How Interest Rates, Renewed Economic Confidence and a Relaxation of FCA Rules are Changing the Outlook for UK IPOs

Europe’s market for IPOs (Initial Public Offerings) has made its strongest start to a year since the pandemic, with $3.2bn raised since January, more than double the amount over the same period last year. London, which saw a record number of IPOs previously in 2021, reported a lack of IPOs throughout 2022 and 2023 and this trend continued into the first quarter of 2024. In the second half of the year, however, a wave of secondary or ‘follow-on’ deals looks set to boost the UK economy.

There has been $11.3 billion worth of share offerings in London so far in 2024, a jump of almost 24% on the year before. This hike is attributable to a number of factors, including the prospect of interest rate cuts, improved investor sentiment, and growing demand for exits from companies that postponed going public previously due to the pandemic and market volatility.

What is an IPO and why is it relevant to investors? 

An IPO, sometimes referred to as ‘floating a company’ or ‘going public, is the process through which a privately-traded company first offers its shares to the public. The newly issued shares are listed on a stock exchange such as the London Stock Exchange, or the NASDAQ in the US.

In the startup investing world, companies commonly raise several rounds of investment as they grow a business from concept into ideation and maturity. Even if a startup is profitable, these companies often seek investment to help them scale and grow faster and generate larger returns. Usually, the aim is to sell the startup through an acquisition or merger, or ‘float’ the company from a private company to a publicly traded company.

The stages of funding typically include Pre-seed or Seed, Series A, Series B, Series C, Series D, Series E, and finally IPO. Some startups do not need to raise Series D or E rounds to reach IPO stage. As a rough average, successful startups typically take 10 years to move from launch to IPO, with around 2 years between each funding round. Sadly, many startups will not successfully achieve IPO status, but as they progress to each additional funding round, the chances of success generally increase. 

There are a number of reasons why a company might choose to carry out an IPO. This process provides the opportunity for existing investors, including founders and employees, to sell a portion of their shares. It also allows corporate investors, such as private equity firms, to cash out their investments.

For individual investors, IPO’s can provide an exciting opportunity. When a company first lists on the stock market there’s often a quick jump in share price on day one, however these share prices can be be volatile and can rise and fall quickly. It’s important to understand the company in question and the associated risks as you would any other investment, to maintain a wider balanced portfolio.

The big brands tipped to go public in the UK

There are a number of businesses set to go public in the UK, these deals are likely to make a significant impact to the London Stock Exchange and provide a much-needed boost to the UK economy.

Monzo

Monzo was founded in 2015 and is one of Britain’s first completely digital banks. It was founded by Tom Blomfield, Jonas Huckestein, Jason Bates, Paul Rippon and Gary Dolman who are all ex Starling Bank employees, one of Monzo’s biggest competitors. The company has more than six million customers and its most recent valuation in December 2021, was estimated to be about $4.5 billion. Monzo has faced speculation about an IPO for the last few years, and experts think it’s likely to float in the next 12 months.

Shein

A Shein IPO is expected to be the UK listing event of the year. The online fashion giant had been lining up a float in New York, but its strong links to China mean it could face regulatory issues similar to social media platform TikTok, which faces speculation around a US ban.

It's meant that a blockbuster London Stock Exchange listing has been on the cards for several weeks. FCA approval would be one of the last stages the retail platform would have to go through to be able to float in London, but there is no confirmed date yet.

Shein is expected to float at around $50bn, making it the largest IPO ever to take place in London, with the current record held by mining giant Glencore International in 201 which was valued at £36.34bn.

Zopa

Zopa, which launched in 2002, has been credited with inventing the concept of peer-to-peer lending. It went on to grow a multi-billion-pound consumer lending business, before exiting the market in 2021 to focus on its digital banking business. Zopa, has managed to raise a total of £530 million to date, and had plans to go public last year but, due to unfavourable economic conditions, decided to hold off until the market improves. It has an estimated market value of $1bn and is a good reminder of how long it can take to build towards an initial public offering.

BrewDog

BrewDog started as a small operation in Scotland just north of Aberdeen. The company’s crowdfunding route, which proved vital in its early years, secured them about 200,000 investors. They initially announced plans to launch almost three years ago, but held off for a number of reasons, which include market volatility and allegations surrounding the negative treatment of workers. With an estimated value of over £1.8 billion, the CEO of BrewDog has announced plans to IPO, but is still considering whether to do so on the either the London or New York Stock Exchanges. 

Klarna

Klarna has been the cause of much IPO speculation recently, after setting up its new legal entity in the U.K. This doesn’t necessarily mean that the company will list here, it does, however, give Klarna flexibility over which stock exchange it could float on. Klarna also hold a Swedish banking license. The company’s estimated value is almost $50bn.

Regulatory changes

The Financial Conduct Authority's proposed new regulation, CP23/31, includes measures to make the UK’s IPO listing rules more accessible, effective and competitive. Once finalised in H2 2024, it could boost the London Stock Exchange’s attractiveness as an IPO destination by relaxing eligibility requirements, moving to a disclosure-based (rather than rules-based) regime. The changes include the removal of shareholder votes for certain transactions, the introduction of five new listing categories. These changes may see a further boost for the London Stock Exchange.

Securities-backed lending

Of course investing in shares remains one of the many areas high-net-worth and ultra-high-net-worth individuals choose as part of managing a broad wealth portfolio. Such marketable securities can often provide long term growth potential as companies evolve and capitalise on their listings, although its important to note this isn’t always the case. Eitherway those that have extensive share holdings, and need to raise funds, can consider using these holdings as collateral, avoiding any potential tax liability whilst benefitting from any future growth potential that might be foregone if those assets were disposed of. This includes whether these securities are connected with a newly listed company or one which is pre-IPO, as well as businesses that have already listed.

At Enness Global we are experts at helping our clients unlock significant liquidity using their securities as collateral, whether they are looking to buy property or raise capital to invest in their business, diversify risk.