Following a remarkable year in 2021, the London IPO market has experienced a sharp downturn
Might the city's fintech industry spearhead a comeback?
2021 was the best year for London's IPO market in terms of new issues and capital raised since 2014. In its London IPO later that year, Oxford Nanopore (LON:ONT) achieved a valuation of 4.8 billion, following Deliveroos' (LON:ROO) 1.5 billion IPO at a 4.9 billion valuation.
It has been all downhill ever since. With a valuation of over 550 million in the interim, only one company, Ithaca Energy (LON:ITH), has gone public. Given that Ithacas shares have dropped 43% since its November 2022 IPO, that was something of a catastrophe.
Companies that have already listed are leaving the market, so the decline in the London stock market is closely linked to the decline in the IPO market.
Chancellor Rachel Reeves may reduce cash ISA allowances to encourage British citizens to invest in their home stock market, according to rumors.
Nonetheless, a number of potential listings, especially in the fintech industry, may be ready to give London's IPO scene a new lease on life. This could be exactly what the UK stock market needs to attract domestic investors again.
The well-known personal finance app ClearScore, which offers free credit scores, is one possible newcomer.
With 24 million users and over £100 million in revenue, ClearScore is a global company. Considering everything, it is not surprising that ClearScore is beginning to consider listing.
"Size is the main factor," Justin Basini, CEO of ClearScores, told BFIA. "To make sure that you receive the right kind of market attention, the size of your initial public offering (IPO) and the amount of free float you have are crucial.
However, the foundation is being set, and Basini believes that ClearScore may grow to a size that would draw the interest of institutional investors in the UK within the next 12 to 24 months. This, in his opinion, is a requirement for a public listing.
Nonetheless, ClearScore is by no means the only UK fintech contemplating an IPO in the near future.
In 2025, which companies might go public in London?
In the event that ClearScore chooses to list, London would be the most likely location.
Basini asserts that "it's very important that British companies consider first listing in the UK."
According to IG, Monzo, Starling, and Zopa are among the other businesses that may be scheduled for a London initial public offering (IPO) in 2025.
That partially reflects what Chris Beauchamp, IG's chief UK market analyst, refers to as "the UK's natural strength in financial services."
He claims that fintech is "certainly a big growth area." Customers who haven't had much to cheer about in terms of domestic IPOs for a while might be drawn in by well-known brands like ClearScore, Starling, or Monzo.
Shein's initial public offering (IPO) is among the most well-known outside of fintech that could happen in London this year. Because of ethical concerns about its supply chain, the Chinese fast fashion retailer was turned down for a New York debut.
Regulators in the struggling market are hesitant to rule it out too quickly, despite the ethical and reputational risks, because the 50 billion valuation it is reportedly seeking would make Shein the most valuable company ever to IPO in London.
Beauchamp says, "It would be a huge scalp if London could acquire Shein." In one way or another, people might be prepared to overlook some of the problems with that listing.
Why might the London IPO market be revived by fintech?
While London lacks Silicon Valleys pedigree as a technological centre, it has always been a hub for financial services and financial innovation. Because it was the first nation to implement Open Banking in 2018, the UK is home to many of the forces behind the burgeoning fintech industry.
Basini says, "That environment has created a real depth in companies that are fast-growing, and understand financial services and where it's going." Consequently, the UK stock market will benefit from a group of publicly traded fintech companies that are highly regarded by international investors and, more importantly, well-known to British investors.
Beauchamp asserts, "There must be momentum in all areas of financial markets." "If enough businesses simply change the sentiment and move the music enough, that could create a reason to be more confident," he says.
Additionally, fintech initial public offerings (IPOs) would add technological vibrancy to the UK stock market, attracting investors who would otherwise be pouring money into stocks of companies like Nvidia, Tesla, and Metas.
Therefore, consumer fintechs like Monzo or ClearScore would be especially strong initial public offerings (IPOs) for London because they are not only well-known and tech-driven, but also innovative.
Will Monzo go public in London?
Monzo has made references to an IPO for a number of years, but it hasn't happened yet.
"It's at the point where Monzo has to put its money where its mouth is," says Beauchamp, who also notes that a London IPO would "make life more interesting for the UK stock market."
It is unclear, however, if Monzo would go public in the UK or follow the example of European and British fintechs that are considering listing elsewhere. According to reports, Klarna of Sweden and Revolut of the UK are both considering initial public offerings (IPOs) in the US.
The FT claims that although TS Anil, the CEO of Monzos, would prefer to list in the US, the Neobanks board is in favor of a London IPO.
TS Anil, Monzo Bank Ltd.'s CEO. speaks at the Global Summit on Innovate Finance, which is a part of U. The K. Fintech Week summit in London, UK, at the Guildhall.
According to reports, TS Anil, the CEO of Monzo, prefers a US listing to a London one.
(Image credit: Chris Ratcliffe/Bloomberg via Getty Images) When this article was published, Monzo had not yet responded to BFIA's request for comment regarding the location or timing of a possible initial public offering.
Are London IPO conditions getting better?
The overzealousness that swept through the 202021 market boom burned many IPO investors, and the ensuing pessimism has surely dampened activity in London's IPO market.
However, sentiment is gradually rising again, and the macroeconomic environment may be becoming a little more favorable.
Beauchamp remarks, "There seems to be more optimism." "If you consider a world in which interest rates are somewhat declining, it makes people somewhat more inclined to spend more money. Consumer spending is directly related to fintech performance, especially for neobanks.
Beauchamp continues, "There seems to be some hope the UK has turned a corner despite the gloomy economic data." "IPO markets fluctuate according to risk tolerance.
"With so many businesses being taken over, there was a lot of negativity surrounding UK PLC last year. Would the final individual to exit the LSE kindly switch off the lights?
"The IPO market should receive a little boost if there is a noticeable improvement in the economy as a whole.
It should be mentioned that Beauchamp's remarks came before the consumer price index reading in February, which was higher than anticipated at 3%. This could slow the Bank of England's rate-cutting cycle and, as a result, reduce consumer demand for credit.
Continuous regulatory reforms ought to help the market. In July of last year, the Financial Conduct Authority (FCA) started a series of comprehensive changes to listing regulations with the goal of making it easier for businesses looking to go public in London to list. According to Simon Walls, FCA interim executive director of markets, consultations are in progress for a new private stock market called PISCES, which "could act as a stepping stone to public markets" for private companies.
These kinds of reforms "position London to have a resurgence," according to Basini.
Moreover, the US stock market might fall prey to its own prosperity. A quick look at the large tech megacaps tells almost everyone that global investors can only focus on one market for so long before valuations begin to stretch. For mid-sized businesses, it also lessens the likelihood of listing in the US.
"I think the main difference between London and the US is that, even though all the foreign investors are still interested in London IPOs, you get a lot more attention at a smaller market capitalization," Basini says. The US doesn't pay much attention to initial public offerings (IPOs) at valuations under £10 billion these days, he continues, and "falling beneath the radar in the public market is not helpful."
"Because of the much higher expectations, the very premier nature of a US listing might work against them," Beauchamp says. You might receive a lower valuation with a London IPO, but if your shares perform better later on, that might be a worthwhile strategy.
While all of these elements contribute to London's allure, Basini believes that the choice to list is more intrinsically motivated; in other words, the primary determinant will be whether the company is prepared to list and whether going public is in its best interests. Although ClearScore is profitable and doesn't necessarily need to go public to raise money, doing so might be the best course of action for its future expansion.
However, Basini does not see any prospective IPO as the end goal in and of itself, but rather as the next phase of a journey.
He claims that an IPO marks the beginning of ClearScore's next phase. Everyone discusses leaving. It's opening another door, going through it, and entering a new room; it's not an exit.
How to make an IPO investment.
Like any other stock, you can buy and sell a company's shares once it is publicly listed. However, you will typically need to register in advance if you wish to participate in the IPO itself.
If you want to invest in an initial public offering (IPO) through one of the major investment platforms, such as Interactive Investor, AJ Bell, or Hargreaves Lansdown, you must follow certain procedures.
However, it's crucial to keep in mind that, like all investing, there is a significant amount of risk involved in IPOs. Investing money that you cannot afford to lose on them is not a good idea.
Leave a comment on: Could London's IPO market be revived by a fintech frenzy?