Initial public offerings (IPOs) : Why companies from the MEA region are talking about London listings
This year, four of the largest five Middle East and African IPOs have listed solely in London. The flotations of Network International, Airtel Africa, Finablr and Helios Towers 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 management teams across the Middle East, Africa and India; 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, common themes and questions arise.
They are keen to explore the relative merits of a London IPO compared to one on their local exchange, as well as the option of a dual listing. In some cases, they also want to understand the advantages of London over other international exchanges.
London’s key sector strengths
London’s sector strengths are highly attractive. Take the area of fintech and payments technology. The flotations of two Middle Eastern enterprises - Network International, which raised $1.6bn at a valuation of $3.4bn, and Finablr, which raised $394m at a valuation of $1.6bn - demonstrated how London’s global expertise can provide worldwide visibility and strong valuations.
We talk to businesses in the region who wish to pursue a dual track approach, considering both an IPO or a trade sale as a means of obtaining the highest valuation. However an IPO can be the start of an exciting new chapter - and London’s liquidity provides a powerful driver for that future growth.
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 nine months of 2019, for example, IPOs accounted for just over £6bn of the total of £24bn raised across our markets. The depth of the London market - and its experience in accelerated offerings - is a particular factor which is discussed when a business has a number of shareholders that wish to sell down subsequently.
Building future capital raising capacity
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.
Growth-hungry companies in Middle East, Africa and India are attracted by the potential of the valuable new acquisition currency that a London listing provides them. Since 2016, London-listed companies 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. In most local exchanges across the Middle East, Africa and India, the percentage of domestic investors will be well above 80%.
For a growth business such as Helios Towers, which raised $366m at a valuation of $1.5bn in October 2019, an important addition factor behind its London IPO was eligibility for the FTSE’s UK Index Series. This helps to build greater liquidity for Main Market companies by providing investors with clear and independent benchmarking of stocks, sectors and the market as a whole.
The profile and prestige that comes from a London listing can carry significant value, particularly for a company with an international customer base.
We are often asked by executive teams about which of our market segments will most suit their needs. The LSE 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.
External conditions always feature in our conversations. During times of market volatility or political uncertainty, management teams do ask whether they should delay their IPO process.
The facts show that IPOs have been not been as plentiful in 2019 as in the previous year. Yet London has outperformed in this tough market: while IPO volumes showed a global 20% drop in Q1-Q3 2019 compared to the corresponding period in 2018, London’s volumes increased by 2.3%.
How long will an IPO take?
There’s one other recurrent theme in our conversations- the length of the time of the IPO process. London’s long-recognised advantages of its globally respected regulatory infrastructure and legal system help to provide an attractive environment for IPOs. Clear rules around issues such as governance and disclosure provide predictability and certainty for all parties.
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.
How companies from the Middle East, Africa and India can ensure that their building blocks are in place is a 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 Africa, Middle East & India, Primary Markets