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

08 January 2018 Authored by 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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