The IPO Market – a glimmer of hope?

By Isabelle Smurfit

In 2021, the UK IPO market had its strongest first quarter since 2006, hitting a record level that would undoubtedly prove hard to sustain. UK listings raised a staggering £7.2bn with 16 IPOs on the main market and nine on AIM, technology companies making up almost half of all proceeds (London Stock Exchange). The shift in focus to tech stocks led to significantly increased valuations and thus, accelerated capital markets activity with UK tech IPOs, including Deliveroo, Moonpig and Trustpilot, raising £6.6bn by the end of 2021. This was more than double the £3.1bn raised the year prior, a marked acceleration that was surely bound to run its course.

Therefore, the recent news that 19 issuers had only raised c.£0.4bn in the UK during the first quarter of 2022 should not come as a huge surprise (EY). Strong tailwinds can rapidly turn into strong headwinds. The government stimulus to counter Covid-19 that drove up valuations in 2021 is in part (alongside geopolitical and supply chain issues) responsible for the high inflation and subsequent interest rate rises that are now driving down valuations. The knock-on effect of this has been a drastic slowdown of fundraising and IPO activity, with companies having to consider whether they are willing to list on public markets at suppressed valuations compared to the same time last year, particularly for high-growth tech companies. 

Despite these headwinds however, there is still a large appetite for well-performing companies to IPO, with law firm Mishcon de Reya and commodity trader Olam Group’s food ingredients unit choosing to delay listing rather than cancel their plans altogether. Other global players such as Burger King and digital lender Zopa, are also rumoured to be considering a London listing and will be biding their time for the opportune moment. Some might argue that the temporary postponement of IPOs could actually lead to a huge surge in pent up demand and a rush to capital markets activity later in the year, as interim business plans are simply put on hold. London remains a very attractive destination for companies to list with its global appeal, reformed listing rules and increased opportunity for high-performing companies, which temporary market conditions will fundamentally not diminish.

Whilst we should be realistic about the current state of the IPO market, there is no question that there remains significant potential for a late rebound in activity and an acceleration of fundraising. Out of a market downturn always comes opportunity, as shown via the record growth achieved last year against the backdrop of Covid and Brexit. So, there will be plenty of companies well-placed and ready to list when the tide inevitably turns again in their favour. It is therefore important to recognise that the IPO resurgence may come sooner than the market might expect as we look towards the second half of 2022 and beyond.