The London Stock Exchange could be gutted of nearly £100bn worth of companies after a record number of large listed firms fell into the sights of private buyers this year.
Corporates and private equity firms have now launched some £47bn worth of offers for London-listed companies in the year to date, including 19 FTSE 350 firms, in a sign that buyers are pouncing on a perceived depression in UK valuations to strike bigger deals.
Taken alongside bids announced last year and completing this year, as well as de-listings, the total value of companies set to leave is now £97bn, according to figures from investment bank Peel Hunt.
The figures lay bare the scale of the challenge facing London’s markets after two years of turmoil marked by exits and a dearth of new companies floating on the London Stock Exchange.
While there have been signs of life in the IPO market in recent months, including the debuts of computer-maker RaspberryPi and Air Astana, Peel Hunt said the speed of de-equitisation showed there are “structural issues in the UK that need to be addressed to retain a healthy UK equity market”.
“We believe we need to address the demand side, if the UK is to retain its growth companies and to ensure that the equity market is able to provide long-term growth capital,” Peel Hunt’s head of research, Charles Hall, said in a note. “In our view this can be delivered through pension reform, ISA reform and a national wealth fund.”
Value of bids by index
The government and Financial Conduct Authority are pushing through a reform agenda in a bid to revive the appeal of the London Stock Exchange internationally.
Since taking power, the Labour government has pledged to push ahead with a number of City reforms set in motion by the previous government, including launching a new hybrid private-public stock market in the City. The Chancellor, Rachel Reeves, and pension minister, Emma Reynolds, have also launched a review of the pension sector in a bid to unlock a wave of cash to flow into British companies.
In the biggest shake-up of listing rules in 30 years, the FCA pushed pushed through a package of changes in July which merged the premium and standard segment of the market and ditched a requirement for companies to get approval from shareholders for certain deals.
While take-private deals last year were concentrated at the smaller end of the market, with just two FTSE 350 firms coming under offer, easing interest rates and steadier markets have spurred a wave of interest for larger companies.
Among the FTSE 350 firms to come under offer this year are Hargreaves Lansdown, the UK’s largest retail investment firm, Darktrace, the feted cybersecurity outfit, and Virgin Money, which was bought by competitor Nationwide.
Nearly 10 per cent of the total value of the FTSE 250 could be set to leave in the space of nine months if all currently announced deals go through, Peel Hunt said.
Across all deals, buyers have been willing to fork out a significant premium, with the average offer coming in at 40 per cent above its trading price on the market.
The flurry of deals have stoked fears over the future of the London Stock Exchange’s junior AIM market in particular, which has suffered an exodus over the past 15 years.
The number of companies on AIM stood at 704 at the end of August 2024, down by seven per cent from 753 at the end of 2023 and by 58 per cent from its peak of 1,694 companies at the end of 2007.
City bosses have also sounded the alarm over rumours that Chancellor Rachel Reeves could also scrap inheritance tax relief on AIM stocks during this month’s budget.
In a letter to City minister Tulip Siddiq last month, London Stock Exchange boss Dame Julia Hoggett said that the “ongoing viability” of AIM would be threatened by the rumoured scheme.
Peel Hunt also calculated that the proposed plans could cause 15 per cent of the cash in AIM to be withdrawn immediately, leading to a 20-30 per cent drop in the value of its stocks.