By
Tolu Ajiboye
March 22nd, 2024
The UK IPO market has come under scrutiny as analysts believe it has lost its appeal in attracting big-name tech listings.
Tech investors have questioned the UK market as a veritable IPO destination after native semiconductor giant Arm shunned the country. The British designer recently opted to list in New York at London’s expense, which many fear could have ripple effects for other IPOs down the line. According to industry analysts and observers, London could miss out on additional lucrative tech initial public offerings. Analysts also cited the capital city’s perceived lack of finesse in treating high-growth tech companies as contributing to its current appeal. Other macroeconomic headwinds, such as Brexit, were also cited as overcasting the outlook for tech listings.
Unfavorable Consensus on UK IPO Market
An unfavorable consensus narrative regarding the flotation of an IPO in the UK market is beginning to steepen. For instance, Accel general partner Harry Nelis said, “It’s a known fact that London is a very problematic market.” Pointing to antecedents, observers conclude that the UK might be an ideal place to build a tech company, but not so great for IPOs. As Nelis put it, London creates “globally important businesses”, but the issue is the country’s capital market is “not efficient, essentially”.
According to observers, the institutional investors that dominate the capital landscape lack a fundamental understanding of tech-related matters. For instance, this systemic limiting factor was at play when Deliveroo went public in London in 2021. Although the British online food delivery company’s IPO occurred at the height of the pandemic-triggered food delivery boom, its shares dramatically plunged 30%. While many blamed Deliveroo’s legal framework as a factor for the swift stock collapse, a prominent venture capitalist player disagrees.
Summing up the inefficiency of the British IPO landscape, Hoxton Ventures founding partner Hussein Kanji said:
“It’s not the exchange; it’s the people who trade on the exchange. I think they’re looking for dividend-yielding stocks, not looking for high-growth stocks.”
Kanji also added:
“Two years ago, you could have said, you know what, it might be different, or just take a chance. Now a bunch of people have taken a chance, and the answers have come back. It’s not the right decision.”
Kanji and several tech investors suggested that this inefficient machinery prompted Arm to seek an IPO in the US.
Most Tech Firms that Listed in the UK in the Last Two Years Currently Trade at Huge Drawdowns from Listing Prices
In 2021, several tech firms joined the UK IPO market listing on the London Stock Exchange, spurring investor hopes for sustained capital growth. Many of these investors anticipated that more major tech names would feature on the FTSE 100 benchmark. However, most of these firms have sustained considerable losses in share value, with Deliveroo plummeting over 70% from its start price of £3.90.
Other embattled stock includes British money transfer venture Wise which has crashed over 40% since its 2021 listing. However, there have also been a few notable exceptions where companies increased in value following their initial listing. For instance, British-American information technology platform Darktrace is up approximately 16% from its listing price.