5 minute read 28 Oct 2019
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Q3 2019: The quietest for UK IPOs in a decade – but activity is on the horizon

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EY UK

Multidisciplinary professional services organisation

5 minute read 28 Oct 2019
Related topics Growth

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Our latest IPO Eye reveals Q3 2019 as the quietest quarter for IPOs in a decade.

Following a resurgence of activity in Q2, the London Stock Exchange saw a very quiet quarter with just four IPOs collectively raising £329mn. Impacted by the level of political uncertainty in the UK and wider geopolitical tensions, the Main Market saw two IPOs which raised a combined £150mn, while the Alternative Investment Market saw two new admissions which raised £179mn.

The third quarter of the year is usually quieter as the listing window tends to reopen after the summer holidays, leaving only September for deals to come to market. However, this quarter has been unusually quiet, with just four IPOs, and we need to go back a decade, when the UK was emerging from the recession, to see lower levels of deal activity.

In the first nine months of 2019 (YTD) 24 IPOs, raising £4.8bn, came to market in the UK; 55% less in volume than the same period last year, when 53 IPOs raised £5.2bn.

Main Market

£150mn

The amount raised by Q3’s two floats on the Main Market

So far 2019 has seen a dramatic 71% fall in the number of AIM IPOs year-on-year, whilst the number of Main Market IPOs was down just over a third (36%).

It seems that the uplift in momentum in Q2 this year  looks to have been at the cost of Q3 as issuers drew their plans forward to take advantage of the IPO window created by the extension of the Brexit deadline. Equally it is likely that companies originally targeting H2 2019 may have postponed their IPOs for more settled times in 2020.

The economic and political uncertainty in the UK and wider geopolitical tensions resulted in the lowest deal activity in a decade.

Broader market activity is still ongoing, with follow-on still taking place, but slightly reduced activity as some 123 issuers raised a further £4.5bn in the quarter, demonstrating the depth of capital available in the London markets.

The economic and political uncertainty in the UK and wider geopolitical tensions resulted in the lowest deal activity in a decade.

Alternative Investment Market

£122mn

The amount raised by UniPhar, Q3’s largest IPO on AIM

Aftermarket performance

Newly listed stocks across both Markets delivered returns of 2% on average above list price as at the quarter end, with all of the companies trading above their flotation price at month end. For the year to date some 80% of IPOs are trading above their listing price at the quarter end.

Volatility

In line with global equity markets it has been quite a volatile quarter, with US-China trade tensions and worries about a potential global slowdown triggering a sharp drop in equities at the end of July and the start of August. Since then the FTSE 100 has risen in line with other global benchmarks but has been outperformed by the FTSE 250. This performance has been driven by a range of good corporate results and takeover offers in the market driving an increase in prices.

Global IPO activity

Mirroring the performance in London, global IPO activity remained tepid. Compared to Q3 2018, the number of IPOs globally coming to market in Q3 2019 were down 26% to 249, whilst proceeds fell 24% to US$39.1bn.

Affected by geopolitical volatility, IPO activity in the Americas was down by almost a third in the first nine months of 2019 (YTD), compared to the same period in 2018, and EMEIA exchanges saw a 52% drop in volume.

Although the number of IPOs listed was down in Asia-Pacific by 9% YTD, this was offset by the launch of the much-anticipated Shanghai’s STAR Market in July, which elevated activity.

Looking forward

Unprecedented political uncertainty in the UK makes predicting the level of activity in the short term particularly challenging, with some potential issuers postponing deals.

That said, there are some positive signs of a busier time ahead, with several issuers signalling their intentions to list later in the year. It must be noted, however, that these are generally overseas entities rather than domestic issuers.

IPOs remain on the agenda and there is an ongoing pipeline of activity as issuers prepare to list in 2020. Investors may initially look to sectors with a strong track record, so we may see more traditional sector IPOs rather than technology companies and unicorns into the first half of 2020.

Globally

Outside the UK, the outlook for the global IPO activity is clouded due to the US-China-EU trade issues and social unrest in Hong Kong, all of which are impacting global capital markets. Once there is more clarity to these uncertainties, we expect a number of IPOs will come to the market.

Whilst activity appeared reasonably still in Q3, behind the scenes a number of issuers have signalled their intentions to list later in the year. A strong appetite to float also remains from both overseas and domestic companies.
Scott McCubbin
EY UKI IPO Leader

IPO candidates that are prepared and determined to press ahead in Q4 2019 may have to accept lower valuations in line with recent stock market performance.

We have seen a number of large anticipated offerings postponed and may also see some other IPO candidates seek alternate fundraising routes that offer higher valuations or reduced transaction risk. In either case, the Q4 2019 outlook has a ‘wait-and-see’ feel as IPO candidates assess which way the wind blows.

Given the ongoing volatility, we continue to see a balance between high growth potential and more traditional, less risky IPOs coming to the public markets. We anticipate more health care IPOs in the Americas market, while industrials will likely dominate in Asia-Pacific. In EMEIA, we expect to see IPOs from technology-related and traditional sectors.

“Whilst activity appeared reasonably still in Q3, behind the scenes a number of issuers have signalled their intentions to list later in the year. A strong appetite to float also remains from both overseas and domestic companies who are ready and waiting in the wings,” said Scott McCubbin EY UKI IPO Leader.

Summary

Q3 only saw four IPOs, collectively raising £329mn. The largest were JPMorgan Global Core Real Assets (Main Market), and UniPhar (Alternative Investment Market). So far 2019 has seen a dramatic 71% fall in the number of AIM IPOs year-on-year, whilst the number of Main Market IPOs was down just over a third (36%).

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By

EY UK

Multidisciplinary professional services organisation

Related topics Growth