UK Stock Market Trails Behind Oman and Malaysia in IPO Rankings -

The outlook for London’s IPO market continues to decline, as fundraising numbers fall short compared to less-prominent markets.

This year, initial public offerings in London have dropped by around 9%, amounting to roughly $1 billion. This decrease has pushed the UK down to 20th position in a global IPO ranking, according to Bloomberg data collected through the end of November.

London has been surpassed by rising markets like Oman, which is merely 1% the size of the UK market, along with Malaysia and Luxembourg. This is a notable change from just a few years back when London consistently held a spot in the top five global IPO hubs.

The current standings underscore the significant hurdles confronting the UK: weak valuations, a hesitant local investor base, and mounting competition from other financial centers. While recent changes to listing regulations have been made, both investors and industry leaders believe that more initiatives are necessary to rejuvenate the 300-year-old exchange.

This year, around a dozen companies have launched IPOs in London, with the largest raising just over £150 million ($191 million). None of the offerings from the city ranked in the top 100 globally, as other nations, including Greece, Sweden, and South Africa, hosted larger deals. Additionally, multiple billion-dollar share sales have taken place on major exchanges in the Middle East, as countries focus on listing their national champions domestically to boost their capital markets.

“Governments are actively trying to attract more companies, leading to fiercer competition,” remarked George Chan, global IPO leader at EY in Shanghai. “Without significant changes in the landscape, it will take a long time for the UK to regain its leading position.”

Rising Stars

IPO activities this year have been largely concentrated in the Middle East and Asia, which collectively account for over half of the total fundraising and include five of the ten largest deals globally.

Last month, Talabat Holding Plc, a subsidiary of Delivery Hero SE, successfully executed a $2 billion IPO in Dubai, achieving the largest tech IPO worldwide this year by pricing it at the high end of its range. In October, Lulu Retail Holdings Plc completed a $1.7 billion offering in Abu Dhabi, and a branch of Oman’s state oil company raised another $2 billion.

Asia has also seen impressive IPOs, such as Tokyo Metro Co’s $2.4 billion IPO in October and Hyundai Motor Co’s flotation of its Indian subsidiary worth $3.3 billion.

“London, like other European markets, is experiencing intensified competition from domestic markets that it hasn’t faced in the last 8 to 10 years,” observed Chris Laing, head of equity capital markets for Central and Eastern Europe, the Middle East, and North Africa at HSBC Holdings Plc.

Improving Valuations

A key illustration of this trend is the Middle Eastern oil and gas driller ADES Holding Co., which debuted on the UK market in 2017 but saw its market value halve by 2020, falling below $400 million. It was taken private in 2021 by a consortium backed by the Saudi sovereign wealth fund.

Since its buyout, ADES has made significant gains and relisted in Saudi Arabia in the previous year with a market valuation of about $5.5 billion, trading at 24 times its estimated earnings—essentially quadrupling its value from its time in London. Currently, it experiences approximately $30 million in daily stock trading, over 100 times its average turnover during its last year in London, and now doubles its coverage from research analysts.

Despite the decline in IPOs, the UK stock market is witnessing a notable decrease in listings due to mergers and acquisitions at the highest rate we’ve seen in over a decade.

According to Bloomberg figures, around 45 companies have exited the London exchange this year via mergers and acquisitions, the most significant tally since 2010. Many of these entities are mid-cap firms that receive little analyst coverage and possess trading multiples lower than their peers in other markets.

These appealing valuations have attracted attention from large private equity firms. KKR & Co conducted two buyouts of London-listed companies this year, acquiring a smart metering firm and a software provider for utility network management. Additionally, EQT AB completed two acquisitions, alongside Brookfield Asset Management, CVC Capital Partners Plc, and Fortress Investment Group—each engaging in take-private transactions of UK firms.

Market Contraction

A number of companies have opted to leave the London exchange due to low liquidity issues. In November, food delivery company Just Eat Takeaway.com NV declared its intention to delist from London, deciding to pursue a sole listing in Amsterdam. This week, Ashtead Group Plc announced plans to shift its primary listing to the US, calling it the “natural” long-term choice for the construction equipment rental company.

Some activists are pressing other companies to follow suit, with Palliser Capital amplifying its calls for miner Rio Tinto to abandon its primary listing in London. Companies like travel group TUI AG and pharmaceutical firm Indivior Plc have already withdrawn from their UK listings or moved their primary stock quotations to different markets.

CS Venkatakrishnan, CEO of Barclays Plc, mentioned at a recent conference that the UK equity market has been experiencing a “structural decline for over 30 years,” partly due to the risk appetite of local pension funds. He humorously expressed a desire for “more dynamic” firms on the London exchange rather than a bank with centuries of history.

At the same time, some promising technology firms that London aims to attract are considering other markets. Nik Storonsky, CEO of fintech company Revolut, recently expressed his preference for an IPO in New York, calling the London market “far less favorable” and labeling it “irrational” to list there. His viewpoint follows the decision of chip designer Arm Holdings Plc, based in Cambridge, England, to list in the US last year.

Companies are hesitant to enter the London market due to unsatisfactory valuations, according to Liad Meidar, managing partner at Gatemore Capital Management. The number of firms exiting the London exchange for various reasons this year has now surpassed the number of IPOs by more than tenfold, based on Bloomberg data. Moreover, UK-focused equity funds recorded 41 consecutive months of net outflows through October, only returning to net inflows in November, according to Calastone Ltd.

“There is stagnation in the UK—the sentiment surrounding capital markets is negative,” Meidar remarked. “Global investors find it easier to access capital in the US market.”

Brokerage Consolidation

The sluggish nature of London’s IPO market and the decreasing number of UK-listed companies have adversely affected local advisory firms that help businesses in capital-raising and investor relations. Shore Capital Group Ltd., a UK corporate broker, reported a dramatic 69% decrease in pretax profits in its capital markets segment for the first half of this year. Additionally, WH Ireland Group Plc has sold off its capital markets division in pursuit of returning to profitability.

These difficulties have prompted increased consolidation within the industry, while various firms are diversifying their service offerings. Peel Hunt Ltd. has highlighted the portion of its revenue that is generated from mergers and acquisitions as its trading business has recently slowed. Meanwhile, Panmure Liberum has launched debt advisory services and a dedicated team to assist firms in securing private capital.

Nevertheless, industry experts believe that the future isn’t entirely grim. Equity capital markets remain active beyond IPOs, with the total volume of share sales and rights offerings rising 60% this year to $30.8 billion, according to Bloomberg data. London has also attracted some international listings, albeit without capital raises. In August, CK Infrastructure Holdings Ltd., based in Hong Kong, obtained a secondary listing, while French conglomerate Vivendi SE plans to spin off its pay-television subsidiary Canal+ SA on the UK exchange this month.

Fast-fashion titan Shein is considering a London IPO as early as 2025 after previously facing challenges listing in the US. Other entities, including Canopius Group, an insurer underwritten by Centerbridge, are reportedly eyeing a £3 billion valuation for their listings scheduled for next year. Moreover, the private equity-backed consumer credit firm Newday is contemplating a London share sale in the latter half of next year, potentially valuing the company at over £1.5 billion, according to informed sources.

A spokesperson for the London Stock Exchange Group Plc affirmed that IPOs are not the sole measure of the health of UK capital markets, arguing that the overall volume of primary stock offerings exceeds that of other European exchanges.

“We maintain a positive outlook regarding the number of companies set to initiate IPOs and anticipate increased activity following the enactment of new listing regulations earlier this year,” the spokesperson stated.

The UK government is actively working to revitalize the market. This year, it undertook the most significant reform of listing rules in over three decades, paving the way for dual-class stock structures to attract more tech companies. Additionally, there are plans for increased leniency concerning disclosures of major transactions. Prime Minister Keir Starmer has committed to eliminating regulations that hinder economic growth, aiming to reassure international investors.

Alexandra Jackson, a fund manager at Rathbones Group Plc, pointed out that the limited inflows into UK funds restrict IPO executions. Listing candidates are likely to hold off for better momentum before pursuing an offering, though she acknowledged that investors remain willing to back promising businesses.

“While there isn’t a strong pipeline of candidates at present, we hope to see more emerge,” Jackson remarked. “We need to reignite some enthusiasm within the UK.”

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