UK Tech Companies Prefer London IPOs Despite Recent Challenges

Survey Findings

A recent survey conducted by equity management platform Ledgy revealed that an overwhelming majority (72%) of UK tech companies would prioritize an Initial Public Offering (IPO) in London over overseas options. This sentiment stands in stark contrast to the recent narrative portraying the United States as a more alluring market for IPOs, highlighting the enduring appeal of the London Stock Exchange among UK tech firms.

IPO Activity in London

In the past year, London’s markets experienced a decline in IPO activity, marking the lowest number of new IPOs since the financial crisis of 2008. This downturn was further compounded by several high-profile companies, such as Cambridge-based semiconductor designer Arm, opting for public floats in the US, casting doubt on London’s position as a premier destination for IPOs.

Market Underperformance

It’s essential to note that London’s underperformance in IPO activity was not an isolated phenomenon. The US and other global markets also faced economic headwinds, leading to a challenging environment for IPOs. The macroeconomic squeeze, characterized by rising inflation, interest rate hikes, and geopolitical uncertainties, created a climate of caution among investors, leading to a decline in IPO activity worldwide.

London’s Reputational Hit

The London markets’ reputation took a hit last year due to the decline in IPO activity. However, it’s crucial to recognize that London was not the only market to experience underperformance. The global economic slowdown affected markets worldwide, and London’s struggles were part of a broader trend rather than an isolated incident.

CEO’s Perspective

Yoko Spirig, CEO of Ledgy, expressed relief that London remains the preferred destination for stock market listings among most UK companies. She emphasized the need for further softening of inflation and interest rates throughout 2024 to stimulate IPO activity, highlighting the importance of economic stability in fostering a conducive environment for IPOs.

IPO Factors and Company Size

The Ledgy report shed light on interesting trends regarding IPOs and company size. Larger tech firms with more than 1,000 employees were generally hesitant about fundraising, with only 48% raising cash in the past 12 months. This cautious approach may reflect their ability to tap into alternative funding sources or their focus on organic growth rather than external capital.

In contrast, the majority (70%) of smaller tech firms with 250 to 999 employees actively raised cash during the same period. This suggests that smaller companies may be more reliant on external funding to fuel their growth and expansion plans.

Shift in Funding Priorities

Spirig interpreted this trend as a shift away from the “growth at all costs” mindset that had previously dominated the tech industry. She emphasized the importance of stock exchanges having the liquidity and appetite to support ambitious and innovative companies entering the public markets, underscoring the need for a supportive ecosystem for IPOs to thrive.

Spirig also stressed the need for companies to have confidence in accessing growth capital to sustain continued expansion, especially when IPOs are not a viable option. This highlights the importance of diverse funding sources and the role of private equity and venture capital in supporting the growth of tech companies.

Conclusion

Despite recent challenges and the allure of overseas markets, London remains the preferred destination for UK tech companies seeking an IPO. The enduring appeal of the London Stock Exchange, coupled with the need for economic stability and supportive funding ecosystems, suggests that London will continue to be a key player in the global IPO landscape. As the economic climate improves and investor confidence returns, we can expect to see renewed IPO activity in London, reinforcing its position as a leading financial hub for tech companies.