London IPO Market: Signs of Life Amidst a Period of Doldrums

KEY TAKEAWAYS  

• The London IPO market has seen the lowest number of listings since 2010, highlighting the challenging environment for new issuances in the UK.  
• Global economic uncertainty, geopolitical risks, rising inflation, and increased competition from other financial centers have dampened investor appetite.  
• Companies are also favoring private market investments and accessing liquidity through alternative means. 
• New regulations, optimism and a pent-up demand mean there are signs of potential recovery and a possible IPO window reopening post-Easter 2025 

The London IPO market has endured a challenging period since 2021, marked by a significant decline in activity. Data from EY reveals a sharp drop in the number of IPOs, with only 18 listings across London's main and alternative markets in 2024, representing a 60% decrease from 2022.  

An imperfect storm 

A number of factors have combined to create what has been an imperfect storm for new issuances in the UK. 

Global economic uncertainty, the lingering effects of the pandemic, and rising inflation and interest rates have dampened investor appetite for risk. The ongoing conflict in Ukraine and the heightened geopolitical risks have further exacerbated investor concerns and increased overall market volatility. 

Although London continues to benefit from an exceptionally strong financial advisory sector, a well-regulated stock exchange, and a liquid investor base, it has faced stiff competition from other major financial centers, such as New York, European bourses such as Euronext Amsterdam, and a resurgent Middle East, all of which are actively vying for high-growth companies. 

Similarly, investors have increasingly favored private market investments, such as venture capital and private equity, offering potentially higher returns and greater liquidity.   

Corporates can now access greater liquidity in the private markets to the extent that even Goldman Sachs' David Solomon was recently quoted as saying, "Who wants to be a public company?" while extolling the virtues of companies staying private. 

On 29 July 2024, the Listing Rules underwent a radical overhaul to counter these headwinds as part of a broader effort to maintain London's competitiveness as a global financial center. These reforms sought to streamline the listing process, reduce regulatory burdens and significantly broaden the eligibility criteria for admission.  

Clearly, it's too early to tell whether these changes will have a genuine and lasting impact on unblocking the London IPO log jam, but there are tentative, early signs of renewed activity. 

A pipeline of high-growth companies, particularly in sectors such as technology, healthcare, and renewable energy, are said to be exploring public market options and advisors are already cautiously pointing towards a possible IPO window reopening post-Easter 2025. 

So what's driving this apparent renewed interest?   

An improvement in market sentiment is undoubtedly helping with declining inflation and the prospect of easing interest rates, albeit at a slower rate than previously hoped for, fostering a more optimistic corporate outlook. 

However, the pent-up demand from both corporates and investors is a more fundamental factor.  Many companies have delayed their IPO plans due to unfavorable market conditions in recent years, yet their owners will still likely need some liquidity event. 

Similarly, the number of companies exiting the London Stock Exchange via takeovers or listings elsewhere means that fund managers have an ever-decreasing pool of UK equities in which to invest. 

According to funds group Calastone, UK-focused stock funds suffered their worst year on record last year as investors pulled nearly £10bn from the market. While the UK snapped a 41-month streak of consecutive fund outflows in November 2024, outflows duly resumed the following month. 

Nevertheless, London’s fundamentals as an exchange have remained constant, namely;  a deep pool of global investors with access to a diverse range of capital; well-developed professional services eco-system and sophisticated regulatory framework; and time zone advantage.  

Will 2025 be the first year of recovery or another year of disappointment? 

Much depends on the reception that those companies who dip their toes in the water receive—disappointing trading updates immediately post-listing that crater their respective secondary markets will cause any window to quickly slam shut. 

Similarly, corporates and advisors alike must take a sensible approach to pricing, acknowledging that investors must be coaxed back into the IPO space with attractive issuances that leave sufficient upside. 

Outside of this, the broader market dynamics need to remain supportive, and in that regard, much will depend on how the 47th President of the United States approaches tariffs, trade wars, and tensions in Europe and the Middle East. 

However, with pent-up demand building, the new listing rules increasing London's appeal, and news of corporates eyeing possible IPOs filtering into the media, it's hopefully a question of when, not if, the IPO market reopens.