Is the London market regaining its fundraising mojo?

The writer is a former global head of equity capital markets at Bank of America and now a managing director at Seda Experts

As the UK gears up for a July general election, London seems to be buzzing again as a hotspot for raising equity.

Last month National Grid launched a superjumbo £7bn rights issue — the largest global equity offering this year — to back a massive investment programme. The FTSE 100 has hit record highs this year amid a rebound in investor interest in UK stocks (although there has been a small retreat in the index in recent weeks). And London has outpaced its European counterparts in 2024, raking in over three times more proceeds from overall share sales than second-placed Paris.

IPO activity has been sluggish, but that’s poised to change. Computer maker Raspberry PI confirmed plans to float in London. Moreover, rumours are swirling about two high-profile names going public in London. Fast fashion behemoth Shein is planning to file for a London listing after pushback from American regulators, and Anglo American is considering a London IPO for its diamonds arm De Beers after fending off suitor BHP. And there’s a solid pipeline of potential new listings, including financial names such as Monzo, Shawbrook and OakNorth.

Meanwhile, UK companies listed on US exchanges are struggling. According to LSEG data, of the 20 UK companies that have made an IPO in the US in the past decade, only four are in positive territory. Eight have delisted, and the rest have plunged by more than 80 per cent on average. Online car dealer Cazoo, which had merged into a US-listed cash shell in 2021, announced it was going into administration. The debut of commodities broker Marex on Nasdaq in late April has been the exception, rising nearly 15 per cent from its IPO price.

So has the City rediscovered its mojo as an equity-raising venue? The short answer is no, and the upcoming election risks distracting from the urgent reforms the UK needs.

Much of the good news hinges on specific, sometimes fleeting circumstances. It all has a contingent, Sliding Doors feel. If Shein and De Beers float in London, it’s due to unique factors. Even if both IPOs happen they’re one-offs, not a reliable gauge of London’s status as a financial centre.

The wave of share sales on the London exchange tells a similar story. Volumes have been dominated by large block trades, such as the Blackstone-led consortium’s exit from LSEG and the sales by GSK and Pfizer of stakes in consumer health spin-off Haleon. Bereft of fund inflows, UK investors prefer putting money into blue-chip names they know over punting in growth companies they don’t.

As for the FTSE rally this year, much of it stems from “bid spec” — speculation that corporates or private equity will launch takeover bids for lowly-valued UK firms. Hargreaves Lansdown’s board has rejected a £5bn offer from CVC, Nordic Capital and Abu Dhabi Investment Authority, but it’s another sign that bargain-hunting predators are circling over cheap-and-cheerless British companies.

London faces supply and demand challenges as an equity-raising forum. On the supply side, the UK isn’t producing enough homegrown champions to appeal to fund managers. Spain, France and Switzerland have hosted more large IPOs in 2024 due to the standout companies they house, not the vibrancy of their financial centres.

On the demand side, years of disjointed policymaking have hollowed out the domestic equity investor base, pushing pension funds and insurance companies away from listed stocks. Retail ownership has plumbed new lows, too. And with Britain’s 0.5 per cent stamp duty, overseas shares are cheaper to buy anyway. A few lucky breaks won’t change the diagnosis. Good businesses will attract capital, but their listing location — whether London, Frankfurt or Copenhagen — is beside the point. London is just one of several serviceable exchanges.

Moreover, competitor venues are breathing down London’s neck. Just last month the EU Parliament adopted the Listing Act to reduce the costs of raising capital, while the UK is at least 12 months away from enacting reforms to its prospectus regime. The supposedly cumbersome EU has leapfrogged the UK — even though Britain had begun its reform process about a year earlier than the EU with the 2021 Hill Review.

UK authorities must not misconstrue the recent momentum for sustainable progress. When the US IPO market hit the doldrums after the financial crisis, lawmakers roused themselves to action, passing the Jumpstart Our Business Startups (JOBS) Act in 2012. With the UK general election slated for July 4, British policymakers should draw inspiration from across the pond and urgently jump-start the City of London’s capital-raising engine.