London’s IPO market had a stellar year in 2021, the best in terms of new issues and capital raised since 2014. Deliveroo’s (LON:ROO) IPO raised £1.5 billion at a £4.9 billion valuation, and it was followed by Oxford Nanopore (LON:ONT) achieving a £4.8 billion valuation in its London IPO later in the year.
Since then, it’s been all downhill. Only one company – Ithaca Energy (LON:ITH) – has listed with a valuation of more than £550 million in the interim. That was something of a disaster, with Ithaca’s shares down 43% since its November 2022 IPO.
The downturn in London’s initial public offering (IPO) market is closely interrelated with London’s stock market exodus, as companies that have already listed are quitting the market.
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There are rumours that chancellor Rachel Reeves could cut cash ISA allowances in order to incentivise Brits to invest in their domestic stock market.
However, a clutch of prospective listings, particularly from the fintech sector, could be poised to reinvigorate London’s IPO scene – and that might be just what the UK stock market needs to recapture the attention of domestic investors.
One potential debutant is ClearScore, a personal finance app best-known for providing free credit scores.
ClearScore operates globally, serves 24 million users, and generates over £100 million in revenue. Put that all together, and it’s no surprise that ClearScore is starting to think about listing.
“It’s primarily about size,” ClearScore’s CEO Justin Basini told MoneyWeek. “The size of an IPO and the amount of free float that you have is very important in ensuring that you get the correct sort of attention from the market.”
Groundwork is being laid, though, and Basini thinks that within the next 12-24 months ClearScore could be big enough to attract the attention of institutional investors in the UK – a prerequisite, in his view, to a public listing.
ClearScore is far from alone among UK fintechs, though, in considering an IPO in the near future.
Which companies could IPO in London in 2025?
Should ClearScore decide to list, it would be highly likely to do so in London.
“It’s very important that British companies consider first listing in the UK,” says Basini.
Monzo, Starling and Zopa are among other companies that, according to IG, could be set for a London IPO in 2025.
That reflects, to a certain extent, what Chris Beauchamp, chief UK market analyst at IG, calls “the UK’s natural strength in financial services”.
Fintech, he says, is “certainly a big growth area”. Big consumer names like ClearScore, Starling or Monzo could grab the attention of a general public which has had precious little to get excited about in terms of domestic IPOs for some time.
Outside of fintech, one of the most high-profile IPOs that could take place in London this year is that of Shein. The Chinese fast fashion retailer was rebuffed for a New York debut thanks to concerns over the ethics of its supply chain.
However, the £50 billion valuation it is reportedly seeking would make Shein the most valuable company ever to IPO in London, so it’s understandable that regulators in the beleaguered market are reluctant to rule it out too quickly, despite the ethical and reputational risks.
“If [London] can get [Shein], it’s a major scalp,” says Beauchamp. “For better or worse, people may be willing to look past some of the issues with that listing.”
Why could fintech revive London’s IPO market?
While London lacks Silicon Valley’s pedigree as a technological centre, it has always been a hub for financial services and financial innovation. As such, many of the drivers of the blossoming fintech sector are rooted in the UK; it was the first country to adopt Open Banking, back in 2018.
“That environment has created a real depth in companies that are fast-growing, and understand financial services and where it’s going,” says Basini. That opens the door for a cohort of publicly-listed fintechs that are well-regarded by global investors and, crucially, well-known to British investors, boosting the UK’s stock market.
“Momentum has to be there in all things financial markets,” says Beauchamp. “If you get enough companies just to move the mood music enough, to change sentiment, that could create a reason to be more confident,” he says.
Fintech IPOs would also give the UK’s stock market more technological dynamism – something to grab the attention of investors who are otherwise pouring their money into the likes of Nvidia, Tesla and Meta’s shares.
That’s why consumer fintechs like ClearScore or Monzo would be particularly powerful IPOs for London; not only are they innovative and tech-driven, but they are also household names.
Will Monzo IPO in London?
Monzo has hinted at an IPO for several years running, but it’s yet to transpire.
“It’s at the point where Monzo has to put its money where its mouth is,” says Beauchamp, adding that it would “make life more interesting for the UK stock market” if the company were to pursue a London IPO.
It’s unclear, though, whether Monzo would IPO in the UK, or follow in the footsteps of British and European fintechs that are looking at listing further afield. Sweden’s Klarna and the UK’s Revolut are both reportedly eyeing IPOs in the US.
According to the FT, the neobank’s board favours a London IPO, but Monzo’s CEO, TS Anil, would prefer to list in the US.
Monzo’s CEO, TS Anil, reportedly favours a US listing over London.
(Image credit: Chris Ratcliffe/Bloomberg via Getty Images)
At the time of publication, Monzo had not yet replied to MoneyWeek’s request for comment on the timing or location of a potential IPO.
Are conditions improving for London IPOs?
Many IPO investors got burned by the over-exuberance that set in during the 2020/21 market boom, and pessimism that followed has undoubtedly subdued activity in London’s IPO market.
Now, though, the macroeconomic backdrop may be turning slightly more favourable, and sentiment is creeping back upwards.
“There seems to be more optimism,” says Beauchamp. “If you look at a world where rates are coming down a bit, it makes consumers a bit happier to spend more.” Fintech performance is closely linked to consumer spending, particularly for neobanks.
“Despite the gloomy economic data, there seems to be some hope the UK has turned a corner,” Beauchamp adds. “IPO markets stand and fall by risk appetite.
“There was so much doom and gloom around UK PLC last year, with so many companies being taken over. It felt like, ‘would the last person to leave the LSE please turn out the lights?’
“If you could see some improvement in the economy generally then that should help to give the IPO market a bit of a shove.”
It should be noted that Beauchamp comments predate February’s consumer price index read, which came in above expectations at 3% – which could slow the Bank of England’s rate cutting cycle and thereby dampen consumer appetite for credit.
Ongoing regulatory improvements should benefit the market. The Financial Conduct Authority (FCA) initiated a set of sweeping changes to listing rules in July last year, aimed at streamlining the listing process for companies hoping to IPO in London. Consultations are underway for a new private stock market, PISCES, which “could act as a stepping stone to public markets” for private companies, according to Simon Walls, interim executive director of markets at the FCA.
Reforms like these “position London to have a resurgence”, says Basini.
The US stock market could also be a victim of its own success. Global investors can only fixate on one market for so long before valuations start to get stretched; that’s something that a single glance at the big tech megacaps can tell almost anyone. It also makes the prospect of listing in the US less favourable for mid-sized firms.
“The fundamental thing that I think is very interesting for London versus the US is that, while you still get all the international investors looking at IPOs in London, the attention you get at a smaller market capitalisation is much greater,” says Basini. He adds that IPOs at sub-$10 billion valuations don’t garner much attention in the US these days, and “falling beneath the radar in the public market is not helpful”.
“The very premier nature of a US listing might work against them, because the expectations are much higher,” says Beauchamp. With a London IPO, “you might get a lower valuation, but if that means your shares do better in the aftermath, that could be an interesting angle to take.”
While all these factors add to London’s appeal, Basini views the listing decision as more intrinsically-driven; essentially, the biggest determinant will be whether or not the company is ready to list, and whether going public is in its best interest. While ClearScore is profitable, and therefore doesn’t necessarily need to go public for funding, accessing the public market could turn out to be the best approach for its future growth.
Basini, though, views any potential IPO as the next step in a journey, rather than the destination in its own right.
“I see an IPO as the start of the next chapter of ClearScore,” he says. “Everybody talks about ‘exit’. It’s not an exit; it’s opening another door, walking through it, and stepping into a new room.”
How to invest in an IPO
Once a company is publicly listed, you can buy and sell its shares just like any other stock. However, if you want to take part in the IPO itself, you’ll usually have to register beforehand.
Most of the major investment platforms, including Hargreaves Lansdown, AJ Bell and Interactive Investor, have specific processes to follow if you wish to invest in an IPO through their platform.
It’s important to remember, though, that investing in IPOs carries a high degree of risk, as does all investing. It’s not advisable to invest in them with money you can’t afford to lose.