Another day, another takeover bid for a UK-listed company. In fact, Thursday saw three in one gulp. Bath-based Rotork, which makes safety valves for pipelines, is falling to Swiss group ABB for £4.1bn. Gooch & Housego, a specialist in precision optics for aerospace and defence, is being bought by a US investment firm for £346m. And Ramsdens, a financial services and pawnbroker firm, is also being taken over from the US for £230m.
Individually, the deals represent splendid one-day news for the firms’ shareholders since the premiums on the pre-action share prices are 73%, 41% and 49%. Collectively, however, they are yet another depressing chapter in the tale of London’s incredible shrinking stock market.
Takeover bids are part of listed life, of course, but the problem is that next to nothing has arrived in the other direction via new listings in London. A report this month by the broker Peel Hunt, titled Selling the Family Silver, laid out the extraordinary lopsided nature of what’s happened since the start of 2023.
In that time, there have been 154 bids for UK companies with a market value of more than £100m, adding up to £165bn of stock market capitalisation. To that tally, one can add the £120bn-worth of capitalisation that has departed via seven large companies moving their primary listings from London, usually to the US. And in the other direction? There have been only 11 new listings in London of companies worth £100m-plus, representing a combined £6bn of capitalisation. So £285bn out and just £6bn in.
One cannot say politicians, regulators and the stock exchange itself have been wholly blind to the issue. There have been numerous earnest consultations, worthy taskforces and worried reports, some of which provoked policy changes. The UK listing rules were changed to allow founders to cling on to outsized voting power in the style of US tech bros, for instance.
But it’s time to admit that minor fiddles and warm political vibes have made no difference. The UK market is wide open to bidders. It is underpriced via international yardsticks. Boards are under pressure to sell. And, in a world where the US accounts for about 70% of the world’s stock market value, liquidity gravitates towards New York, at least for firms in the sub-£10bn bracket, which is most of them.
Does it matter? Of course it does. A stock market is meant to be a critical way in which capital reaches wealth-creating assets. Rachel Reeves’s various Mansion House compacts and accords were designed to boost those capital flows, but the chancellor’s definition of “productive assets” was always heavily skewed towards infrastructure and privately owned assets. The public markets barely got a look-in, beyond an ineffectual cap on allocations to cash Isas and a stamp duty holiday for new listings. The approach was doubly odd given that boosting “scale-ups”, another Treasury ambition, can also happen in a vibrant stock market setting.
What could be done? Charles Hall, Peel Hunt’s head of research, offered a long list in his report: a 20%-plus UK weighting in default defined contribution pension schemes; a minimum UK weighting for Isa tax breaks; capital tax reliefs for entrepreneurs listing in London; removing stamp duty on share trading altogether (as also long advocated here); and more.
One cannot say reviving the London market, including new listings, has featured highly in Andy Burnham’s warm-up speeches for Downing Street, however. And the economic priorities of Shabana Mahmood, if she is destined for No 11, are anybody’s guess.
after newsletter promotion
But at least Andy Haldane, who seems to have the ear of Burnham, is full of ideas. Wearing his current hat of president of the British Chambers of Commerce, he called last month for a shift in incentives and tax reliefs to channel more capital into UK firms, pointing out that prior to 1997, the UK’s dividend tax credit regime favoured pension fund investment in UK companies. It’s not about constraining investment choices, Haldane argued, but “about correcting the [absence of] ‘home bias’ that, at present, distinguishes the UK pension system from all others around the world”.
It’s a fair point. If you really want to move the dial on UK investment, the answer inevitably involves the pension system in some way. In a stock market context, it requires the politicians to see there’s something worth boosting. The current hollowing-out is not healthy.