UK IPOs rise as companies exit wait-and-see mode

08 January 2018 Consultancy.uk

Global equity fundraising boasted a solid result in 2017, hitting a ten year high of £630 billion, while UK exchanges saw a considerable upswing in IPOs. The trend, in line with a similar upsurge across Europe, comes as companies initially deterred from investing by Brexit uncertainty, sought funding through IPOs – with total funds raised increased by 158% on 2016 to £40.3 billion.

An IPO, or stock market launch, is a type of public offering in which shares of a company are sold to institutional investors, who, in turn, sell to the general public on a securities exchange for the first time. The global equity capital market has had ups and downs in recent years, with IPOs, particularly in the startup phase and across UK exchanges, were hit by valuation uncertainties and Brexit respectively. A new report from KPMG’s Equity Capital Markets team, has identified current market trends as fundamentals are increasingly clear and Brexit concerns are softening.

The research found that global equity fundraising has reached a ten-year high, topping £630 billion. The funds raised, through IPOs and equity follow-ons, follow a more subdued 2016 when around £510 was raised globally.

Europe has had its best showing in three years, at around £160 billion raised, a considerable jump from 2016’s £100 billion. Right issues and placings remained the dominant form of equity raising, although IPOs also picked up between the years.

2017 equity capital market issuance

London saw a substantially improved year for IPOs, more than tripling from the previous year (2.5x the value and 1.5x the volume of 2016), while total funds raised topped £40 billion. Germany saw £23.2 billion raised, while France came in at £22.7 billion.

Commenting on the results, Marco Schwartz, Managing Director, Head of Equity Capital Markets Advisory UK, said, “Global ECM volumes in the second half of 2017 are currently on track to reach H2 2016 levels, with momentum from the first half continuing throughout the period. With headline equity indices registering gains and market volatility remaining low, IPO activity in particular was robust in the second half. Regionally, there was a marked reduction in China ECM volumes, and a slight decline in North America issuance. Europe saw a strong recovery in IPO activity in the second half compared to H2 2016.”

UK IPOs

The number of IPOs on the UK exchange increased by 49% from 2016, although the 97-figure recorded at the end of 8 December is projected to increase by years-end to above 100. The number of IPOs on the main market increased by more than 40 from the previous year, while remaining slightly below 2015 levels at 54. On AIM, the number of offerings came in close to 40, a significant increase from the previous two years.

UK IPO activity

Funds raised through the IPOs were also up on both exchanges relative to the previous year, with the Main Market recording £14.7 billion, a 158% increase on 2016, while the AIM saw value raised hit £2 billion, from a little over £0.5 billion in 2015.

A number of large deals were recorded this year, including the IPO of Allied Irish Bank at £2.6 billion; the EN+ Group float, totalling £1.14 billion; and the J2 Acquisition listing, which raised £912 million. The financial services segment raised the largest sum, with 26 deals and £6.3 billion, followed by energy renewables on 3 deals totalling £1.8 billion. Finally, real estate property raised £1.7 billion.

UK market trends

Looking at the longer-term trend, 2017 has posted relatively solid results so far, compared to previous periods. According to the consultancy firm, the recent increase in activity reflects increased resilience to market uncertainties resulting from geopolitical events, such as Brexit and the US presidency shift. The firm expects increasing numbers of firms to move to the publicly traded stage as the potential impact of Brexit becomes increasingly clear, while equity markets continue to support deals.

Main market activity 2008-2017

Linda Main, Partner, Head of UK Capital Markets Group, remarked about deal activity, “UK IPO activity during the period was evenly distributed between the Main Market and AIM. Financial Services has once again been the dominant sector for new issuance, with the launch of several large acquisition vehicles during the period.”

Main added, “We continue to see a strong pipeline and the general sentiment, borne out by IPO activity during the year, is that markets remain confident and open to those companies with compelling equity stories and realistic valuations.”

The report follows a similar conclusion from KPMG’s Big Four rivals PwC, regarding continental markets. That study found that IPOs were increasing across Europe, having been buoyed by improving market conditions across the EU, although Brexit concerns remain an issue – finds new analysis into the quarterly activity in the space. Total value hit €3.8 billion, with the London exchanges recording their strongest relative performance in since the end of 2015.

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Brexit will have major impact on UK-EU electricity flows

22 April 2019 Consultancy.uk

Brexit could have a major impact on the consumer price of electricity in the UK, according to an analysis by Sia Partners. The total costs for UK society could swell to €600 million annually due to less efficient flows of electricity.

As the Brexit process has perpetually stalled, with no realistic end in sight now until Halloween, underprepared businesses have been handed a lifeline. The scramble to prepare for a No Deal scenario can now continue for another half-a-year, and one of the key factors which companies will need to consider when drawing up these plans is the cost of accessing utilities post-Brexit. In the digital age, virtually no business can survive without a ready supply of electricity – while the pay-cheques of staff will also need to inflate to accommodate future rises in bills.

With significant cross-border flows of electricity between continental Europe and the UK, Brexit is destined to have a major impact on individuals and companies in this manner, according to new analysis by consulting firm Sia Partners. These flows of electricity are governed by common European rules, but when the UK leaves EU, Britain’s electricity markets will no longer be integrated into Europe’s ‘Internal Energy Market’.

European model

Historically, electricity grids and markets were developed on a national level. However, years ago the EU set out to achieve integration in electricity grids, on the premise that coupling grids and markets can lead to significant benefits. By making electricity flows possible, price arbitrage can be faded out by allowing buyers to access cheaper prices offered beyond the country’s own borders, driving up competition and lowering average prices.

Brexit will have major impact on UK-EU electricity flows

An analysis of electricity flows between the UK and Ireland demonstrates this. Before Ireland was coupled to the UK, commercial electricity exchanges on the UK - Ireland border flowed 40% of the time against the natural direction, i.e. from the higher to the lower price market. After more effective cooperation and regulation was put into place ('After the I-SEM' went live), the picture changed drastically, with commercial flows now following the price differential 96% of the time. Quantifying this welfare benefit is not easy: according to one estimate by ACER, the economic added value of having market coupling with implicit capacity allocation on the GB-Ireland border (1GW) amounts to around €110 million annually.

Europe’s aim is to achieve interconnection of at least 10% of their installed electricity production capacity by 2020. As it stands, seventeen countries are on track to reach that target by 2020, or have already reached it.

On the UK side, the region currently has a total capacity of around 5GW connected with mainland Europe (France, the Netherlands, Ireland, Belgium), corresponding to roughly 5% of UK’s installed capacity. In comparison with other EU countries, this ratio is on the low end; however, the UK is playing catch-up and has 10 interconnections scheduled for commissioning in the next four years.

Brexit

It's clear that the UK’s withdrawal from the EU will have an impact on electricity markets co-operation. The question which remains is how large will the impact will be? To provide a forecast for this, analysts at Sia Partners ran a modelling exercise with two scenarios in mind. After leaving the European bloc, the UK will have to make agreements with European countries, similar to how Switzerland and Norway currently operate. Norway has a deal with a relatively high level of integration with the EU’s internal energy market, while Switzerland stands at the other end of the spectrum, with the country excluded from several market coupling initiatives (e.g. MRC, XBID) and from implicit capacity allocation with any other EU member state.

“If Brexit leads to a construction which is similar to the Swiss deal, where UK’s electricity borders are uncoupled from its neighbouring countries, then there will be a major loss of welfare.”
– Sia Partners

If the UK follows in the footsteps of Norway, then the consequences of Brexit could be muted. According to Sia Partners’ calculations, the economic loss would be minimised in the mid-term, with only operational challenges expected. For example, the implementation of pan-European projects, such as XBID, could run into delays in the UK. The EU currently has 7 of such interconnection projects scheduled for completion before 2022.

“In case a Norwegian style deal is struck, the UK will lose its decision power related to EU energy policy but it would allow keeping the benefits linked to the internal energy market not only for itself but also for Ireland and continental Europe,” the researchers state.

If, however, a Swiss deal is struck, then the projected costs could range between €500 million to €1 billion. An expected 60% of this loss will be borne by the UK, 16% by France, and 8% by Belgium, the isle of Ireland and the Netherlands. The researchers concluded that if Brexit leads to a construction which is similar to the Swiss deal, where UK’s electricity borders are uncoupled from its neighbouring countries, “then there will be a major loss of welfare.”