Stock market in rude health as London floats outweigh private equity deals

City dealmakers are exhausted. After a surge in stock market listings in the first seven months of the year, they are in need of a break.

“There are still a lot of companies being admitted to the market and it usually would have slowed down by now,” says one senior City source. “People want August off.”

But London’s listings rush has been somewhat overshadowed by the private equity raid that has coincided with it. So far this year, there have been 53 bids for London-listed companies worth a combined value of £71bn, according to Panmure Gordon, including the high-profile swoop for supermarket chain Morrisons.

This has sparked fears in some quarters that British household names could fall under foreign private equity ownership. It has also led to concerns about the health of the UK’s stock market, and whether the attractiveness of the public company – the dominant force in the UK economy for the last century – is waning.

City observers argue that this narrative is overstated and tell the doubters to look at the data. Since the beginning of the year, 54 companies, with a combined market value of £53bn, have floated on the London Stock Exchange (LSE), reloading the market at a faster rate than the number of firms being taken private.

Carlton Nelson, co-head of corporate broking at Investec, says: “The wave of IPOs shows that public markets are as healthy as they have been for many, many a year.”

He adds that the listings pipeline at the Anglo-South African investment bank is not just looking strong for the next six months, but companies have also approached it about coming to market over the next one to three years.

The performance of newly listed companies in London has generally been strong. Research by the LSE shows that of the largest 15 listings this year, 11 of those companies are trading higher than their initial offer price. For example, shares in Darktrace, which listed at the end of April, are up more than 90pc, while Bridgepoint, the UK buyout firm, jumped almost 30pc on its market debut this week.

Simon French, managing director and chief economist at Panmure, says if you took an equal stake in each of the companies that have floated this year, your investment would be up by about a third in the year to date. If, however, you bought a FTSE tracker, your return on investment would be just shy of 10pc.

So if the UK’s public markets are in rude health, then how did the narrative emerge that they are struggling? Analysts are definitive about the answer: Deliveroo. The high-profile flop of the food delivery company’s £7.6bn float at the end of March has skewed public perceptions about how the market has performed, say observers.

The company’s shares fell 30pc in the first half-hour of trading, wiping more than £2bn off its value. French says Deliveroo got all of the attention because it’s a consumer facing brand and because Rishi Sunak, the Chancellor, associated himself with the listing. “But the oldest rule in investing is to diversify. So if you only bought into the Deliveroo float and took that as the bellwether of the issuance market, you’re failing investing 101,” he adds.

Another City source says: “I can understand the interest in Deliveroo because it’s a high-profile deal and it was one of the first in this wave of tech companies joining the market. But when you stand back and look at all the companies that have come to the market and how they’ve performed, it’s an outlier. You need a series of deals that create momentum positively or negatively.”

UK buyouts may have increased by 60pc this year compared to 2019, according to Refinitiv, but those in charge of running Britain’s public markets appear largely untroubled by the trend.

Charlie Walker, head of equity and fixed income primary markets at the LSE, says: “Levels of private equity activity go in cycles. A high number of the companies that have listed on the LSE have come out of private equity ownership. The fact that there’s been a cycle of companies that leave public markets and then return is not necessarily a problem. That’s the way markets have worked historically.”

Walker adds that the LSE focuses more on the total number of companies on the exchange over a longer period, rather than the delistings that occur in any given year. The steady decline in the number of public companies prompted the recent listing review by Lord Hill, which was well received and has already had a positive impact, according to French. He says: “Trying to affirm the attractiveness of being a public company is important and the Hill and Kalifa reviews have sent an important signal to the market.”

But as many in the Square Mile look forward to taking a break after a hectic few months, some won’t be as lucky. Nelson admits that there is some “deal fatigue” in the City, but says Investec will be toiling hard through the summer to get the background work done on upcoming listings in the second half of the year.

“We’ll be keeping as busy as we can because we want to protect, maintain and hopefully convert this pipeline,” he says. “I’m supposed to be off next week, but I suspect I’ll be working a little bit.”