5 minute read 22 Oct 2020
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London IPO activity resumes in Q3 2020

By EY UK

Multidisciplinary professional services organisation

5 minute read 22 Oct 2020
Related topics IPO

London IPO activity resumes after COVID-19 suspension in Q2 2020.

In brief
  • Main Market saw its largest IPO for three years and the largest tech IPO - The Hut Group which raised £1.88b.
  • AIM market saw three new admissions which raised £76m in Q3.
  • London placed at the top of the table of European exchanges for fundraising with over £32b of equity raised this year.

Following a quiet Q2 when the pandemic brought IPO activity to a near halt, market activity has returned to the London Stock Exchange with four IPOs in the quarter plus a new listing through the Shanghai London Stock connect program.

The Main Market hosted its largest IPO for three years and the largest tech IPO when The Hut Group raised £1.88b and listed in the Standard segment of the market in September. China Yangtze Power Co. also raised £1.4b through listing GDRs on the Main Market via the London Shanghai Stock Connect program which has raised £3b in total this year on just two listings.

In this quarter, AIM has also entered its 26th year of operation and witnessed a further three companies joining the market, together raising £76m. The largest of these being Kooth PLC which raised £26m.

Follow-on activity has continued in the quarter, not quite at the pace we saw in Q2, but over 125 follow-on transactions were priced on both markets, raising over £5b. This brings the total equity raised this year to over £32b which is a 36% increase on performance last year and places London at the top of the table of European exchanges for fundraising.

UK IPO market activity has restarted with the largest IPO in more than three years coming to market in Q3 2020. This not only signals an increase in appetite for companies to list, but a successful adoption of virtual IPO marketing in place of the traditional face-to-face meetings
Scott McCubbin
EY UKI IPO Leader

Virtual roadshows

Given the restrictions on face-to-face meetings, we have seen that virtual roadshows have been adopted by issuers instead of the traditional two-week marketing period meeting investors face-to-face. Once life returns to something near to normality it will be interesting to see if this trend continues or deal teams revert to more traditional marketing routes. In all likelihood it will move to a hybrid model of both face-to-face and virtual, but only time will tell.

Market performance

The Main Market indices are all trading broadly 22% lower than the start of the year but have recovered from the losses witnessed earlier in the year. With major market sector constituents such as oil & gas, travel and financial services still feeling pressure from the pandemic, it is unlikely the market will recover until these sectors themselves see some recovery. By contrast, the NASDAQ market with significant weighting towards technology is trading some 20% above the position at the end of 2019.

The AIM has outperformed the Main Market in the year to date, trading broadly where it started the year. This has been driven by growth in online retailers share prices as a result of changes in consumer buying behaviour, as well as, companies in the healthcare sector selling COVID related products and potential treatments.

Global IPO activity

Mirroring the restart of activity in London, globally Q3 2020 was the most active third quarter in the last 20 years by proceeds and the second highest third quarter by deal numbers. Exchanges around the world posted 447 IPOs with proceeds totalling US$95.0b, 78% and 138% higher than this time last year. The stellar record by proceeds can be attributed to the most active August and September for IPOs in the last 20 years.

 Shanghai, Shenzhen and NASDAQ exchanges led by deal numbers in Q3 2020, accounting for 54% of global IPOs. Shanghai dominated global exchanges by proceeds in Q3 2020, accounting for 25% of global IPO proceeds, while the NYSE and NASDAQ ranked second and third (each accounting for 17%). Technology, healthcare and industrials were the most active sectors on these four exchanges.

To find out more about the global IPO activity in this quarter, visit our Global IPO Trends following the link here.

Looking forward — 2020

After a break in Q2, market activity has returned and we expect this to continue. The markets have successfully operated during lockdown and the IPO process has adopted to working in the COVID world.

Despite the pandemic there is a healthy pipeline of companies wishing to IPO, with a number having already come to market at the start of Q4. We can expect further issuances from technology-based companies that have been less impacted by physical restrictions and whose business plans may have actually been accelerated by the pandemic.

More traditional businesses may need to sit on the side-lines until the impact of the pandemic recedes.

We will also continue to see an elevated level of follow-on issues, as companies seek to repair COVID impacted balance sheets and other listed companies take advantage of situations that may arise and transact deals with concurrent equity offerings.

That said, we should expect the unexpected in Q4. With the US election in early November, Brexit trade negotiations still on-going and the potential resurgence of the pandemic there are numerous factors that can drive an increase in market volatility.

Globally - optimism, with some fragility, is expected in global IPO markets. The Asia-Pacific markets are on track to exceed their 2019 performance and in the Americas strong IPO markets are expected to continue through the end of the year and we expect a higher level of IPO activity around US election time due to the strong IPO pipeline built up during the lockdown.

In terms of sectors, we believe that technology, health care and industrials will continue to be the most popular investor choices along with companies that can demonstrate resilience and adapt to the current environment, or those that have an opportunistic advantage in the new norm.

If we have learned anything from 2020, it is to take nothing for granted and while we expect the IPO market to remain buoyant and deal pipelines are strong, there are potential challenges ahead with the US election and UK/EU relations still being negotiated so issuers need to be ready to take that opportunity of a market window
Scott McCubbin
EY UKI IPO Leader

Summary

London IPO activity resumes in Q3 2020 as both markets successfully adapted to operating in predominantly virtual environment as a result of COVID-19.

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By EY UK

Multidisciplinary professional services organisation

Related topics IPO