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00:00Things look like they're going from bad to worse for London's IPO market.
00:05In 2006, more than $50 billion was raised during initial public offerings.
00:10But in 2024?
00:11You can see that it is relatively healthy and then it just drops off.
00:16Particularly since 2008, we've seen a fall in about 40% of the number of companies listed in the UK.
00:21The first half of 2025 has been the worst for IPOs since 1998.
00:26And that sounds terrible.
00:27London falls out of top 20 IPO markets as fundraising slumps 69%.
00:32In the global rankings, the UK is now all the way down here.
00:37And this is just one of a string of factors undermining London's more than 300-year-old exchange.
00:44A few green shoots have begun to sprout under London's trading floor,
00:48but buried beneath a financial malaise decades in the making.
00:52This is a story important to ordinary people as well as investors.
00:56But just a heads up, it's not a happy one.
01:00It's a shocker, isn't it?
01:01It really is.
01:02Before we explain the reasons for London's dearth of them,
01:13it's worth a quick primer on what an IPO actually is.
01:16It's when a private company moves to a public market,
01:20listing its shares on a stock exchange,
01:21so the general public, or indeed anyone, can buy shares in that company.
01:25It is a moment where a company can either raise a whole load of funds or shareholders can also sell a chunk of their shares.
01:34It provides public scrutiny of companies, so it's a fundamentally important key to democratic shareholder capitalism.
01:41It shows that people around the world want to put their money to work in this country,
01:47that they trust the country's institutions.
01:50A listed public company will tend to pay, for example, more corporation tax than a private company for all sorts of reasons,
01:56but it's very good for the tax infrastructure as well,
01:58which of course is vital to our public services infrastructure.
02:02It is also where people invest their cash to grow.
02:05It's where some of their pensions are invested.
02:07The London Stock Exchange and the City of London has been one of the biggest drivers for the UK economy for many years.
02:17For centuries, in fact, it was where the world came to trade.
02:21And around the 1800s, it gets its first set of rules.
02:25From the prosaic to do with settlements and defaults,
02:28to the surprising, like a ban on explosive fireworks on the trading floor.
02:32Maybe that's why it became a bit of a sleepy affair for 150 years or so, until the 1980s.
02:42Where you have a massive bout of privatisation and deregulation.
02:46And that turns the City of London from what was a bit of a staid sort of old boys club.
02:52You know, men are better doing this sort of work.
02:53Into a little bit more of a rocking financial centre.
02:56That is, until the point our story really begins, around the 2008 financial crisis.
03:03Which was ultimately a banking bubble and bust.
03:06And London and New York were at the heart of that together and London crashed.
03:11We have had bad years for IPOs.
03:132003 was bad, 2009 was bad.
03:161992 was also bad.
03:18And they do coincide with economic turmoil, with uncertainty, with financial chaos.
03:23And then we get to 2022, interest rates have gone up and everything's changed.
03:29And there's just this abyss.
03:31There are not the deals coming to the table.
03:36To understand the snowball effect this can trigger, let's think of a stock exchange as a bath.
03:41With a reporter in it, because apparently Margot Robbie was busy.
03:45Like all good baths, there are rubber ducks.
03:47These are initial public offerings.
03:49Companies coming to the market.
03:51Now, on occasion, you will have companies delisting.
03:55And normally that's okay.
03:57They're probably being taken private through mergers and acquisitions.
04:00But the problem is, in recent years, because London-listed companies are at bargain basement prices,
04:08there has been a load of takeovers.
04:11Over the last 20 years, UK companies have consistently traded at a discount to peers in other developed countries.
04:19This line shows that in 2006, it was around 15% compared to the average.
04:24But recently, it's been closer to 35%, which fuelled the takeovers behind an exodus from the London Stock Exchange.
04:31Which brings us to liquidity.
04:33That's how easy it is to buy and sell shares.
04:37If liquidity is good, then the bath is warm and full of water.
04:43And that means when an investor buys a share, they know they're going to be able to sell it again.
04:47And that helps attract companies to the market.
04:49But if liquidity starts to drain out of the market, and the bath starts to lose its water, that looks less attractive.
04:58So companies start to look elsewhere.
05:01And what do you know?
05:02New York looks pretty good.
05:03There's more liquidity.
05:04It's easy to trade.
05:06There's a ton of investment.
05:08Meaning the London Stock Exchange continues to shrink.
05:10One of the things that has made the UK market so incredibly lackluster over the last couple of decades
05:19has been the exodus of domestic investors from our own market.
05:23So that's been our pension funds, our wealth managers, and our ordinary retail investors.
05:28Steadily over the last 10 years, the US stock market, as a proportion of global equities, has risen to something like 70%.
05:35With Japan coming in second at around 5%, and the UK third, believe it or not, at 3.5%.
05:42And then you've got the London Stock Exchange missing out on some really key IPOs.
05:46The Chinese clothing retailer Sheen was meant to list in London, but then couldn't.
05:51But the biggest of all was Arm Holdings, the British company whose semiconductor designs underpin almost every mobile device on the planet.
06:00It used to be listed in London.
06:01It got taken private, and when they were looking to list it again, they chose New York.
06:07They simply found it more appealing to list on the NASDAQ.
06:11One of the reasons why people might choose to list in the US, and it's partly about valuation,
06:15you take your company, you list it in the US, and immediately you will get an uplift in the valuation of your shares.
06:20A lot of it will depend directly on the company itself, on their own dynamics, on whether they have good future growth prospects.
06:28But if the valuation does jump, each share will be worth more.
06:32And if each share is worth more, then managers' remuneration will automatically be higher,
06:36given that most senior management in big listed companies are on some kind of pay deal that is connected to share price.
06:44Executives in the UK are generally paid significantly less than their peers in the US.
06:50And when they do move abroad, their pay does tend to go up, and that is seen as key to retaining talent.
06:57And they are moving.
06:58Shareholders of the tour operator TUI have approved ditching its secondary listing in the UK in favour of focusing on Frankfurt.
07:05Wise plans to transfer its primary listing from the LSE to New York. A real blow to London then, perhaps.
07:12Whistle flutter. We've had CRH. There's been Ferguson.
07:15And drug maker AstraZeneca, the most valuable British company, said it's planning a direct listing of regular shares in New York.
07:23That is a real wake-up call for how urgently the government needs to do something about this.
07:30There is reputational damage to the UK over the last decade or so.
07:36That's partly about Brexit, which has put off a lot of foreign investors.
07:39But it's also post-Brexit about the feeling that there is constant political chaos in the UK.
07:45But them's the brakes.
07:46There has been a mood music around the economy, which has not been super positive for quite a long time.
07:54And that doesn't help attract capital into the UK.
07:58That's reflected in more than just the stock market.
08:01Britain is particularly unattractive to bond investors right now.
08:05The 30-year yield on UK debt, which is what a bond is, was coming down until 2020.
08:11But it hit multi-decade highs this year.
08:14That makes it expensive for the government to borrow what it needs.
08:18It also gets money from tax, of course.
08:21But here, too, investors are wary.
08:23Stamp duty on shares in the UK is charged at 0.5% of each transaction.
08:28And that is the highest in any major market.
08:32Most major markets don't actually charge stamp duty at all.
08:36Meanwhile, regulation is providing its own roadblocks.
08:39The fact that so much management time is spent on regulation, managing regulation, managing compliance,
08:45and not actually managing the business is often cited as something that puts people off horribly.
08:50The LSE is seen as one of the more stricter exchanges for governance.
08:54Now, in many ways, that's a strength, because it means that when you're listed on the London Stock Exchange, it means something.
09:01But in other ways, it's just a reason not to bother when there are so many other options.
09:06The private equity industry has soared, and so we've seen a lot of companies staying private,
09:11getting their money from different sources, either from debt or directly from private equity investors,
09:15in a way that they wouldn't have previously.
09:17Even retail investors these days can pretty easily access private markets.
09:22So the perks of becoming a public company are not quite as clear-cut as they used to be.
09:30So what's been done to change that?
09:32Let's start with executive pay.
09:34The Investment Association has recently rewritten their guidelines for enumeration,
09:39and we are seeing FTSE 100 pay grow at a faster rate than S&P 500 pay for CEOs,
09:48and the gap does seem to be closing a little bit.
09:50We are also really getting along with improving the regulatory environment and the listing environment for new companies coming to market,
09:57and we are talking very seriously across politics and across investment organisations
10:02about increasing the demand for UK shares by changing the dynamics inside UK tax wrappers, etc.
10:08The London Stock Exchange kind of needs to get its swagger back.
10:11There's a lot of negativity around it, and that is massively driven by the data, by the facts,
10:17but also a few successful listings could really change the narrative.
10:22And there are some.
10:24As the exchange's CEO pointed out in October, it's just that they don't always influence the rankings.
10:30One of our biggest was the movement of a Greek company, but they reincorporated in the UK,
10:35relisted their securities in London, and then came straight into the FTSE 100.
10:39They didn't need new cash, so they didn't have an IPO, and therefore they didn't count in those stats.
10:45LondonSell has a superb reputation as a financial hub.
10:47We have one of the biggest pools of institutional money in the world,
10:51and we have this infrastructure around what we do that is globally known and globally respected.
10:57We remain the biggest equity market in Europe, for example.
11:01It is still the second biggest global financial centre next to New York,
11:05on any kind of survey that you can look at.
11:08A few recent and upcoming IPOs give London some chances to prove itself.
11:13But for now, these are green shoots, when what London needs most, basically, are some massive trees.
11:22If there is a multi-billion dollar company that lists in London and the shares perform well,
11:28then suddenly you get a change in the narrative.
11:30And then suddenly bankers, companies, they are looking at the London Stock Exchange in a totally different way.
11:37We'll see you next time.
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