The state of the UK’s IPO market

| Ava Scott

Category: Exits

A private company’s Initial Public Offering (IPO) marks a large milestone in their growth trajectory. Through an IPO, a private company becomes public, with its shares becoming stocks that are freely traded on a stock market. ‘Floating’ the shares of a company on a stock market can provide an exit for shareholders, allowing investors and founders to reclaim the value of their investments. Selling shares in the public domain can not only raise a huge amount of  capital (the average IPO of a UK company since 2014 was worth £66.4m), but can also be associated with a level of prestige for the newly public company. There were 19 IPO’s by UK ambitious companies in 2018, and there has been a total of 100 IPOs since 2014. This article looks at the most valuable IPOs by UK companies, the sectors these occurred in and the preferred stock exchanges. 

Top IPOs made by UK high-growth companies (2018)

FarFetch
£514.2m
Funding Circle
£300.1m
Orchard Therapeutics
£177.4m
AJ Bell
£169.3m
Autolus
£113.1m

Companies in different sectors may plan and hold IPOs for many different reasons. While Software-as-a-Service and E-commerce companies are potentially more likely to see them as a way to return value to their investors, pharmaceutical companies utilise their IPOs to raise huge sums of money for their research and development intensive activities, essentially treating them as a further funding round. From the data, we can see that companies in the Pharmaceutical sector have been the most likely to IPO from 2014 to 2018, suggesting that flotation is a critical event for the medical and life sciences enterprises.

However, the financial sector has managed to raise the most through IPOS; this is perhaps unsurprising when we consider that the UK’s high-growth scene is a world leader in Fintech. The IPO’s of Metrobank (£400m) and FundingCircle (£300m) are large contributors to this total figure.

Top sectors by number of IPOs (2014-2018)

Pharmaceuticals
18 ipos (total of £962.5M raised)
Business banking and financial services
15 IPOS (Total of £1.46bn raised)
Software-as-a-service
13 ipos (total of £450.6m raised)
Consumer banking and financial services
8 ipos (total of £926.5m raised)
E-commerce
7 ipos (total of £1.42bn raised)

The average amount raised by IPOs in different sectors draws attention away from the financial services and pharmaceutical industries. FarFetch (£512m) and Sosandar (£5.3m) drive up the average for the value of IPOs within the ‘Fashion’ sector, while IPOs within the ‘B2C ‘ sector included those held by Zoopla (£351.9m) and justEat (£360m).

Top sectors by average amount raised by an IPO (2014-2018)

FASHION
avg. £259.8M (2 ipos)
E-commerce
AVG. £203.4m (7 ipos)
B2C Sites
AVG. £182.4M (4 IPOS)
Internet Platform
avg. £166.2m (5 IPOS)
Consumer estate agency services
avg. £132.4m (3 ipos)​

Top Stock Exchanges

Between 2014-2018, the most common stock exchange for a UK SME to float their shares on has been the Alternative Investment Market (AIM). This is a sub-market of the London Stock Exchange, which has more flexible regulatory requirements, and so is more accessible to smaller ambitious companies. The largest IPO by amount raised on AIM was by DX, a company that provides next day delivery services of a wide range of goods across a number of industries, who raised £185m through floating their shares.

Top stock exchanges by number of IPOs by UK high-growth companies (2014-2018)

Alternative Investment Market
62 IPOs
London Stock Exchange
22 ipos
NASDAQ Stock market
8 ipos

While fewer British high-growth companies have floated on foreign stock exchanges, those that did tended to raise more money through the IPO. For example, FarFetch, a global online marketplace, IPO’d on the New York Stock Exchange, raising £514.2m.  Between 2014-2018, the average amount raised by a British high-growth company through an IPO on AIM was £32.2m,  the equivalent amount raised on NASDAQ was £85.9m.

Both the UK and the rest of the world has seen few IPOs this year, with just three UK high-growth companies choosing to float their shares so far. DWF, a company that provides legal services across a range of sectors, floated on the London Stock Exchange, raising £93.6m. Bicycle Therapeutics, who developed a technique to discover high specific and selective drugs, raised £60.6m through listing on NASDAQ Stock Market. Finally, Diaceutics, who use data analysis to match patients with diagnostic tests managed to secure £17m in capital through their IPO on AIM. 

Holding an IPO can be hugely time consuming and expensive, so it is important to effectively time the offering within company strategy. When macro-economic uncertainty exists, IPOs may be difficult to execute or prioritise. Meanwhile, the private investment scene in the UK remains healthy, and this support allows small ambitious companies to remain private for longer.