Floats sink to 11-year low as City falls silent
Companies shun market as Covid pressures and rising scrutiny see firms turn to private equity ‘wall of cash’
THE number of floats in London has plunged to an eleven-year low as battered firms shun the stock market and seek support from private equity barons to survive the Covid meltdown.
There have been just six initial public offerings so far this year according to data provider Refinitiv, raising £647m – the lowest both by number and value since the financial crisis in 2009.
By contrast, companies have raised £27.5bn through 80 British private equity fundraisings as they seek an alternative solution where there is less public scrutiny over bosses’ pay and their accounts.
Experts said the figures indicate a long-term shift which could mean a generation of promising businesses never go public, with millions of retail investors and workplace pension funds missing out on their growth as a result.
The change will raise fresh questions over the future of the City as it struggles to regroup following Covid and Brexit. Private equity-run companies are more likely to come under foreign control and could be weighed down with a mountain of debt by their new owners. Alex Ham, the co-head of City broker Numis, said the listings market has all but shut down due to the coronavirus crisis although interest is starting to return.
But he added: “However, there is clearly a structural trend for companies staying private for longer and in some cases forever.
“It’s been evident for some time but perhaps becoming increasingly apparent in Europe.”
Nick O’Donnell, a lawyer at Baker McKenzie, said it is difficult for companies to entice investors with hopes of future growth given the uncertainty thrown up by the pandemic and Brexit.
Boardrooms have also been snubbing merger talks due to the uncertainty, leaving bankers facing their quietest year for deals since the crisis.
Asked about the rise of private equity, Jason Zemmel, a partner at City law firm CMS, said: “I can’t see any reason why it’s not going to continue.”
He said the combination of a “wall of money” built up by private equity funds keen to find investments and a market where businesses want to avoid red tape means the trend towards companies seeking to use private money to grow is likely to continue.
Private equity firms around the world have a record $2.5 trillion (£1.9trillion) in so-called dry powder waiting to be invested.
Mr Zemmel said advisers are having a lot of discussions about potential private equity investments in the final months of the year.