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London Suffers IPO ‘Drought' as Fund Raising Plunges by 90% This Year

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  • Amid a global IPO slowdown, the number of firms listing in the U.K. fell.
  • Funds raised dropped from £14.3 billion to £1 billion, according to data published by KPMG.
  • The slowdown in listings was in line with the European Union, PitchBook figures provided to CNBC showed.
  • But the decline in funds was likely more severe than the European average, per previous trends.

LONDON — Funds raised by companies listing in London plunged by more than 90% this year, according to new research.

Analysts said the market had cooled due to weak economic growth forecasts, rising interest rates and wariness around the performance of British firms.

Year-to-date, 40 firms have floated on the London Stock Exchange's main and alternative investment markets, according to data published by KPMG Wednesday. This is down from 123 last year, but up from 38 in 2020. Total funds raised dropped from £14.3 billion ($17.7 billion) to £1 billion, the research said.

It comes amid a broader slowdown in initial public offerings, which S&P Global found were down 45% year-on-year during the first three quarters globally.

The number of listings on European Union-based exchanges are down by a similar proportion to the U.K. so far this year, by around 66%, figures provided to CNBC by market data firm PitchBook show.

However, London has failed to notch any blockbuster IPOs that raise more than a billion pounds. The EU saw Porsche raise a mammoth 19.5 billion euros at its Frankfurt debut in September.

Previously-published figures for the first nine months of the year place the fall in European funds raised at between 76% and 80% annually, indicating a less severe decline than the U.K.'s 93%.

Like other economies, the U.K. has seen inflation rocket to a 41-year high and its central bank begin raising interest rates. But it has also been rocked by political instability, chaos in its bond market, the ongoing trade and regulatory complexities of Brexit, and forecasts of the longest recession on record.

"The flood of IPOs that we saw in 2021 became more of a drought this year, as adverse macro conditions and a sense of investor fatigue made for a perfect storm, ultimately closing IPO markets in the UK and globally throughout 2022," said Svetlana Marriott, head of KPMG UK's Capital Markets Advisory Group, regarding the figures published Wednesday.

Last year saw a record number of global IPOs and activity in Europe shoot up to a 10-year high.

Nalin Patel, lead analyst for EMEA Private Capital at PitchBook, said companies last year had "rushed to list to take advantage of conducive market conditions and pandemic-induced growth."

But come 2022, Marriott continued, investors may have been cautious following the poor performance of several IPOs.

High-profile London debuts in 2021, including fintech firm Wise, delivery company Deliveroo and shoemaker Dr Martens, are all significantly down on their listing prices. Cybersecurity company Darktrace has also slipped from a post-IPO rally.

British regulators rolled out a set of reforms in December 2021 intended to address longstanding criticisms. Those opinions, which were itemized in a government report, suggested that the U.K. stock market misunderstands and undervalues innovative tech firms, is chiefly comprised of "old economy" companies rather than forward-looking ones, and is increasingly losing business to the likes of Amsterdam and Paris.

The reforms included allowing companies listing on the main market to have a form of dual class share structure (intended to attract more founder-led firms); cutting the number of shares required to be free floating; and increasing the minimum market capitalization for ordinary commercial companies on its main and standard segments from £700,000 to £30 million.

In the volatile year since then, market trends have been more guided by global forces than regulatory action. Marriott said the sector that had performed best in the U.K. was energy and natural resources, which accounted for 20 IPOs.

"But the forecast for next year may not be quite as stormy, as we see many already preparing to launch once more stable economic conditions return," she said.

"We expect public listings to remain muted in 2022," said PitchBook's Nalin Patel. "However, companies in the energy sector may look to benefit from increased focus as well as profits and seek an exit."

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