Stronger UK IPO activity in Q2 could pave the way for market revival - EY

The second quarter of 2017 signalled the return of higher value IPOs to the UK market with 18 listings, according to the latest issue of EY’s IPO Eye.

The number of IPOs may be up by just one compared to Q1, but this quarter saw proceeds increase by 200 per cent, the report says. Overall there were 18 IPOs raising £4.2 billion with two being backed by private equity.

The energy sector and banking/financial services sectors led UK IPO activity in this quarter accounting for 9 of the 18 listings.Despite continued currency volatility, there were four cross-border IPOs in Q2 with listings by companies based in Turkey, UAE, China and Ireland.

The Main market saw 11 floats that raised £3.8 billion in Q2, including the largest IPO in Europe so far this year, which raised £2.6 billion marking the return of significant sized IPOs to the London Market. In addition, there were seven admissions in the AIM that raised £496 million.

With the FTSE at record levels, largely driven by the weakness of the pound, which made UK investments attractive to international investors, newly listed shares on the combined markets are currently trading on average 12 per cent above offer price.

Mike Timmins, EY’s IPO Leader in Scotland, said: “The number of companies in the IPO pipeline continues to build and activity is likely to see a revival towards the end of the year. Currency volatility is likely to continue to supress activity within the large cap IPO market, but the success of some listings this quarter may result in reinvigorating markets’ confidence and speed projected timescales up. There are signs that investors seem once again ready to look at the UK market large cap IPOs so we can expect a number of higher value IPOs in late 2017.

“Scottish companies will take confidence from this increased value of IPOs. It stands to encourage businesses looking at a listing as an option to raise capital and could stimulate further activity but confidence in the market will be key. With the recently reported intention to float by Quiz Clothing and Freeagent’s AIM admission in late 2016, there are clear signs that the Scottish market could see more IPOs in the second half of the year. This is particularly relevant in relation to companies that qualify for venture capital trust investment and we may also see a return to the capital markets for smaller, growing businesses in the resources sector.”

Meanwhile, the global IPO market in the first half of 2017 has been off to one of its strongest starts in nearly a decade.

H1 2017 saw proceeds rise by 90 per cent (US$83.4b) and the number of deals increase by 70 per cent (772 IPOs) compared with the first half of 2016. In addition, with 772 IPOs raising US$83.4b, H1 2017 was the most active first half of a year by global number of IPOs since H1 2007.

Mike Timmins, said: “Economic fundamentals are improving in the major developed economies and IPO pipelines are building. Activity is underpinned by rallies in many bull markets reaching all-time highs, while investor sentiment has brightened and global outlook is positive. With the momentum of the first half, 2017 is poised to surpass 2016 global IPO levels by both number and proceeds.”