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The £400mn IPO of tinned fish manufacturer Princes on the London Stock Exchange has been hailed as a sign that life is returning to the City’s moribund equity markets. Business Secretary Peter Kyle called it “part of an energetic turnaround for our economy”.
Not so fast. Peel back the lid, and this IPO — led by an eclectically pan-European consortium of BNP Paribas, Peel Hunt, Rabobank, UniCredit, and Société Générale — falls short of vindicating London’s capital markets. This was a kabuki IPO, where a fraction of the shares on offer were sold to arms-length investors.
The offering drew little enthusiasm, pricing at the bottom of its 475-590p range. Demand was so weak that the bookrunners reduced the overallotment or “greenshoe” option from 15 per cent to 5 per cent. The stock dipped to 470p on Friday before ending flat at the offer price on fairly low first-day trading volumes. Not a disaster but at best a damp squib.
But this tells only part of the story. NewPrinces, the Italian parent company, took £200mn of shares in the IPO. Its largest shareholder, Newlat, snapped up another £55mn. That is nearly 64 per cent of the offering. Add £14mn for retail investors, and institutional buyers (of which there may have been other friends and family) bought up around a third of the deal. Calling this a fully distributed IPO — purportedly the UK’s largest — is generous.
This outcome wasn’t planned but presumably became inevitable after the banks collected weak investor feedback during pre-marketing. When the company announced at the start of the offering that NewPrinces would subscribe for half the shares at a valuation below expectations, its own Milan-listed shares slumped 20 per cent in one day. In effect, the parent spent heavily to support a flotation that London investors largely ignored.
Nevertheless, a banker on the deal told the International Financing Review:
We built the book around top-quality long-only money globally, with a focus on the UK, France, and the Nordics as well as some US momentum.
(Piece of friendly advice: Always disregard these kinds of anonymous statements in the financial trade press, which are as unverifiable as they are unfalsifiable.)
Look, deals like this happen, and feigning shock or outrage is neither productive nor convincing. It’s not a pretty sight, but sometimes the bankers and company rely on friends and family to get across the finish line. The reasons vary: a price that most investors won’t accept, or a business profile that doesn’t suit typical investment mandates. Deal completion takes precedence over genuine price discovery. As long as everything is disclosed, regulators usually let it pass.
And don’t judge London on this rocky debut, either, because much worse deals happen all over the world. On Wednesday, Goldman Sachs and Citigroup priced the $920mn Nasdaq IPO of travel tech group Navan, and the stock sank 20 per cent on the first day. The grass isn’t always greener on the other side of the pond.
The next phase for Princes is predictable. Any initial buzz will fade, trading volumes will shrivel, and the stock will soon be trading “by appointment”. Institutional investors — who need to build and exit meaningful positions — will look elsewhere, whatever the investment merits. Without them, research coverage will wither once the bookrunners realise no one is reading their notes. Princes has its ticker, but it risks becoming an orphan stock unless and until its free float increases dramatically.
Against this backdrop, Peter Kyle’s gushing endorsement looks naive, even if commendably well-intentioned. Ministers should promote robust markets, not single deals, especially when awkward facts may lurk beneath the surface. Political cheerleading seems to jinx offerings. Then-Chancellor Rishi Sunak publicly praised the Deliveroo IPO in 2021, only for it to turn into one of London’s most infamous flotation flops.
Seizing on Princes as proof that London is back feels desperate. A better measure is the £350mn IPO of specialist lender Shawbrook, properly distributed among UK long-only investors and US financial specialists, and rewarded with a positive debut. On the other hand, the £105mn IPO of LED mask maker The Beauty Tech Group slipped below its offer price two weeks after listing in early October.
In sum, this trio of midsize IPOs tell a mixed story. It’s far too soon to (pro)claim a revival. Government reforms such as streamlined listing rules will help, but the real task is creating an environment where companies can thrive and thus attract genuine investor demand.
The Princes IPO delivered the form of a listing but not the full substance. Treating it as a victory blurs the line between political spin and market reality. London’s comeback will rest on real demand for real deals, not stage-managed listings.