New research has found that almost three-quarters of UK tech companies would prefer to IPO in the UK over any other destination, despite recent headwinds.
The London Stock Exchange (LSE) has faced significant challenges over the past 12 months, with the fewest new IPOs since the 2008-09 financial crisis and multiple UK-listed companies, such as CRH and Marex, opting to list shares in the US.
But Ledgy’s State of Equity and Ownership 2024 report reveals that a healthy majority of British companies are prepared to list in the UK over any other destination – 72% – offsetting fears that the LSE could see a mass exodus to other exchanges and potentially restoring hope of a revitalised UK IPO environment in the years ahead.
Ledgy, which surveyed 2,500 companies across 10 different markets, found that events in the last year had led to more than one in five companies (21%) deprioritising IPO plans. The macroeconomic environment was the most commonly cited factor stopping companies from taking the plunge into the public markets.
The report also found that larger tech firms are holding off on fundraising: only 48% of companies with over 1,000 employees had raised money in the previous 12 months, as opposed to almost 70% of smaller companies (employing between 250 and 999 people).
Companies with bigger cash balances and greater access to bank facilities may have retreated from equity financing to prevent excessive dilution and avoid disclosing any valuation cut.
‘Down rounds’ are now more than twice as common in Europe as the US, with only 22% of the funding rounds raised in Europe last year seeing the fundraising company undergo a valuation cut, more than twice the level seen in the US (9%).
“Although it’s a tough time for companies thinking about going public anywhere, London listings have suffered more than most in the last year,” said Yoko Spirig, co-founder & CEO at Ledgy.
“So London Stock Exchange bosses should be relieved that for most UK companies, London is still the preferred destination for a stock market listing.
“That said, our finding that the macroeconomic environment was the biggest factor putting companies off an IPO suggests that we need further softening of inflation and interest rates through 2024 for the tide to really start turning.
“Inflation, interest rates and investor sentiment have all played a part as many companies have experienced valuation cuts in the last 12 months. But it’s interesting to observe that the ‘down round’ phenomenon was twice as prevalent in Europe compared to the US.
“Meanwhile, our data finds that larger companies (>1,000 people) held back from fundraising to a greater extent than their smaller peers, suggesting that the pivot away from ‘growth at all costs’ is real.
“Private companies need to know that stock exchanges will have the liquidity and appetite to support ambitious, innovative companies entering the public markets. But if IPOs are not a realistic option, companies also need to be confident that the growth capital to support continued scale will be there.
“Otherwise, it will be harder for London to sustain its place as one of the world’s preeminent tech hubs.”
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