Bankers and foreign exchange officials in the UK are using a recent sell-off in US-listed groups to boost their efforts to promote London listings and convince flagship companies not to go public on the stock market. Foreign.
European boards and private shareholders have increasingly been drawn to the US by the promise of higher valuations and an investor base that appreciates fast-growing but losing companies more.
However, Dealogic data and Financial Times analysis show that large european companiesExcluding those from Russia, that listing in the US has underperformed US domestic listings and pairs that remain in Europe, and have been particularly affected by the recent stock market slump. values.
European companies that raised more than $100 million in the US since the beginning of 2020 have fallen an average of 47 percent from their offering price, compared to a 29 percent drop among domestic US listings. and a 19 percent drop for European domestic offerings. .
As interest rates rise, the war in Ukraine and recession fears have all but shut down. IPO markets On both sides of the Atlantic, the data has been harnessed in the UK, where convincing more high-growth companies to go public has become a long-term priority from the highest levels of government on down.
“There has been a narrative in recent years that the US delivered superior valuations on a like-for-like basis, even if the evidence didn’t support it,” said Charlie Walker, head of equity and fixed income capital markets at the London Stock Exchange. “That view is certainly changing now.”
Observers point to several possible reasons for the poor performance, including a lack of support from passive investors because foreign companies are excluded from large indices like the S&P 500, and a belief that US investors focused on the country are more likely to lose. to sell “non-essentials”. foreign stocks during periods of volatility.
The scale of the US market can also make it difficult for companies to stand out and attract the attention of investors and analysts. Farfetch luxury fashion website and owner of Soho House Collective Group Membershipfor example, they would be large enough to join the UK’s FTSE 250 index, but are considered small-cap groups in the US.
“There are scenarios where a US listing makes a lot of sense. . .[but]it needs more than just a valuation-based argument and wants to be sure it will enjoy a successful listing there over the long term,” said Aloke Gupte, co-head of equity capital markets for Emea at JPMorgan Chase.
The fall in equity markets since the beginning of the year has drawn particular attention to the underperformance of international quotes, but the trend predates this. Of the 43 European companies that raised more than $100 million in the US between 2012 and 2019, only seven, including Ferrari and covid-19 vaccine maker BioNTech, are still trading and trading above their asking price. IPO.
Still, London supporters face an uphill battle to reverse years of misperception about the City’s attitude and investor base.
An executive at a highly valued private British company said: “The talks we’ve had have always pushed us towards the United States. The UK simply doesn’t have the growing investor base to compete with the US, at least not yet.”
A London-based venture capital executive said he would encourage more portfolio companies to list in the US after poor reception from high-profile companies such as Deliveroo, which was condemned as “the worst initial public offering in the history of London” last year.
Outgoing Prime Minister Boris Johnson earlier this year joined ministers in personally lobbying Japanese conglomerate SoftBank to list chipmaker Arm in the UK rather than the US, although the recent Political turmoil in Britain has damaged the efforts.
“A lot of people who want to defend London seem to be more interested in waving flags,” said a London-based adviser who has worked on a number of international IPOs. “If the discussion was ‘come to London, you’ll get less volatility and a better valuation and a good platform to build the business’, it would be different, but we’re not helping ourselves.”
Endava, a London-based group that provides technology consultancy and outsourced software development, has been an exception to the trend of poor performance among most international listings. Despite being hit hard by the general sell-off in tech stocks this year, the company’s shares are still more than 400 percent higher than their IPO price on the New York Stock Exchange in 2018. .
Mark Thurston, Endava’s chief financial officer, said the decision to list was not driven by valuations, but by a belief that US investors had a better understanding of Endava’s business and would be more supportive of a dual-class share structure that gave more voting power to its founder. British regulators have recently relaxed rules on dual-class shares, but many big UK mutual funds are skeptical of companies using them.
“[Endava chief executive John Cotterell] I was afraid that if we didn’t control the company through super voting rights, we’d be taken over: there’s a long legacy of UK-listed tech companies disappearing when a global mammoth appears on the horizon,” Thurston said.
Arm was listed in London until SoftBank bought it in 2016. It grew out of a group of tech companies around Cambridge that also included Autonomy, Domino and CSR. By 2017, all four had been taken or were majority controlled by foreign companies.
The adviser who spoke about the government’s “waving the flag” said that “if you want the UK to have global businesses, you need to let them go out and be global” rather than forcing companies to list in the UK, but the Walker of LSE said that “when a company is listed in the US, it is usually the first step for that company to become American”.
He added: “Headquarters and incorporation can move over time to gain inclusion in the US indices and management’s mind moves with them,” and the UK loses long-term tax revenue, employment and intellectual property development.
Thurston said the “gravitational pull” of becoming a US national company was real. He said Endava has no near-term plans to change its structure, but said it is likely to happen at some point as it continues to grow and moves toward generating most of its revenue in North America.
“The tech market in the US is so big that it’s a more interesting place to be in terms of the stakeholders you attract, the range of questions you get, because they have a whole range of businesses they can look at,” he added. . “We are typically English, quite low ego and low key about things. . . but we have very big ambitions.”