HAMISH MCRAE: City bids for tomorrow’s giants as FCA eases listing requirements for new companies going public on Stock Exchange
The fightback has begun. From Friday, the Financial Conduct Authority eased the listing requirements for new companies seeking to go public on the London Stock Exchange.
Among the changes are that they only have to float 10 per cent of their capital against 25 per cent beforehand, and dual-class shares that give founders a higher proportion of the voting power will in some cases be allowed.
The changes are the result of two reviews ordered by the Government, which aim to claw back some of the business that London has been losing to New York and to a lesser extent European centres such as Amsterdam.
A new dawn: The Financial Conduct Authority has eased the listing requirements for new companies seeking to go public on the London Stock Exchange
One of the reviews focused on the so-called fintech sector – financial technology – while the other looked more generally at ways in which London could increase its competitiveness, particularly vis-à-vis Europe.
This change to listing is just one element of the mix. There are others that have been put forward – such as making it easier for foreign financial workers to get short-term visas – that are probably just as important in bringing business to London.
This all makes a lot of sense, even if that business is highly speculative. Take the SPACs – special purpose acquisition companies. These are the ‘blank cheque’ enterprises, where a company is listed as a vehicle for taking over established enterprises, without specifying what the targets might be.
I happen to think that it is nuts to raise money on this basis. During the South Sea Bubble in 1720, there was a company launched to carry out ‘an undertaking of great advantage, but nobody to know what it is’. It got its capital in an afternoon. The story is cited as an extreme example of speculative mania and indeed it was. But if investors are prepared to stump up for SPACs, it surely is not the role of a financial centre to try to stop them. They will go elsewhere.
This year there have been 13 SPACs launched in Amsterdam, backed by big-name investors such as Bernard Arnault, founder of LVMH and the richest person in Europe. There has been just one SPAC in London.
This is important. Seen from the point of view of the financial services industry the aim is to bring business to London that would have gone elsewhere. But look at this from the point of view of UK-based investors. Is there easy enough access to high-tech companies with high growth potential?
There has been a surge of IPOs in London since the start of the year – nearly 100 compared with 29 last year.
The results? Well, they have been a mixed bag. For example, the foreign exchange transfer company, Wise, is currently down 13 per cent from its IPO opening share price in July. Deliveroo is also down by a similar amount. On the other hand the cyber-security company, Darktrace, while off from its highs a month ago is still up more than one third on its launch in April. Oxford Nanopore is up more than 10 per cent since its float at the end of September.
Mind you, track a little further back – to The Hut Group which launched 15 months ago – and it is down by almost three quarters from its opening price.
Taken overall, it might well have been better this year for investors to skip new issues and pop any spare cash into the US high-tech giants. Alphabet, parent of Google, is up 65 per cent this year, Microsoft up more than 50 per cent and Apple more than 25 per cent.
I worry, too, that by the time a company comes to market, most of the early gains have been taken out by their private equity and venture capital backers. That is fine for investors with access to those backers. It is fine too for wealthy families with private offices which can invest directly into start-ups.
But not so good for small investors who want to play their role in supporting small companies that just might grow into big ones. Loosening the rules for listing requirements in London does not solve this wider problem.
It can’t. On the other hand, insofar as it makes the UK a more attractive place to raise capital, it will encourage more start-ups, particularly high-tech ones. That is good for the economy.
It is the job of the professionals to help investors filter out the winners from the duds. At least these are real companies and not just cybercurrencies. And a tiny number of these firms that are floating now will eventually become the giants of the future.