‘We knew it would enable us to access capital’ – what are the benefits of listing your business?
Deliveroo, Darktrace and Moonpig are just some of the businesses that have listed on the London Stock Exchange (LSE) in 2021. This year also saw WISE, formally known as Transferwise, see its valuation hit more then £8bn following its listing in July, in what was the biggest float of the year and the capitals largest ever tech listing. But what does the prognosis look like for the markets and what are the benefits to looking at listing as a funding option? Business Leader investigates.
UK listings experienced a very strong start to the year, with more funds raised in the opening quarter of 2021 than in any other opening quarter since 2007, and the most raised in a single quarter since 2014, according to the latest EY IPO Eye.
Both the main market and AIM built on the resurgence of activity seen in the second half of 2020, with 12 IPOs raising £5.2bn on the main market and eight IPOs raising £441m on the Alternative Investment Market (AIM).
First quarter fund raising achieved a total of £5.6bn, more than half of the £9.4bn raised in the whole of 2020. Total funds raised in 2021’s first quarter were the largest of any opening quarter since the £5.8bn of new money raised in 2007 and the most raised in any quarter since the £6.9bn raised in the second quarter of 2014.
The performance during the first three months of 2021 is in stark contrast to the same period in 2020, when there were just three IPOs on the main market and two on AIM, which raised a combined total of £615m – a value nine times lower than this year’s opening quarter.
Scott McCubbin, EY Partner and UK&I IPO Leader, comments: “The UK has had the strongest opening quarter for IPOs for 14 years, with the markets successfully weathering the effects of Brexit and bouncing back from the stall in activity caused by the onset of the pandemic a year ago. With an effective vaccine rollout underway, momentum and confidence in the UK IPO market should continue to build, but future growth may vary depending on the sector.”
The UK’s status as a tech market
The first quarter of 2021 also saw the release of the findings of the Government-backed Hill Review of the UK listings regime, with a view to ensuring the UK markets remain competitive on the global stage. The first recommendation is currently out for consultation by the Financial Conduct Authority. In the first week of the second quarter, the UK hosted its biggest tech listing on record.
Scott adds: “Given the tech sector is of increasing importance for both the IPO market and wider economic growth, the UK’s ability to attract tech IPOs is likely to be under scrutiny. The reputation of the UK as a tech IPO market will in part depend on the performance analysis of listings that fall within this broad sector, which includes both traditional tech companies and those that heavily rely on technology. Investors will be looking carefully at a range of factors, with a keen focus on issuers’ business models, governance and use of proceeds – all indicating that robust preparation is key to a successful IPO.
“Such a positive performance in the first quarter shows confidence in the strong fundamentals of the UK IPO market. While some believe there is a risk of compromising on current strengths if the UK seeks to adapt to bolster its tech status, the UK would likely have to make some significant changes if it were to rival the US in this area. The Hill Review is a positive step forward for the UK’s future in tech.”
Benefits of listing
So the fundamentals look good, and the IPO market looks buoyant. But, what are the benefits to listing for a business that is applicable?
Sam Smith is the CEO of FinnCap Group. An expert on public markets, she spoke to Business Leader this year about the benefits of accessing markets.
One of the standout reasons business leaders decide to go down this route is because they can retain a certain level of control in the business, compared to the exit or private equity route.
Sam explains in more detail: “Firstly, despite doubts raised by the proliferation of alternative funding sources, listed markets remain a vital resource for companies seeking scale-up capital to finance their growth. Their importance will endure as growth companies look to follow in the footsteps of firms such as Apple, which listed in 1980 with a market capitalisation of just under $2bn, and which was valued at more than $1tn on the eve of the pandemic.
“Moreover, the continued popularity of secondary equity offerings speaks to the ongoing vitality of listed markets, even while IPOs have been in abeyance. On AIM, for example, £3.8bn was raised through further issues last year alone, with more than £70bn raised in secondary equity offerings since AIM was established in 1995.”
Sam continues: “Public markets also offer a level of liquidity which private markets cannot match and, perhaps even more importantly, they provide an unparalleled platform for profile-building, which is invaluable for companies looking to float. For instance, FTSE 100 firms are not just some of the UK’s largest businesses, they are also household names and authoritative voices on trends within their respective markets. Whereas private transactions offer less visibility, IPOs provide a far wider pool of investors and potential customers.
“With this higher profile comes a level of scrutiny which may be off-putting for some executives, but nowadays, it is vital for companies to hold themselves accountable to increasingly rigorous regulatory standards. ESG issues from carbon emissions to equal opportunities already figure highly on stakeholders’ agendas, and this trend will only gather momentum in the wake of the pandemic. Public offerings are, therefore, more conducive to highlighting the key ingredient of a corporate conscience.
“Under current rules, start-ups must sell at least 25% of their company in a listing, which may discourage owners concerned about selling too much of their business, while present restrictions on the use of dual-class share structures have prompted firms such as Just Eat to shift shares and liquidity abroad in recent times. But compared to other options, owners will have much more control.”
Never too early to start a conversation
Christopher Raggett, who is Co-Head of Corporate Finance at finnCap Group, believes that it’s never too early to start thinking about how you prepare your business for an IPO.
He says: “Listing shouldn’t be a snap decision and doing so is a serious endeavour, and you need to put in the plumbing early and achieve good corporate governance, so you look and feel like a grown-up company. It’s important to also have a good board, which is well balanced between execs and non-execs.
“It can help to have somebody in the team who is just focused on governance and preparing the business for a float. Board composition is playing an ever-increasing role in the process and we’re also seeing more founder protection too, whereby the founders can be protected against a hostile takeover, and this is important because for many leaders, the business is their baby. If you get your preparation right, listing can give you control and access to serious funding.”
Where to list?
Knowing where to list can be something leaders need to think about too. Maxim Manturov is Head of Investment Research at Freedom Finance Europe.
He has spoken recently to Business Leader about the rise in e-commerce retailers looking at listing as a funding option and the importance of selecting the right option.
He says: “It’s important retailers and businesses understand the advantages and disadvantages of going public. The main benefit of a business entering the stock exchange will be the capital raised for the company’s further development and, in general, entering the organised and liquid capital markets; in the future, it will help a company raise capital for further development quickly. Also, the stock placement itself can be a ‘major’ advertisement for the company. Among the risks are lawsuits or bad reviews, which can negatively affect the company’s stock price.
“Finally, it’s important you make the right decision when choosing what stock market to trade on – from AIM to LSE, the choice is a difficult one to make. Generally, the best choice for investing is the US exchanges, specifically Nasdaq, which became the leader in the number of placements in 2020, raising approximately $57.3bn.” <
The business perspective – PensionBee
One of the 2021 floats has been PensionBee. To find out why they decided to float and how they’ve benefitted, BL spoke to its CEO Romi Savova.
Why did you decide to IPO and how have you found the experience?
Making the transition from being a private company to a publicly traded company was always part of our strategy to be the best online pension provider. We knew it would enable us to access capital, so we could further develop our customer-focused proposition and extend our reach to millions of consumers across the UK, whilst continuing to use our voice to make positive changes in the pensions industry.
There is a significant growth opportunity for PensionBee, as a result of the acceleration of the shift to digital and the frequency of individuals moving jobs, combined with the ever greater need for financial wellbeing. Our estimated market share is currently around 0.4%, which means there’s huge opportunity for us to grow and continue to work towards our mission of making pensions simple, so everyone can look forward to a happy retirement.
Our IPO marked the culmination of seven years of hard work, and is testament to the dedication the PensionBee team shows to helping our customers each and every day. It was particularly exciting to take customers with us on our journey, and we were thrilled that so many wanted to take part in this phase of our growth by applying for shares in our customer offer.
What advice would you give to others, who are considering an IPO?
The London market offers companies significant advantages, including the opportunity to stand out on the highly respected London stage. For us, there was simply no other choice as the UK is where we operate and where our customers are based. It’s also home to some of the world’s leading technology companies and a world class exchange with high standards of governance.