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Despite a dip in overall IPO activity on the previous year, 2018 finished strongly for the London Markets. Our Head of IPO Execution, Kit Atkinson, looks at the year's main headlines and - with brexit uncertainty high on the agenda - examines what to expect if you're looking to list in 2019.

When predicting IPOs on the London markets for 2018, many observers foresaw a quiet first quarter, driven by investor fatigue from 2017’s strong finish.

They had high hopes for a strong Q2, while external factors would drive the second half of the year, most notably:

  • the British government’s Brexit negotiations with the EU;
  • FCA rule changes;
  • Donald Trump’s  tax cuts in the US; and
  • the success or otherwise of the rumoured Saudi Aramco IPO

To an extent, markets followed the script; it was a slow start to the year, with only six IPOs in the first two months. But the second quarter did deliver.

At first glance, the market capitalisation of companies floating looked significantly down in Q2 2018 from the previous year. But Allied Irish Banks’ IPO in June 2017 accounted for much of that year’s value. Excluding AIB, 2018 delivered the best Q2 results since 2014 – 26 deals, contributing more than £9bn worth of market capitalisation, including Vivo Energy, Avast and Quilter.

The third quarter was predictably quiet with only £4bn of market capitalisation floated. Notable deals included Amigo Holdings and Grit Real Estate, the first Mauritian company to join the London markets.

Q4 – a worrying start but surprisingly robust results

The fourth quarter did not get off to a promising start; Aston Martin and Funding Circle completed large deals, but both traded at a discount from the outset, leading to fears for the remainder of the year.

On a more positive note, Smithson completed the largest investment trust IPO ever seen in the UK, and AJ Bell traded at immediate and significant premium to the issue price.

Overall, given the tense Brexit negotiations and uncertainty at year end, Q4 delivered a surprisingly robust set of results. This perhaps suggests that issuers accelerated deals from Q1 2019, to make the most of the relative quiet before the storm. Twenty-six companies joined the main market and AIM in the final three months of the year, adding more than £11bn in value.  

"There is pent-up demand from investors for well-managed companies offering clear business models and achievable growth"

Despite macro and political uncertainties, 2018 showed the robustness of IPO markets and the attractiveness of public listings as a funding source for issuers or exit route for asset owners.

Excluding the exceptional AIB IPO of 2017, volumes stood up well in 2018, certainly in terms of market capitalisation, if not deal count, with a drop of just 8 per cent against the previous year.

There is clearly pent-up demand from investors for well-managed companies offering clear business models and achievable growth plans, priced attractively.

2019 – a post-Brexit rebound for IPOs?

Looking to 2019, it seems inconceivable that Brexit won’t affect investor sentiment and constrain IPOs in the first quarter.

And Brexit is not the only headwind facing markets in 2019; investors will also have to contend with issues from across the world, including:

  • political instability in France, Germany and central and eastern Europe;
  • debt woes in Italy in the face of potentially tighter monetary conditions in the Eurozone; and
  • trade disputes between the US and China and weakening global demand.

Nonetheless, we are seeing strong interest from companies keen to continue with their plans, and the number of international companies considering an IPO in the UK remains high.

"As the situation stabilises we see potential for a strong rebound in IPO activity"

Despite a fluid situation, with the odds in favour of the UK entering a transition period on 29 March – or delaying Brexit, pending a second referendum – companies are using this time to progress their plans and finalise equity stories in readiness for Q2.

If the UK leaves the EU without a deal, the IPO window will probably push out to Q3 or beyond as markets adjust, Sterling finds a new level and investors assess the situation.

Any fall in Sterling might move the dial in favour of international trade sales or private equity purchases over IPOs as the value of UK assets fall in foreign currency terms. But as the situation stabilises we see potential for a strong rebound in IPO activity levels.

If you’re planning to list in 2019 and want to talk about the best options for your business, get in touch.

Kit Atkinson
Head of IPO Execution