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Listed Companies Are Leaving London For New York

Should We Be Concerned That Listed Companies Are Leaving London For New York?

Thursday, 8 June 2023

The thing about confidence is that it tends to ebb and flow. Right now, despite the UK government’s best efforts, there is a lack of confidence in the outlook for the UK’s leading financial centre.

London has experienced a number of blows in recent months. IPO (Initial Public Offering) listings have all but ground to a halt, trailing rival markets such as the US and China.

The UK capital has also witnessed a small exodus of listed companies, such as Irish building materials group CRH, plumbing supplies firm Ferguson and bookmaker Flutter Entertainment.

The big question is whether the trickle of firms leaving London will turn into a flood or whether these are simply a small number of unrelated cases, each with very specific motives.

To answer that question, and to determine what the London market is currently competing with, we have gathered opinions from both side of the Atlantic.

The U.S. view: Louis Cordone, SVP of Strategy for Equiniti U.S.

When firms decide to switch their listing, they have their own individual reasons for doing so. Currently the primary driver for most firms is valuation. At the moment, firms can achieve far greater valuations in the U.S. than they can in rival markets. The main reason is the U.S. has the deepest capital markets in the world and growth firms, in particular, tend to go where the well is deepest.

For the past two decades or more, that place has been the U.S. and that’s unlikely to change in the foreseeable future. The U.S. has a strong investor base and a very pro-growth culture that cannot be replicated overnight. It is also further along the tightening cycle than other markets, including the U.K.

There is now a very real prospect the U.S. Federal Reserve will cut rates this year, which will add cash back into the market. In the U.K., on the other hand, inflation has proven far stickier and so the Bank of England may have to maintain its hawkish stance for longer.

Another factor not to be understated is that a company with at least a market cap of $2B, switching its primary listing to the U.S., will almost instantly gain access to North American indexes. By doing so, it’s a major draw for cash-burning firms in the growth cycle.

It is understandable why the U.K. government would want to fight to keep domestic firms listed in London. However, just because a firm is listed in the U.S., doesn’t mean it has to be headquartered in the U.S. That scenario can be a ‘best of both worlds’ solution. Not only does the U.K. economy benefit from the firm maintaining its base in the U.K., but the firm itself is also able to tap into the U.S.’s strong and diverse investor base.

The UK view: Danielle Baker, EQ IPO Specialist

While it’s never good to see well-known brands leave the London Stock Exchange, it’s important to put things into perspective. Firstly, we are talking about a handful of firms that will have had very specific reasons for moving their listing from London. For example, Ferguson, the plumbing equipment supplier, has 100% of their operations in North America. As they are focusing their sales strategy there too, it makes sense to have its listing there, as well.

There are, of course, advantages of choosing New York over London: the capital pool is far deeper and investors there are much more willing to back growth companies without a clear path to profitability. That can be a major draw, particularly for tech firms, which often reach profitability far later in the growth cycle.

The big question though, is whether this is a trend that will continue or whether we are blowing this out of all proportion.

I am an optimist and I think a London listing still carries significant weight. Regulators have also been given a new remit to make the City more competitive – that could be a real game changer for the capital’s prospects. Just recently, London has seen two major firms announcing their intention to float with tech unicorn, CAB Payments and Turkish soda ash producer, WE Soda. With that in mind, I have every confidence London is the place to list.

Lord Hill’s listing regime recommendations and Chancellor Jeremy Hunt’s Edinburgh reforms form the backbone of that. I have no doubt that smart, growth-focused regulation will boost London’s appeal again in time but it’s time to keep the momentum and continue to review the recommendations that have been implemented and push forward with those still pending. Therefore, I don’t think we will see a flood of companies following CRH, Flutter or Ferguson, to exit London.