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London's Stock Market Is Shrinking Faster Than European Rivals -- Financial News

16/11/2020 2:08pm

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By Paul Clarke and Lina Saigol

Of Financial News

 

U.K. equity markets are shrinking faster than any of their European rivals as more companies choose to remain private and shun public markets.

The number of companies listed on the London Stock Exchange fell by 21% in just eight years, according to a report for the European Commission by economics consultancy Oxera.

The decline of 378 between 2010 and 2018 was the largest numerical fall among all European markets, the data shows. Across all exchanges in the European Union, there was a net fall of 12%, or 854 companies.

"London has borne the brunt of the public equity market shrinkage in Europe," said Reinder van Dijk, partner and head of the financial services team at Oxera. "The benefits of listing a company aren't as clear to businesses as they once were and as a result many firms are seeking to raise funds in the private markets instead."

Of the major European markets, only Frankfurt saw a steeper percentage decline than London, with companies on the city's stock market falling 34%. The number of companies listed in Paris tumbled by 14% over the same period.

However, Stockholm saw a 77% rise, with 241 companies added to its exchanges, while Milan recorded a net growth of 52 companies, a 19% increase.

"While London Stock Exchange is still Europe's biggest equity market, its lead isn't as secure as it once was," Mr. Van Dijk said. "The Euronext group of exchanges seems likely to become bigger in the near future. These trends in growth are now very well-established, and it is difficult to see them changing in the short term."

The shrinking U.K. equity markets have prompted several large investment banks to establish capital markets teams in Europe dedicated to helping raise money for private companies as they turn their backs on public markets.

Citigroup launched an alternative capital team in July, led by senior banker Giacomo Ciampolini.

"Companies are raising greater sums of money privately--firms that would have previously waited a couple of years and then IPO'd. This is a long-term trend that is here to stay," Mr. Ciampolini said at the time of the launch of the new team.

The relative high cost of raising public-equity capital compared with private-equity markets has been a main driver of the shrinkage of London's equity markets, Oxera's findings showed.

Technology companies are spending less time on stock markets, as private-equity firms, armed with a record amount of dry powder, move fast to take them private.

The median time from initial public offering to buyout since the financial crisis has narrowed to around six years, according to recent data by PitchBook.

At the smaller end--for deals worth $400 million to $1.25 billion--the time to buyout nearly halved from 12.2 years since 2015. Meanwhile, for companies worth between $1.25 billion and $4 billion, the median time to being taken private fell from 9.8 years to 6.4 years over the same period.

Private-equity buyouts have also accelerated the trend. For example, the buyout of U.K. cybersecurity specialist Sophos by U.S. private-equity firm Thoma Bravo in March 2019 for 3.9 billion pounds ($5.15 billion) was one of the largest delistings in recent years.

The number of companies being taken off the U.K. market aren't being replaced with new IPOs, a trend exacerbated by the Covid-19 crisis this year.

Hopes were raised in September that more tech listings would follow that of THG Holdings PLC, which saw its shares soar on its stock market debut in what was the country's second-largest ever tech IPO, but this has yet to happen.

Before the Hut Group, there were just nine IPOs worth a combined $3.2 billion in the U.K. in the year to date, according to Dealogic. Over the same period in 2006--the peak of the past 20 years--there were 193 IPOs of U.K. listed companies worth $36.2 billion.

The U.S. market, by contrast, has seen a flurry of tech listings in recent weeks.

Regulatory demands have also stopped small and mid-cap companies from debuting on stock markets.

The second iteration of the Markets in Financial Instruments Directive, introduced in 2018, prevents investment banks from charging clients for execution and investment research together.

That has triggered a decline in the amount of research produced on small and midcap companies, further reducing investor demand for small and midcap equity, Oxera's report noted.

"Small and mid cap companies in particular now find it particularly difficult to justify a listing, given the fees, regulatory burden and comparatively high costs relative to private markets," Oxera said.

 

Website: www.fnlondon.com

 

(END) Dow Jones Newswires

November 16, 2020 08:53 ET (13:53 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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