Initial public offerings (IPOs) : Why companies from around the world are talking about London listings
This year, six of the top 10 IPOS in London have been from international issuers, including four from the Middle East & Africa. This highlights London Stock Exchange’s position as the world’s leading cross-border IPO destination. Throughout the year, the London Stock Exchange team has been discussing growth aspirations with international management teams operating around the world; how an IPO can help to deliver these and how London Stock Exchange can support these plans.
While every company has its own particular reasons for taking this important step, we hear common themes and questions in our discussions.
International management teams are keen to explore the relative merits of a London Stock Exchange IPO, as well as the option of a dual listing alongside one on their local exchanges. In some cases, international management teams also want to understand the advantages of London over other international exchanges.
Some of London’s advantages have been long recognised. The global investor reach and liquidity that London offers, the quality of the advisory ecosystem and the UK’s globally respected regulatory infrastructure and legal system combine to provide an attractive environment for IPOs.
The world’s most international exchange
London hosts the largest percentage of international companies compared to its global peers, with 38% of our 2,076 issuers being international. Issuers from 107 countries are currently listed on London Stock Exchange. Dual-listed or traded companies represent over 25% of the total listed universe.
International management teams know that an IPO is just the start of the next stage of the journey. What they are keen to discuss is how London’s liquidity can help drive their future growth. An IPO is just the beginning of life as a public company, so the idea that further capital may be available to support growth is important. In any given year, the amount of money raised by listed companies in follow-on capital is three to four times the amount raised on IPOs. In the first three months of 2019, for example, IPOs accounted for just over £6bn of the total of £24bn raised across our markets.
Building capital raising capacity for the future
One clear trend that we are seeing is for private companies to add a London listing not to raise funds immediately but in order to build their capital raising capacity for the future. One example of this is Resolute Mining; initially an ASX listed company, it added a London listing in June 2019 in order to build incremental liquidity and broaden its investor base through London.
Wherever in the world we have our conversations, we find that growth-hungry companies are attracted by the potential of the valuable new acquisition currency that a London listing provides them. London-listed companies have been energetic in exploiting this: since 2016, they have used their paper to buy businesses in 60 countries. London-listed paper is recognised around the world as a powerful currency. It is a significant advantage for any company seeking to expand its global footprint through acquisition - and is unmatched by any other exchange in the world.
Tapping into an international investor base
While an IPO enables existing shareholders to monetise all or part of their stake, it also provides an opportunity to diversify its shareholder base. As the most international of all stock exchanges, a London listing enables international companies to tap into London’s uniquely diverse international investor base. UK investors typically comprise less than half (49%) of the shareholder register of London-listed securities. (On US exchanges, domestic investors will account for close to 90%).
We are often asked by executive teams about which of our market segments will most suit their needs. London Stock Exchange is rightly proud of its innovations which have created numerous entry points for companies of all sizes and stages of growth. Issuers can choose the world’s leading growth market, AIM, as well as Standard or Premium listings on the Main Market. The Main Market offers further options such as the High Growth Segment and the recently launched Shanghai-London Stock Connect programme.
While IPOs have not been as numerous in 2019 as in 2018, London has outperformed in this tough market. The value of capital raised via IPOs globally dropped 20% in Q1-Q3 2019 compared to the same period in 2018, while in London the value of capital raised actually increased by 2.3%.
How long will an IPO take?
There’s one other recurrent theme in our conversations- the length of the time an IPO process will take. This depends on your timescale and that, in turn, should be dictated by the readiness of your business.
We spend a lot of time talking with companies about how they can work with advisers to prepare a clear roadmap towards their IPO and putting the foundations in place, such as developing the equity story, preparing historic financials, building a robust business plan, identifying the KPIs for the business going forward and building out the company’s board to prepare for life as a plc. In addition, it is critical to identify key investors and start to educate them on your story and build up trust and relationships with them. This long-range education of investors has been a major development in the IPO process over the past decade; it is an important process in which London Stock Exchange and professional advisers can help. If all the building blocks are in place, then an IPO process may take between four to six months.
Making sure that those building blocks are in place is the focus of our IPO Forum at which questions, issues and concerns are raised in a private environment with investors, advisers and CEOs who have been through the process.
Head of International Business Development, Primary Markets