The U.K. is in a race to beat the EU as the hottest tech listing hub of Europe after the twin punches of Brexit and the COVID-19 lockdowns.
Amsterdam, its biggest competitor, briefly knocked off the London bourse as the largest share-trading center in Europe. But share trading and tech listing are far different things, and with London’s new tax incentives for investors and a growing venture capital community, it has become the choice for many fast growing tech companies—over Amsterdam, Frankfurt or the even more dominant New York.
London is home to old economy stalwarts with expertise in manufacturing, energy, telecom, and financial services, giving it a distinct advantage to competing bourses in certain sectors, says Joachim Klement, investment strategist at Liberum. “Where London can catch up is all the tech adjacent companies,” said Klement.
“If you define tech as software, social media, and in some cases some computer chips, then London is nowhere. But we live in a world, where technology is basically progressing throughout the entire economy. Influencing every sector. When it comes to these other sectors the expertise and the capital is in London.”
If this wasn’t enough, the city is going another step further proposing new listing-friendly rules to allow highly-desirous SPAC-listings and dual class share structures, as well as dropping in the minimum public ownership level from 25% to 10%. So far, these efforts appear to have worked.
The LSE saw a 467% year-on-year increase in the number of initial public offerings during the first six months of 2021. And some of the biggest fintech IPOs—including Klarna, Revolut, and Monzo—are looking at London to come to market later this year. Also eyeing London is DNA sequencing firm Oxford Nanopore Technologies, which is expected to reach a valuation between £4 billion and £7 billion.
The listings so far in 2021 have made big news. There has been 49 listings on the on the AIM and main market of the London Stock Exchange in the first half of the year, raising £27 billion (about $37.7 billion). Of the new companies listed, eight of the joining members on LSE’s main market have been tech companies.
Here is how they fared.
The highs
Wise
The most recent London IPO was British money-transfer app Wise, which debuted on the market with a market valuation of about £8.75 billion ($12 billion)—beating its market expectation by £2 billion.
The company went to market in London’s ever first direct listing—selling existing shares on the LSE on trading day—which is a style of listing growing in popularity among tech companies in the U.S. Wise listed its shares at 800p in an immensely successful three-hour opening auction and closed on the day at 880p.
Darktrace
The next big hitter on the London market was Cambridge-based cyber security company Darktrace, which jumped as much as 44% on its LSE debut on April 30, raising £165 million for the company.
Darktrace began the day with its shares modestly priced at 250p and closed at 330p, 32% above its listing price, giving Darktrace a market capitalization of about £2.2 billion.
Trustpilot
Danish consumer-review site Trustpilot Group Plc listed on March 23, and its share price rose as much as 16% on its first trading day in London, raising £473 million ($655 million).
Trustpilot was the first EU-based company to list in London after Brexit, and at the time was hailed as a promising sign that London was an attractive venue for continental companies following its departure from the Union.
Pensionbee
Before Trustpilot was Pensionbee, which offered its own pension customers shareholding options before its IPO.
It neither surged nor fell upon IPO and is now trading slightly below its initial valuation. Notably, PensionBee entered the high-growth segment of the market, which allowed it to exercise a relaxed free float rule that U.K. Chancellor of Exchequer Rishi Sunak now seeks to roll out across all segments. The new rule allows companies to reduce their free float to 10%; companies are already allowed to list with only 10% in the U.S.
Auction Technology Group
Compared to the stagnation of Pensionbee, a lesser-known but immensely successful IPO was London-based digital auction platform Auction Technology Group (ATG), which debuted on March 2 priced at 600p a share. Since then the stock has more than doubled in value to £1.28, giving the company a £1.5 billion market capitalization.
Moonpig Group
Finally, the first tech IPO this year in 2021 was online greeting-card company Moonpig Group, which soared on its February 2 listing, raising £491 million. The shares closed on the day at 410p—17% up from its IPO price at 350p.
Similarly to many of the other listed companies, Moonpig recorded remarkable sales during the COVID-19 pandemic and warned investors in its registration document that it may not retain new customers as lockdowns are lifted and they begin to face stiffer competition as brick-and-mortar stores shift to online sales.
But inflated COVID-19 sales did little to wane investor interest from pumping cash into the burgeoning London tech market.
The lows
Deliveroo
On the other end of the spectrum, the LSE saw one of the tech world’s most highly anticipated—and worst—IPOs of 2021.
British food delivery company Deliveroo Holdings Plc collapsed after its London public debut as investors abandoned the startup due to the company’s labor practices and corporate governance.
The stock plunged as much as 31% in its first minutes of trading and triggered circuit breakers—the worst performance in decades for a big U.K. listing. It closed 26% down at 287p at the end of the trading day, down from its opening price of 390p, itself at the bottom of the original pricing range.
British Chancellor Rishi Sunak, a cheerleader of the firm, was left scrambling to explain the losses.
The failure was in part chalked up to the company’s dual-class share structure, which gave founder Will Shu over 50% of the voting rights. The U.K. was planning to further ease dual-class share structure rules at the time of Deliveroo’s debut, but market appetite for racy-tech stocks with such structures has dwindled.
Alphawave IP
Canadian semiconductor technology company Alphawave IP watched its shares plunge by as much as 21% on its London market debut on May 13, cutting its value by more than £600 million pounds ($842 million) within hours of its market debut.
The IPO, which came weeks after Deliveroo, rattled the market and left many market watchers questioning the pipeline of LSE listings to come, especially as the Canadian firm was initially considering listing on Nasdaq.
Up next
Overall, the listings give Chancellor Sunak reason for hope for the London market. Having an ample number of new tech players with bloated revenues from COVID-19 lockdowns planting a stake in post-Brexit Britain could help foot the bill of an expensive COVID-19 economic recovery plan.
The overhaul of security rules meant to attract new companies, however, is slightly more contentious.
When it comes to allowing SPAC listings, Joachim Klement is in “two minds and two hearts” about it. On the one hand he realizes that SPAC listings bring in younger companies to the market. However, he worries for the long run. With lower requirements to list versus an IPO “you face an erosion of disclosure standards and basically investor pressure.”
As for the dual class listings, he argues they reduces governance and accountability of the owners of certain share classes. “That to me is a hard no. It is not in the best interest of investor and shareholders,” he said.
Still, Alasdair Weir, Partner at Pinsent Masons LLP, tells Fortune that the proposed changes to the listing rules in London will “undoubtedly make more high growth tech companies consider a listing.”
While in his view London markets are strong enough to support these companies, he urges the government to make the whole business and regulatory ecosystem in the U.K. “work better for tech and high-growth businesses.” He notes that many companies are being taken private by foreign investors and urges the market to protect new tech stocks from overseas buyouts.
For his part, Chris Cummings, chief executive of the Investment Association, writes in the FT that while London needs to make changes to attract high-growth, innovative companies, it must keep the rules “sufficiently robust to protect savers’ money”. The most important is to keep the 25% free float requirement (which Pensionbee circumnavigated), he says, as it protects investors by guaranteeing liquidity and ensuring that there are enough minority shareholders to raise concerns with the management.
The temptation to loosen listing rules to the extreme will be strong, as the U.K. is recovering from its biggest fall in economic activity in over 300 years due to the COVID-19 pandemic. But the less than overwhelming reaction to dual share structures and lowered minimum free float rules in the Pensionbee and Deiveroo IPOs give reason for pause.
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