The City remains a beacon of innovation for stock listings
THE decline of London as a financial hub has been a theme in recent commentary, but a run of companies pulling their stock listings points to the City evolving, not dying. The tsunami of moves off-market — including private equity market buyouts — is a sign of how innovation will always unite investors chasing returns with companies that need capital.
Below the radar is a fascinating substory at play as disruptors look to find ways to accommodate the funding needs of issuers who are no longer willing to squeeze themselves into the straitjacket of rules now tying up traditional capital markets.
Policy makers have been making an effort to find more progressive solutions, but events so far are moving faster, especially in high-growth areas the politicians are keen to attract.
Just last week, a big data company announced that while it intended to cancel its AIM listing, it would also be maintaining its position on another of London’s alternative markets, Aquis, underlining precisely the type of flexibility that can be found beyond the mainstream providers.
Alternative trading venues are nothing new. But with daily reports of major companies such as ARM, CRH and Flutter taking their primary or secondary listings abroad, or going back into private ownership, it seems timely to serve up a reminder that the City already has many right-sized options closer to home.
Indeed, with valuations depressed, many would suggest that one of the worst moves investors can make is allowing their company to fall into private hands. A bit of patience should see markets recover and what happens then? All too often, the new owners decide that it’s time to relist the company at a significant premium to the buy-out price, leaving investors unable to benefit from that upside.
Alternative trading venues are more than a graveyard for washed-out companies. They often provide a stepping stone for the high-growth businesses of tomorrow. Less onerous reporting rules mean lower overall costs both for the initial admission and then to meet ongoing obligations, offering a genuine alternative to opting for a trade sale.
Critically, this approach also allows early-stage investors the choice of realising some value immediately, while still retaining a degree of ownership.
And don’t forget that with the current levels of uncertainty, there’s no shortage of businesses who may be looking wistfully at an IPO but don’t want to take the plunge just yet. Alternative routes to funding make exit options available, even if it’s just a case of moving a minority holding into the public domain.
Detractors will always find something to knock when it comes to innovation.
In this case it could be anything from limited liquidity or wide bid/offer spreads through to the higher risk levels associated with such investments. But that takes us back to the core point this is all about how, in capital markets, one size will never be a good fit for every business or security.
Capital markets never stop evolving. Technology has been a driving force here in recent years, but so is the exceptionally high quality of talent.
London’s recent delistings show the tide is turning on how companies want to raise capital. It does not show that confidence is flowing out of the market.
The City continues to act as a beacon when it comes to innovation. Some forms of capital allocation will brighten as others grow dim. In a fast evolving world it is difficult to see London’s shining light ever being extinguished.
Veronika Oswald is Commercial Director of JP Jenkins, the trading platform for dealing in unlisted securities.