A fine balance – how the LSE plans to bring back big tech
By Tom Carnegie
The notable absence of British technology companies from the FTSE 100 is an issue the London Stock Exchange (‘LSE’) is eager to address. It wants the next Airbnb, but to do so the team realises that the LSE needs to look more attractive to these fast-growth companies, which in turn means softening its world-renowned gold standard regulations.
In September last year the LSE celebrated its largest public offering in five years, being the Hut Group, which floated at a £5.4 billion valuation. To contrast this, three months later in December, Airbnb floated on the Nasdaq with a US$47.3 billion valuation. It is these types of fast-growth companies, with potential multi-billion-pound valuations, that the LSE is keen to attract and have float on a regular basis.
This desire led to UK Government ministers starting a review in November last year to examine options that will ultimately bring back fast-growth stocks. The LSE’s submission, which follows the same tone as many City executives, recommends an easing of the regulations that apply to some of its biggest stocks.
In particular, the LSE wants founders of fast-growth stocks to be able to bring their companies to market with a free float of less than 25 per cent. Further, the exchange supports the creation of two classes of shares for those companies in the ‘premium’ tier.
This advocacy for a relaxation in regulation is where the tight rope walk begins for the LSE. In relaxing the rules, the LSE risks getting offside with investors, who want to keep the gold-standard protections granted to them. Indeed, there are already murmurs that certain investor groups will explicitly oppose such changes.
In walking this high line between issuers and investors, the LSE needs to use all the communications tools it has at its disposal, as it is an effective communications strategy that will prevent groups from feeling isolated and overlooked.
The first step of this is for the LSE to consider how it is perceived by key stakeholder groups. High standards of regulation and governance are synonymous with the Exchange and many would say are part in parcel with its identity. The flipside of this however is that the LSE risks being perceived as too rigid and not able to keep up with the times – a perception that would be extremely off-putting to fast growth businesses.
Further, while Brexit posed and continues to create many challenges for the LSE to navigate, it has also created an opportunity. Without being subject to EU lawmakers, the LSE can start to carve out an identity that exemplifies its position as the premium exchange for the region.
It is this update to its identity that will prove invaluable for the LSE to effectively communicate any changes that are made to regulations moving forward. It acts as the cornerstone and constant reminder that there is method and reasoning behind their decisions, which is to ultimately bring big-tech to London.