Just over a year ago Hudson Sandler hosted one of its ‘Fair and Square’ podcasts with some of the city’s leading movers and shakers to discuss the impact of COVID-19 on public markets. In a wide ranging debate, all agreed on one thing. Whilst there would be a flurry of secondary offerings to shore up balance sheets during the crisis, the primary markets would be dead. The logic being that investors demand to meet management teams they don’t know before committing to an IPO. How wrong we all were!
We have just exited the strongest UK first quarter IPO performance in 14 years here in London. At Hudson Sandler we are working on multiple live mandates in London, New York and Moscow, having supported on the successful listings in recent months of e-commerce players Virgin Wines and In The Style on the LSE. And globally, IPOs are shattering records, in fund raisings and companies going public. Contrary to the instincts of our guests a year ago, investors have embraced new technology to interrogate issuers, with virtual road shows and company inductions now par for the course. We should have given more weight to the fact that this dynamic is not new. Digital communication has been increasingly used in IPOs to reach investors far from the world’s financial hubs such as London and New York, aside from advisor due diligence trips – when being on the ground really matters. But to do the entire deal without a single face-to-face meeting was almost unknown, until now.
As has been widely reported, this IPO frenzy has been fuelled by investors’ increased optimism about the global economic recovery amid low borrowing rates and vaccination rollouts. According to EY, the global IPO market in Q1 saw 430 deals, raising $105.6bn in proceeds, increasing by 85 per cent and 271 per cent year-on-year, respectively. This is an IPO tsunami – during lockdown ! The demand is there and it’s virtual. While the flurry of recent and planned IPOs has been dominated by the US, the UK is increasingly grabbing a piece of the action, as tech firms and special purpose acquisition companies (Spacs) queue up to list in London following the ‘Hill Report’ commissioned by the UK Government.
London has suffered in the last few years from being regarded as a ‘solid’ market heavy in old-economy stocks like oil and banking. Lord Jonathan Hill’s report calls for a range of deregulatory measures that aim to “ensure the UK remains one of the most attractive places to grow and list successful innovative companies”. This proposes an overhaul of company listing rules so London can better compete against rivals in New York and Europe and take a share of the buoyant market for SPACS. The report proposes allowing dual-class shares to give founders greater control of their businesses and removing the limit on the free float of shares in public hands to 15 per cent – empowering retail investors by helping them participate in capital raisings. Lord Hill has also proposed a rethink of company prospectuses to cut regulation and encourage capital raising.
Alongside this IPO tsunami, Lord Hill’s report and COVID-19, private equity firms are also going bargain hunting on the public markets. Takeovers of London-listed companies have rocketed, as cash-rich private equity firms search for undervalued businesses. The low valuations of UK-listed companies will be a familiar story as the London market has been weighed down by the twin shocks of Brexit and Covid-19.
So not only is London seeing unprecedented levels of IPO activity, the private equity players also offer these an exit, given that valuations still appear to lag other financial centres. How many of the new listed entrants will be gobbled up over the coming years is a moot point. But there is no doubt that the public markets in London and internationally have been fast and efficient in supporting business over a unique period, full of both challenges and opportunities.