In June, Raspberry Pi floated its shares on the premium segment of the London Stock Exchange. The Cambridgeshire-based low-cost microcomputer manufacturer raised £166m and had a market capitalisation of £542m.

In July, that premium segment was effectively reformed as part of the biggest shake-up of LSE Main Market regulations in 40 years, as the Financial Conduct Authority (FCA) sought to make listing in London more attractive.

Raspberry Pi chief executive Eben Upton said the choice of the UK for its listing was “not a patriotic decision”, adding: “We did take a look at New York, but we realised that, for a company of our scale, the London market is probably a better home.”

Following the listing, Steven Fine, chief executive of stockbroker Peel Hunt said “a switch has been flicked” on City sentiment – although he did backtrack a little, to say there were “tentative signs” of recovery after two years of depressed IPO activity.

Excessive scrutiny on the London IPO market, given the lack of new listings and disappointing performance in the aftermarket, has contributed to negative sentiment around IPOs, says Jo Davenport, BDO transaction services partner. But she is positive about the prospects: “There are signs that interest is building and we are aware of a number of companies out in the market holding early look presentations with investors, along with others that are investing in preparation to ensure that they are ready to launch a process when the window opens.”

How soon?

When that will be is debatable. The public markets jittered somewhat in August. Some are now suggesting late 2024. But, with the US election in November and time needed to prepare for an IPO and strike a price that pleases investors and the business, the general consensus is now early 2025.

Caroline Ward, equity capital markets partner at Deloitte, says there are strong indicators that IPOs are coming and “not just a pipe dream”. Her team is having increasing numbers of IPO-readiness conversations. “Typically clients come to us 12-18 months in advance of the date they are targeting for an IPO. Some companies aren’t exactly sure, but they know they’re heading in that direction. The fact that we’ve got more IPO-readiness engagements is a strong indicator.” Such engagement can take up to two months, depending on the complexity of the business.

She says she is currently seeing the highest level of such activity since 2019. Mandates involve UK companies that are looking at UK listings or undecided between New York and London and embarking on dual readiness. International companies and carve-outs are also in the pipeline: “History tells me that when we have IPO-readiness work, it typically leads to an IPO. And when we don’t, it’s simply not happening.”

Bigger ponds

Of course, over the past decade or so Nasdaq has proved a popular choice for tech stocks, including UK techs. SoftBank-backed chipmaker Arm, which is actually one of Raspberry Pi’s shareholders, listed in New York last September for $52bn, and over the past year the FTSE 100’s gambling group Flutter and building materials business CRH moved their primary listings to New York. Time will tell how the tech-led US sell-off and price collapse at the start of August will make those decisions appear with hindsight. Meanwhile, cyber security business Darktrace (originally backed by the Autonomy founder Mike Lynch, who died last month when his superyacht sank off the coast of Italy) listed in London in 2022 and in April agreed to a £4.3bn takeover by private equity firm Thoma Bravo.

Last year, 23 companies floated their shares on London’s main market, down from a peak of 136 in 2014. Referring to the gloom that has been surrounding the UK stock market, Raspberry Pi’s Upton said: “Many of the stories about the differences between the US and the UK – particularly this sort of magical multiple arbitrage – don’t seem to be real.”

In June, listing activity returned to the LSE’s beleaguered growth market AIM, with £35.1m raised by US healthcare business Aoti (Advanced Oxygen Therapy Inc). And at the start of July, Rosebank Industries raised £50m in a placing on AIM with the intention of making significant acquisitions and moving to the main London market. “There has been much talk about London losing its appeal,” says Ward. “The fact is it is still the largest capital market by aggregate market cap in Europe, with about 10 times as many companies listed as Amsterdam.”

Brighter horizon

Stability seems to be returning to the UK economy, with interest rates and inflation continuing the downward trend that started prior to the general election. The US elections might suggest uncertainty around the corner, but the reality is that once they are out of the way there will be more certainty around the playing field businesses are on, just as we’ve seen in the UK. More of an issue perhaps are the economic prospects that were thrown into question in August.

KPMG’s Aadam Brown, who leads the firm’s independent IPO advisory practice, says sentiment among bankers he regularly meets with is “mixed at the moment”. He says that while some banks don’t have IPOs imminent, a few prospective IPO candidates have recently held ‘bake-offs’ – interviews of underwriting candidates, where banks explain why they are best placed to take a company public. “It’s still hesitant,” he says. “People are still waiting to see how the new government will tackle various issues. And, of course, we still have the US elections, which may cause volatility in the near term. Having said that, companies are starting to think about next year. A number of companies are having conversations about what’s required in preparation for a 2025 IPO. That is positive.”

Advisers are encouraged by the prospects of an increase in IPOs on the UK’s stock markets. “I think the demise of the London Stock Exchange has been overstated by the media,” says EY head of IPOs Scott McCubbin. “The UK has been affected by global markets much more than it has by local investor appetite and availability of capital. Both of those still exist in the City.” He sees tech and financial services businesses beginning to show an interest in listing in the UK.

IPOs and public markets cannot be seen in isolation – they are a function of the wider M&A market. Pricing is clearly an issue for IPOs: sellers must be satisfied they will receive enough and that can often be in competition with what private equity or another corporate offer; investors must be satisfied they will make money after investing.

“Where IPOs come from is an interesting question because we are currently still in a buyer’s market,” says Brown. “They are priced low and perform well after listing.” One might argue this is what happened with Raspberry Pi. “From a private equity standpoint, coming in at a lower valuation is probably not ideal. So I suspect they will be waiting for it to switch to a seller’s market. I think that will happen in 2025. You will still get a mix of different sources coming out in 2025. But a full-blown return to an open market where you can get good valuations and investors are prepared to pay those valuations is probably going to follow maybe in the second half of next year,” says Brown.

Julian Morse, CEO at Cavendish – which advises on corporate sales to trade, IPO, or through dual track processes – says: “The IPO window has been closed as an option for the past 12 months, but we are working with five companies with a view to IPO, cornerstoning investments into them.” These are all UK companies, but from a range of sectors, from engineering to professional services to software, he says. As well as UK investors, there will be European and US investors. “Dual track, despite the additional work, can improve valuations when IPO is an option.”

Deep pools

Investors must also have confidence in UK markets in order for IPO activity to meaningfully return. It may be difficult to determine precisely when that confidence has been rebuilt, but perhaps the tide has started to turn. 

“If equity fund manager outflows turn around to inflows, that is a really strong signal that IPOs are back in play and means there should be money to invest in UK equities,” says Giles Distin, partner at Addleshaw Goddard. “Why hasn’t there been more money available to UK fund managers to invest in UK equities? Many have looked at why the availability of money over the past 20 years for UK equities has declined and what could be done to turn that around. Much of the focus has been on the pensions industry – how to encourage a greater part of their pot to be invested in UK equities. That’s not going to be solved quickly – it’s a longer-term theme.”

Cash is here. London remains among the top pools of capital in the world for public markets. “In the first half of this year there have been some good indicators of the depths and the strengths of the markets,” says Marcus Stuttard, head of AIM and the London Primary Markets at London Stock Exchange. “By the end of June, £18.9bn had been raised in London, which is 3.2x the amount raised in Frankfurt, the next largest European competitor.”

He points out that London has been the fifth biggest market for transactions this year, although many of transactions have been secondary sell downs. In March, Blackstone sold £1.9bn of LSEG shares and Pfizer sold down £2.4bn of its shares in Haleon. “This shows the institutions have money, and are looking to invest in London-listed equities,” he says. “Those big sell downs demonstrate to private equity the ability to IPO and then unwind shareholdings in the London markets. They are among the biggest global equity capital market transactions this year. That gives confidence.”

Cavendish’s Morse says UK and Silicon Valley VC funds are telling him they “absolutely need public markets for the recycling of capital. We need the whole ecosystem and need that competitive tension.”