The recent ½Û×ÓÊÓƵ GLP Index shows that the post-lockdown boom in economic activity led to a rise in private investments, corporate transactions, and initial public offerings (IPOs). 2021 was an exceptionally busy time in terms of financial activity, with the pent-up demand from the pandemic finally unleashed, and corporate lawyers seemed awash with opportunities.
But , full of challenges for corporate law. We have seen the introduction of myriad new regulations, , the threat of recession, supply chain problems, the knock-on effects of the invasion of Ukraine, , and so on. The challenges look to continue, with the GLP index forecasting an overall decline in demand as a whole in 2022.
The IPO market is struggling as a result. And that challenge is compounded by the underperformance of IPOs from 2021. In the present article, we explore shifts in over recent years, question whether IPOs from 2021 were overvalued, and look at potential roadblocks in the future.
2019 and 2020 were predictably quiet years for IPOs, according to the GLP index, largely due to Brexit and the pandemic. The resurgence of activity in 2021 was driven by pent up demand and a pipeline of new share issuers, with increased confidence at least partly due to the successful vaccine roll-out.
There were 124 IPOs in 2021, compared to 49 in 2020 and 36 in 2019. 2021 saw the greatest . Similar trends struck the US, with the number of traditional IPOs climbing to the highest level since the 1990s and deal value hitting record levels, .
But activity drastically declined in the UK, with . IPOs have struggled to maintain momentum, largely due to the abovementioned geopolitical and macro-economic concerns. But investor appetite has also been dampened by issues .
2021 was a blockbuster year for UK IPOs, as demonstrated above, but for many high-profile businesses the results have proved undesirable. Indeed, Deliveroo PLC underperformed so badly with their 2021 listing that critics called it the .
Underperformance in 2022 suggests that shares may have been overpriced in 2021. The ½Û×ÓÊÓƵ Index echoes that point: ‘The share price of most of the companies that have gone to market [in 2021] with an IPO have dropped substantially, hinting that many were valued over their true price.’
Paul Jourdan of agrees that many companies that went public in . That overpricing may be due to increased demand, with the post-pandemic appetite for investment. Indeed, as Jourdan suggests, 2021 presented various factors that can easily lead to overpricing, such as ‘peak margins, peak growth, peak optimism, [and] ultra-low interest rates’.
The potential overvaluing of IPOs in 2021 and the underperformance of many listings adds to an already long list of . Many companies are looking to alternatives to London, with some blaming the high cost of maintaining listings and others .
London is facing fierce competition, as many EU capitals aim to post-Brexit and the US looks increasingly appealing due to flexible rules and a large pool of investor capital.
Indeed, London is already struggling. , for example, the number of listed companies in the UK has fallen by about 40% from a peak in 2008. Between 2015-20, the UK accounted for only 5% of IPOs globally. That raises significant cause for concern.
The UK government and financial bodies are taking action, aiming to court start-ups and tech companies. The (FCA), for example, wants to crunch the existing two-tiered approach to listings, which splits companies between a ‘premium’ and ‘standard’ segments. Critics have long argued the two-tiered system creates unnecessary stigma around ‘standard’ listings, which carry a lower bar of corporate governance and are not eligible for inclusion in the .
According to a , the FCA proposes that all companies need to meet one set of criteria and then they could ‘choose to opt into a further set of obligations’. Many argue that such changes are already too late and they cite the value of IPOs as evidence of that.
There is some brighter news for London. Recent data from Dealogic and shows that large European companies that list in the US have underperformed compared to both domestic US listings and companies remaining in Europe. UK advocates have jumped on that data, hoping to convince more European companies to list in London.
Nonetheless, the pull of other EU capitals and the US remains strong. London will need to quickly reverse its poor perception if it wants to build back momentum with its IPOs in 2022 and beyond.
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