UK IPO action at decade-long low before Brexit
The third quarter of 2019 saw the smallest number of initial public offerings in the UK in a decade. According to the latest figures from EY, geo-political uncertainty and a wider global economic slowdown are leading companies to be more cautious in the back end of the year.
Storm clouds appear to be gathering for the UK’s investments scene ahead of Brexit’s culmination, as the UK recorded its quietest quarter for initial public offering (IPO) activity in a decade. According to the latest release of Big Four firm EY’s IPO tracker, only four listings took place between July and September 2019.
The news supports evidence gathered earlier in the year by rival firm PwC that the 2019 IPO season would be slow at best, amid the uncertainty regarding the UK’s access to European markets post-Brexit. That study found that the London Stock Exchange in Q1 endured its lowest deal activity in 15 quarters, on the back of political and geopolitical wait-and-see. Globally the story remains much the same, with a rocky start to the year seeing IPO activity falter.
Since then, according to EY, the situation has worsened. In the first nine months of 2019, 24 IPOs were listed in the UK, raising £4.8 billion. This represents a 55% fall in volume compared to the same period last year – when 53 IPOs occurred – as well as a drop in funding from £5.2 billion.
AIM, or the London Stock Exchange, is the most successful growth market in the world. Since its launch in 1995, over 3,600 companies from across the globe have chosen to join AIM. However, there has been a 71% collapse in the number of AIM IPOs year-on-year, with Main Market floats down by just over a third, suggesting confidence in the British market has faltered drastically ahead of the EU-UK divorce scheduled for October 31st.
During the third quarter, this saw just two funds listed on the Main Market and two issuers were admitted to AIM, raising £329 million combined. This followed a stronger second quarter when 15 issuers debuted on the stock market.
Commenting on the state of play, EY UK IPO Leader Scott McCubbin said, "Although quarter three is typically quieter for listings, the subdued markets were particularly telling. To see such low levels of IPO activity we must rewind back ten-years to Q3 2009, when the UK was just starting to pull out of recession."
"The uplift in momentum in quarter two this year looks to have been at the cost of Q3 as issuers drew their plans forward to take advantage of the IPO window, created by the extension of the Brexit deadline. Equally it is likely that companies have postponed their IPOs for more settled times in Q4 or even further ahead to 2020.”
However, according to McCubbin, it is far too early to treat this as a crisis. He also stated that while activity appeared reasonably still, behind the scenes “a number of issuers have signalled their intentions to list later in the year.”
With a strong appetite to float new stock remaining from both overseas and domestic companies “who are ready and waiting in the wings,” and a further Brexit delay still not entirely off the table, IPOs could yet pick up before 2020 is out. On the other hand, McCubbin cautioned that the possibility of a UK general election could “derail plans and push potential issuers to postpone until 2020, to lower the risks of execution."
