On Monday 22nd June, Hudson Sandler hosted a webinar in collaboration with the London Stock Exchange, ‘The importance of equity markets as we emerge from the Covid-19 crisis’, with panellists including Andy Brough, Head of the Pan European and Small and Mid-Cap team at Schroders, Bod Buckby, the LSE’s Head of Primary Markets for the North and Penny Scott-Bayfield, Group Finance Director of Bloomsbury, moderated by Hudson Sandler partner, Dan de Belder.
The webinar explored how the markets have functioned in serving the urgent needs of listed companies and how the markets are likely to support future growth as we emerge from the crisis.
Looking back to the end of March, when the UK Government imposed lockdown measures and the Covid-19 pandemic began to have an unprecedented impact on many London-listed companies with sales, profits and share prices declining at a rate never seen before, there was a huge amount of uncertainty around how equity markets would react to support quoted businesses.
However, from the beginning of April, large and small companies looking to strengthen balance sheets and increase liquidity saw a swell of investor participations in a host of equity fundraisings. Over the last three months £12bn has been raised in the UK by over 80 businesses through the London Stock Exchange. However, leading fund manager Andy Brough pointed out that when we put this figure in context with the £100bn of equity raised in the 2008 financial crisis, these fundraisings may only be the “starter.” As we begin to emerge from this crisis, the question for many investors now is how to support the future growth of businesses and whether companies will continue to be able to rely on equity markets to take them beyond the current crisis.
Offering the perspective of a fund manager who has backed many of the recent fundraisings, Andy noted that he will only invest in companies who are in a position of “escape velocity”, meaning companies that have the long term resources to return to growth after the crisis. In addition, he will only support companies who treat equity “like it should be – a precious resource.” Looking at the 80 companies that have raised equity on the LSE, Bod pointed out that most of these companies had taken the combined approach of looking at both debt and equity funding and all had demonstrated that they had gone through every alternative source of funding before going to the market. Drawing from her experience of Bloomsbury’s recent success in raising £8.4 million in a non-pre-emptive placing, Penny emphasised the importance of having clear messaging and a consistent strategy, echoing Andy’s point of focusing on how you are going to return to growth after the crisis.
When considering the future of equity markets in serving companies as we come out of the crisis, Bod remained confident in equity fundraisings continuing, pointing to the strong history of capital markets in providing a deep liquidity to draw on in times of need. Penny argued the best approach is for companies to move early but also to have access to many different sources of funding, rather than assume any one source can be limitless. Andy took the view that investors in London don’t have the cash to raise another £100bn and therefore the UK equity market will need to rely on sovereign wealth funds to access more capital, as seen with Informa’s raising.
The panel also discussed the importance of retail investors.Whilst many companies were drawn by the speed and efficiency of the Accelerated Book Build process, Bod said that over time he expected most companies would want greater retail investor participation and make their issues available through the likes of Primary Bid.Andy also bemoaned the fact that the FCA has decided that it is too risky for the retail investor and to leave it to the institutional investors.He said he passionately believes or hopes that Primary Bid is the start of the resurgence of the retail punter and that the FCA realise that people who invest their own money take as much care as fund managers who invest on their behalf.
In terms of IPOs, in the aftermath of Covid-19, there was some divergence of views. Andy disagreed with Bod that IPOs will return in the current circumstances, sceptical of the idea of investing in companies when investors can’t meet them in person, while Bod pointed out that market practices can change, as we have seen from the £12bn invested without any face-to-face meetings. Andy also does not see much scope for M&A activity in the current climate, with there being fewer companies to buy, estimating that the number of companies on the LSE has halved since he started working in the City. Despite this he does see the huge increase in liquidity in the stock market as a promising sign of stability for companies in terms of earnings and recovery.
Whilst it is hard to predict the future of the UK equity market, what is clear is the vital role it can play in providing support for companies that do not treat it as a limitless resource and use it to plan ahead for growth after the crisis.