in niche companies.
“Is there a willingness of the market to invest in these things? If a company qualifies for a VCT, you’ll find the brokers can get that issue away much quicker than if it doesn’t, because the pool of capital on these micro-cap stocks is a lot lower,” said Like.
Solutions to the IPO problem
Regulators have been playing their part in boosting the secondary fundraising system, with the Financial Conduct Authority unveiling a new consultation to make secondary fundraising easier.
The consultation suggested that the threshold at which a listed company needs to publish a prospectus when undertaking a secondary capital-raising could be raised from 20 per cent to as high as 75 per cent of its share capital.
Further changes are also expected to deregulate the follow-on fundraising rules, including shortening the period during which a rights issue or open offer must be open for acceptance.
The FCA said it aims to finalise the new regime by summer, with the rules expected to come into force early next year.
To transition the strength of follow-on fundraising to IPOs, Cockcroft argued that mandating pension funds to invest in UK companies, which has been suggested by other investment experts, would “change a lot” to boost valuations.
“The levels they’re talking about are not high,” he said. “Say a 10 per cent mandation, which I think historically compared to other geographies, is relatively low.”
While Pisces, the Private Intermittent Securities and Capital Exchange System, has been floated as a way to boost the performance of smaller companies and allow them to transition onto the London Stock Exchange, Cockcroft was pessimistic on the scheme.
“I think it’s solving a problem that’s not there,” he said. “It’s a time when you need people to focus on the existing exchanges, and we worry that they’re being distracted”.