Recent weeks have seen various reports and initiatives on what can be done about the decline in the number of IPOs in the UK and the United States, which we’ve reflected in a number of posts including:
- “On ramp”: US legislation proposed to encourage smaller company IPOs
- Smaller UK listed companies: A declining support system
- Encouraging companies to float: Report of the US Taskforce
- Trends in initial public offerings by smaller companies in the EU.
The London Stock Exchange Group (LSEG) has now added to this debate with a paper on “The future of London’s IPO market”, which the LSEG describes as providing a “straightforward and unbiased analysis of the realities of the London listing environment” and contains “a series of recommendations for ensuring the continuation of London as the pre-eminent home for UK and international IPOs”.
The LSEG’s accompanying press release sets out those recommendations:
“Summary of Leadership in a changing global economy: The future of London’s IPO market:
- Issuers should allow more opportunities for extended and widened engagement at pre-IPO stage
- There should be more independent pre-IPO research. This would allow earlier and deeper engagement with a wider set of investors, particularly on corporate governance
- Issuers and advisers should fulfil corporate governance expectations early in the process. This will provide investors with a better understanding of, and confidence in the company, which could enhance the company’s wider reputation, and its performance in the secondary market
2. Pricing and valuation
- Our analysis indicates that concerns that more IPOs in London are trading below their issue price compared to other financial centres, are unfounded
- Over half of London IPOs traded above their offer price a year after they were floated in seven of the last ten years
- Since the financial crisis, London has had the largest percentage of IPOs trading above their offer price compared to the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEx)
3. Deal syndicates
- The size of a deal syndicate should be appropriate to the size and requirements of the IPO. When constructing its syndicate, a pre-IPO company should fulfil its needs with the smallest number of banks, adding more only when there is a specific practical reason to do so
- Syndicates should be carefully constructed and managed to provide clarity of roles, leadership, and coverage. Consideration could be given by the pre-IPO company to appointing a lead member of the syndicate to channel advice from other members of the syndicate to the company and to other market participants
- The study reveals that IPO syndicates in London have not dramatically increased in size. Syndicates in London are significantly smaller than in other leading financial centres
4. IPO fee transparency
- Publish the band for banks’ fees in the prospectus. To increase the level of trust between banks and investors, the former’s fee structure could be made more transparent. The majority of companies already disclose the exact fee they pay to banks. This should be encouraged and as a model of best practice, all companies should at least disclose a fee band (for both the set and discretionary fee) in the prospectus
- Disclose fee structure criteria. As well the disclosure of fee bands, it should be considered best practice in London to disclose the criteria which determines how the banks’ fee is awarded in the prospectus
5. Opportunities for policy makers
- Reinstating the requirement for financial services regulators to consider the UK’s competitiveness. The UK government can help maintain the UK’s status as a global financial centre by reinstating the need for regulators to consider the attractiveness of the UK’s capital markets when regulating the financial services industry
- Abolish stamp duty on share transactions. The UK has the joint highest rate of stamp duty in the world. This puts the UK at a competitive disadvantage when attempting to attract companies to list in London. By abolishing Stamp Duty on shares, the Government has a real opportunity to strengthen our economy.”
The paper points out that the London Stock Exchange is the world’s most international exchange with almost 3,000 companies from over 110 countries listed and traded on its markets.
The paper contains a useful short section on the London IPO process and the roles of each of the main players in that process.
See also “A guide to listing on the London Stock Exchange”.
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