A case for public equity: why listing in London matters

In recent months, there has been significant press coverage of certain London-traded companies’ decisions to transfer their listings to other markets, predominantly those in the US. There are numerous, often case-specific, explanations as to why these companies have opted for moves elsewhere, yet these divert attention from a greater concern for London –  the shift away from the use of public equity as a route for companies to grow.  

The UK has historically had a vibrant small and mid-cap equities market (this being the sphere in which the majority of UK IPO activity takes place) and our public companies are well served by a broad and diverse ecosystem of advisers, including accountants, lawyers, financial advisers, bankers and investment fund professionals. Unfortunately, the last few years have seen a notable decline in the number of companies choosing this avenue to scale their business. Companies now simply seem to prefer to remain private for longer.

You may question why this increasing reticence to join the public markets is problematic – but for many growth companies, listing should be an enticing proposition. After all, going public facilitates share liquidity, access to growth capital and the ability for major shareholders to monetise their investments. It also provides companies with an increased credibility and brand awareness. What’s more, these advantages come about whilst allowing founders and management teams a level of autonomy unavailable in private equity-backed businesses. 

There are also benefits of public equity for the wider economy and society as enhanced disclosure requirements lead to greater business transparency and more ethical and sustainable outcomes for stakeholders. Broad public equity ownership essentially democratises our economy and the success of its businesses. 

London as a listing venue has considerable advantages for growth companies looking for the benefits of an IPO, not least as the London Stock Exchange (LSE) is the largest market for equity capital raising outside of the US and Greater China, with more companies listed on the LSE than on Frankfurt, Paris and Amsterdam combined.

London also possesses a broader sector offering for small and mid-cap companies, as evidenced by capital raising for sub-$1bn market cap companies in the UK in 2021-2022 being widely distributed amongst various industries, whilst in the US this was concentrated in financials and healthcare (those sectors making up 91 per cent of total capital raised). Crucially, our public markets are a comparatively cheaper place to complete and maintain a stock market listing, with fewer regulatory and reporting requirements and with a significantly lower post-IPO litigation risk – particularly compared to the US. 

Despite these advantages, there are still a number of improvements that need to be made to draw small and mid-cap growth companies back to the public markets. It is promising that the Financial Conduct Authority seems to have understood its new mandate to support the UK’s international competitiveness and grow the economy, following its recently-announced proposed changes to the listing rules. These, however, cannot revive the markets in isolation and so the UK government must do more to promote wider public equity ownership. Many good ideas have been suggested, including encouraging UK pension funds to increase their holdings in domestically-listed companies, a “British ISA” dedicated to investments in UK-traded companies, tax incentives for our public companies, enfranchising retail investors through the reduction of information asymmetries and changes to the UK’s approach to executive remuneration. 

Since the LSE’s foundation, it has helped to facilitate the scaling objectives of countless businesses. Now more than ever, both it and the government should be focusing on its key function of supporting today’s growth companies and providing them access to the capital they need to fulfil their ambitions.

Tom Bacon is a partner at BCLP