The London Stock Exchange (LSE) has long been a symbol of Britain’s vibrant economy and free-market ethos.
Home to some of the world’s most influential companies, the FTSE 100 Index has been an international benchmark for decades. However, in recent years, the once-vibrant trading hub has faced a series of challenges, with trading volumes slumping and several high-profile companies opting to list their shares elsewhere.
In 2023, the total value of companies listed on the LSE hit $3.18 trillion, overtaking Paris as Europe’s most valuable stock market. This milestone was seen as a testament to the UK’s resilience and the enduring appeal of London as a global financial center. However, the celebration was short-lived, as the city’s initial public offering (IPO) market struggled to keep pace.
Companies raised just $1 billion on the LSE in 2023, the lowest figure since 2009. This underperformance was particularly notable given the global drought in IPO activity during the same period. The failure to secure the listing of Arm Holdings Plc, one of the UK’s most important technology companies, was a bitter blow, with the company’s Japanese parent, SoftBank Group Corp., choosing to list in New York instead.
The trend of British companies opting to list on foreign exchanges is not a new one. Over the past decade, a number of prominent firms, including those based in the UK, have chosen to go public in the United States rather than on the LSE. This has driven up the value of American stocks, further encouraging more companies to list there.
The S&P All-Share index, which tracks the value of every listed company in the US, has soared by over 85% in the last five years. In contrast, the equivalent FTSE All-Share index has increased by less than a tenth over the same period. This disparity has fuelled concerns that the UK is falling behind in the global race for tech listings and innovative companies.
The Challenges Facing London’s IPO Market
The decline in London’s IPO market can be attributed to a combination of factors, ranging from regulatory hurdles to broader economic uncertainties.
One of the key issues hampering the LSE’s appeal has been the perceived rigidity of its listing rules. Companies, particularly in the tech sector, have often complained about the lack of flexibility around issues such as dual-class share structures and founder control. This has led some to opt for more accommodating exchanges, such as those in the US, where such structures are more readily accepted.
The UK’s economic landscape has also played a role in the IPO slump. The fallout from Brexit, a weak pound, recession fears, and the broader macroeconomic headwinds have all contributed to a climate of uncertainty that has made investors and companies wary of committing to public listings in London.
The rise of other European tech hubs, such as Paris and Berlin, has also posed a challenge to London’s dominance. These cities have been actively courting high-growth companies and offering attractive incentives and regulatory environments to lure them away from the UK.
The Consequences of London’s IPO Drought
The decline in London’s IPO market has far-reaching implications for the UK’s economy and its position as a global financial center.
The lack of high-profile tech listings in London has made it more difficult for the city to retain and attract top talent. Successful entrepreneurs and engineers often seek out the prestige and financial opportunities associated with taking their companies public, and the absence of such opportunities in the UK could drive them to look elsewhere.
The IPO drought also has implications for the broader investment landscape in the UK. With fewer companies going public, there are fewer opportunities for investors to participate in the growth of innovative, high-potential businesses. This, in turn, could lead to a slowdown in investment and hinder the UK’s economic growth.
The failure to secure the Arm Holdings listing was a particularly damaging blow to London’s reputation as a hub for tech and innovation. It reinforced the perception that the UK is falling behind in the global race for the next generation of tech giants, which could make it more difficult to attract future investment and talent.
The Government’s Response and the Path Forward
Recognising the importance of a thriving IPO market, the UK government has taken steps to address the challenges facing the LSE.
In 2023, the government announced plans to overhaul the UK’s listing rules, including relaxing restrictions on dual-class share structures and making it easier for high-growth companies to go public. These reforms are aimed at making the LSE more attractive to tech firms and other fast-growing businesses.
The government has also introduced a range of incentives and support measures to encourage more companies to list in London. These include tax breaks, access to funding, and initiatives to strengthen the UK’s tech ecosystem.
Beyond regulatory changes and financial incentives, the government has also focused on bolstering the broader ecosystem that supports the growth of innovative companies in the UK. This includes investments in education, research and development, and initiatives to foster collaboration between industry, academia, and the public sector.
The Zilch Saga and the Future of London’s IPO Market
Buy-now, pay-later (BNPL) fintech firm Zilch has said it could list abroad without UK government measures to boost capital markets and investment in tech companies.
As the Financial Times reports, CEO Philip Belamant said the company was waiting to see policies aimed at fostering “liquidity and excitement around IPOs” in the UK before committing to a London listing.
The company’s concerns echo those of other tech firms, which have cited the rigidity of the UK’s listing rules and the lack of a supportive ecosystem as key factors in their decisions to list elsewhere.
