Brexit uncertainty casts shadow over UK IPO market


08-10-2018

The UK’s IPO activity has seen a decline in volume and value in the third quarter by 47% and 71% respectively, according to the latest EY IPO Eye.

  • Q3 sees decline in both IPO volume and value compared to the same period last year
  • 13 IPOs raise £1bn with financial services the most active sector and cross-border activity boosting proceeds 
  • International competition heating up with global IPO activity levels in the first nine months of 2018 significantly above the 10-year median

The Main Market saw eight IPOs, which raised £780m, while five flotations on the AIM raised £257m in total. This compares with the last quarter, Q2 2018, which had a total of 17 IPOs (Main Market – six, AIM – 11) and the same quarter last year, Q3 2017, which had a total of 30 listings (Main Market - 14, AIM – 16). According to the Eye, the low deal volume and proceeds largely reflects the lack of investor appetite for IPOs in a volatile and uncertain market combined with the continued low value of the British pound.

Financial services was the most active sector by deal number, claiming 6 of the 13 IPOs on UK exchanges in Q3 2018 and raising £743m.

Cross-border activity in the UK market boosted IPO volumes and proceeds this quarter, with companies coming inbound from the Philippines and the Netherlands to list on UK exchanges. London’s Main Market and AIM exchanges secured the 10th spot among the top 10 stock exchanges globally by volume and by proceeds and were ranked fourth for cross-border IPOs in YTD 2018.

Scott McCubbin, EY’s IPO Leader, comments: “Brexit uncertainty continues to cast a shadow over the London market making it hard to predict how IPO activity will unfold over the next few months.

“IPO candidates are keeping an open mind when it comes to exit strategies, which can lead to lower IPO volumes in 2018. For example, companies considering an IPO have accepted an acquisition offer instead, either from large corporations looking to add to their portfolio, or from cash-rich PE firms. However, the market has responded well to those that chose to list. Overall, recent IPOs had positive first-day returns and some very strong performances post-listing continue to demonstrate the quality that London Main market and AIM present to investors.”

London faces international competition

Despite ongoing geopolitical uncertainties and trade issues, IPO activity levels in the first nine months of 2018 (YTD 2018) are significantly above the 10-year median in volume and proceeds raising US$145.1b, a 9% increase year-on-year. In Q3 global IPO activity was lower than in the previous quarter and significantly down from Q3 2017 volumes. However, an increase in unicorn IPOs in Q3 2018 pushed YTD 2018 global IPO proceeds 9% above YTD 2017.

Scott continues: “The third quarter has lived up to expectations as the quietest period of the year with the global IPO market feeling the full force of geopolitical tensions and trade issues. However, if mega deals characterised the first half of 2018, the rising phenomenon of IPOs by unicorn companies is shaping up to drive the global IPO agenda through the second half of 2018. We anticipate that 2018 global proceeds will surpass 2017 numbers as a result. However, deal volumes will likely be lower year-on-year than in 2017.”

Scott concludes: “Looking ahead, the recent relatively poor listing performance of London IPOs could be a sign of the difficult times ahead for London stocks. It wouldn’t come as a surprise if any further IPOs this year are priced at the bottom of their range.”

 

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