City suffers drop in flotations as Brexit uncertainty looms

● Financial services is most active sector in Q3, claiming six of London’s 13 IPOS

UK has seen a decline in initial public offering (IPO) activity in the third quarter, as Brexit uncertainty casts a shadow over the City’s stock market.

London saw a drop in IPO volume and value during Q3, with eight flotations on the main market raising £780 million, and five new listings on the alternative investment market (Aim) raising £257m, according to the latest EY IPO Eye report.

This compares with the second quarter of the year, which had six main market and 11 Aim IPOS, and Q3 2017, which had a total of 30 listings across the senior and junior markets.

The Eye report attributed the decline in activity to a lack of investor appetite in a “volatile and uncertain market”, combined with the sustained weakness of the British pound.

Financial services was the most active sector by deal number, claiming six of the 13 IPOS on UK exchanges in the third quarter and raising £743m.

Mike Timmins, EY Scotland’s IPO leader, said: “Brexit uncertainty continues to cast a shadow over the London market making it hard to predict how IPO activity will unfold over the next few months.

“IPO candidates are keeping an open mind when it comes to exit strategies, which can lead to lower IPO volumes in 2018.

“For example, companies considering an IPO have accepted an acquisition offer instead, either from corporations looking to add to their portfolio, or from cash-rich private equity firms.”

An IPO report from rival PWC, however, showed that London had retained its title of Europe’s most active stock exchange for the second consecutive quarter.

Timmins added: “The market has responded well to those that chose to list. Overall, recent IPOS had positive first-day returns and some very strong performances post-listing continue to demthe onstrate the quality that London’s main market and Aim present to investors.”

Timmins stressed the resilience of Scottish business activity, saying EY continued to see “a relative uptick in the number of Scottish IPOS in recent years”.

He said: “There’s a clear resilience in Scotland’s businesses with growth ambitions and, while Brexit is clearly a factor, many are looking to the public markets as a viable option for the next source of capital.

“The continued strong performance of our more established Aim companies provides excellent role models.”

Nevertheless, the City’s IPO market suffered a shaky spell last week, as Czech lottery operator Sazka shelved plans for a London stock market flotation, citing uncertainties caused by a “volatile market environment”.

The company said it would contemplate reviving its IPO plans once market conditions improved, compounding a difficult week for the London market, which saw Aston Martin and Funding Circle flotations falter in their first days of trading.