Stepping up, not slowing down: How London’s equity markets are supporting the healthcare and technology sectors during the COVID-19 pandemic
Despite the market turbulence caused by the COVID-19 pandemic, companies listed on London’s markets have had continued access capital - not only to strengthen their working capital requirements but also to drive innovation and fund growth. The technology and healthcare sectors have been prominent in their activity.
In the first half of 2020, companies have raised £23.7bn in IPO and further capital on London’s Main Market and AIM. The size of the transactions ranged from £5m to £2bn, highlighting the sheer range and scale of capital that can be raised in a very short time.
Since 1 March, seven of the top 20 largest European transactions have been executed on London Stock Exchange, with deals in London accounting for 43% of total capital raised across Europe during this period. In the same period, 249 follow-ons have raised £17.4bn. London has been the most active equity market in Europe by a considerable margin, with three times more transactions than the next most active exchange.
The technology and healthcare sectors accounted for more than one-quarter of the total capital raised in London in the first half of 2020.
In healthcare, the number of deals in the first half of 2020 was at its highest since 2008. Healthcare companies raised just over £2bn in 40 transactions on the Main Market and AIM. Deal activity was up by 25% over the same period last year.
AIM - which celebrated its 25th anniversary in June - was particularly strong. That is testament to the growth of its healthcare sector. Companies raising finance on the market included Polarean Imaging, Abcam, Diurnal, Faron Pharmaceuticals, Horizon Discovery and Avacta. Eight of the top 10 European growth market deals over the first half of the year took place on AIM. This activity is more than three times higher than the next largest European growth market.
Several companies raised capital specifically to adapt and accelerate their work in direct response to the pandemic. AIM-listed Synairgen raised £14m to fund its clinical trial on the effectiveness of its SNG001 respiratory drug on COVID-19 patients. Oxford Biomedica1 used some of the proceeds from its £40m fundraising for resources relating to its work in a consortium led by the Jenner Institute, Oxford University, to develop and manufacture a potential COVID-19 vaccine candidate.
However, healthcare companies have not just raised capital for fighting coronavirus. Of the 40 healthcare deals in the first half of 2020, 11 specifically mentioned Covid-19. This amounted to £278m or 14% of all healthcare capital raised. The majority of healthcare companies have been looking to build up their research and clinical development activities as well as to enhance their financial resilience and their strategic flexibility.
London’s technology sector has continued to shine. The pace and level of transactions of the past few years has not flagged in the face of the pandemic. There were 42 deals in the first half of 2020 – the same number as in the previous two years. Not only were tech companies just as active, they raised more capital. Nearly £4.4bn was raised in follow-on capital on the Main Market and AIM –15% greater than any first half-year period since 2008. Tech companies raised more than £1bn on AIM alone.
We have seen how some larger tech companies were able to use the temporary measures which were put in place by regulators to give listed companies extra flexibility - while retaining an appropriate degree of investor protection. These include the temporary relaxation of the Pre-emption Group Principles, supporting non-pre-emptive issuances by companies of up to 20% of their issued share capital (ISC).
Companies such as Blue Prism and WANDisco have raised capital from existing and new investors to fund continued innovation while strengthening their balance sheet. Many of these issues have been oversubscribed.
For many technology companies the current market dynamics have presented numerous attractive acquisition opportunities that require the ability for fast execution including readily available capital to deploy in order to successfully deliver on these opportunities. Companies such as Boku 2, Learning Technologies 3 and Keywords Studios 4 have successfully raised finance to execute their acquisition strategies.
Capital raising has happened quickly – often taking about one week. They have been orderly and have been executed with a level-headed approach to discounts. Since 1 March, the average discount to last close for transactions above £5m has been 5.3%. The accelerated bookbuilds of some companies - such as Asos – were raised at a slight premium. The subsequent average price performance of transactions (above £5m) since 1 March has been positive - up 8.6%.
One important factor behind this has been the flow of funds into UK fund managers over this period. The UK has been one of the few markets to experience net inflows – so fund managers have been able both to meet liquidity calls and to invest in growth opportunities. For investors, the distinct drivers of the healthcare sector often allow them to access uncorrelated returns relative to the broader market. This has been evidenced by the strength of the sector’s performance in the first six months of 2020.
Another notable feature has been the appetite of retail investors to participate in these fundraisings, which has been facilitated in part through the fintech platform, PrimaryBid. It has been utilised in multiple placings over recent months including those by Avacta and Ocado. The platform has enabled retail investors to access capital raisings on the same terms as institutional investors.
It is clear that companies in the technology and healthcare sectors have been able to access markets very efficiently with new and existing investors willing to take a long-term view and to continue to deploy capital to support businesses.
Healthcare and technology companies have been able to use their public listing to raise capital on tight timetables – something that they would have had difficulty achieving in the private realm. This has provided a renewed sense of value of the public markets.
The desire for investors to gain further exposure to these sectors is evident. We are seeing discussions about IPOs accelerating, many of which had been put on hold as a result of the volatile market conditions but which are now being reinvigorated.
Other companies that had previously been considering alternative sources of finance, such as the private markets, often involving greater debt levels and time-limited exit strategies, are revisiting whether the public markets would best help them achieve their ambitions. They are assessing their capital structures and how they want to take their business forward. The ability to have a permanent capital structure in the public markets has become more appealing.
The drivers behind the capital raising activities of the healthcare and technology sectors may differ but neither looks set to slow down as we start the second half of 2020.
Head of London Stock Exchange Equity Primary Markets
London Stock Exchange Group