Struggling Capital Markets in the United Kingdom

In 2021, the London Stock Exchange witnessed a significant influx of capital, with 142 deals raising a total of $26 billion. However, this activity pales in comparison to the past, as the United Kingdom's capital markets are currently experiencing their lowest levels of Initial Public Offerings (IPOs) in 30 years.

Last year saw only 16 deals that raised a mere $3.5 billion, a decline of 87% from 2021 levels. This trend is a cause for concern, as London's challenge is encouraging more active fund participation in markets still dominated by passive pension funds.

The decline in IPO activity can be attributed to several factors. The UK's decision to leave the European Union in 2016 has eroded London's reputation as a preeminent investment destination, shifting interest to other European exchanges. Deep local pools of money that once supported London have shrunk, according to financial expert Dat Ngo.

Simplifying procedures is a limited long-term solution for London's IPO issues, according to Nik Colbridge, a partner at law firm Dentons. For most issuers, the comparison between venues will be based on predicted trade multiples, rather than the hoops that have to be jumped through to float.

Recent IPO defectors to New York include Wise, while companies like Deliveroo, Farfetch, and Revolut have left the London capital markets in recent years. The companies are expected to return once the reforms to listing rules and procedural simplifications take effect in early 2024.

Reforms such as updated listing rules and streamlined procedures are gaining traction to make the UK's indexes more appealing. These changes, along with the UK equities trading at about a 50% discount to comparable US stocks, have instilled quiet optimism among investors that the UK is well on the way to overhauling its capital markets.

Despite these efforts, legacy taxes, such as the 0.5% stamp duty on each on-exchange purchase, continue to frustrate investors in London. In the first half of 2022, five listings reportedly raised a total of £160 million, which is less than amounts as far back as 1995.

Despite the challenges, London reclaimed its status as Europe's largest equity market in 2024, surpassing Euronext Paris. As the UK continues to navigate these issues, it appears there is still a way to go before London's IPO activity returns to its former glory.