Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When the best hope for London’s initial public offering revival comes from tinned fish manufacturer Princes, it is tempting to sneer. But for the troubled UK market, making room for the unglamorous could actually become a competitive advantage.
In an ideal world, the London stock market would be broad and liquid enough to attract IPOs by companies across sectors and scales — from tuna to tech. Homegrown high-fliers such as semiconductor company Arm and industrials equipment maker Ashtead Group wouldn’t feel compelled to cross the Atlantic in the hope of better company and higher multiples, and the UK might even attract assets from the rest of the world.
But if a market can’t be everything, it helps to be something. Building critical mass in a specific segment is better than being thinly spread across the board. Think, for instance, of London’s historical role as a home to natural resource companies such as Shell, BHP, Anglo American and Glencore. When one comes others follow, investors congregate, research lands in inboxes and momentum feeds on itself.
London is well placed to reinvent itself as the market of choice for mid-cap listings — for domestic groups and perhaps internationally. Relative minnows, even those with a US business, risk faring less well in the whale-invested New York waters. A £5bn company listed in London would be almost a fifth of the way into the blue-chip FTSE 100 and would be bigger than advertising group WPP, easyJet and Burberry. In the US, it would be competing for attention with the trillion-dollar set. The smallest company in the Nasdaq 100, according to LSEG data, is IT group CDW, worth $19bn.
Companies with decent growth prospects can also rely on a healthy market for follow-on capital raisings. So far this year, IPOs have accounted for less than a tenth of the equity raised in the UK, with the remaining share going to already listed companies and their shareholders, through primary and secondary offerings and convertible bonds.
Attracting investor interest and reasonable valuations for a hodgepodge of mid-cap industrials is not straightforward, of course. Companies with no comparables can get overlooked in this age of index investing. But stockpicking is not an entirely lost art.
Should London turn into a haven for stocks worth a few billion pounds, it would allow businesses that underpin the economy to attract public investment that in turn spurs further growth. Another constituency that would cheer is private equity, which is sitting on a clogged pipeline of corporate carve-outs in need of a forever home.
If London cannot be home to everything, it could still be home to something. Missing out on the next overhyped tech company isn’t really such a big deal when one has a purpose of one’s own.