UK's IPO market showing signs of life

The Hut Group IPO

British e-commerce company The Hut Group recently announced their plans for an initial public offering (IPO) to raise £920m at a £4.5bn valuation, which would place it as London’s largest listing this year.

Update: The Hut Group went public on Wednesday (16 September) and soared nearly a third, raising £1.88bn at a £5.4bn market capitalisation to become London's largest IPO since 2015.

Global co-ordinators: Goldman Sachs, JPMorgan, Citi and Barclays

Bookrunners: Jeffries, HSBC, Numis

Financial Advisor: Rothschild

The UK’s struggling IPO market

The UK has had only 13 listings this year, 5 on the Aim market and 8 on the main exchange, the fewest since 2009. Over the same time period, 25 companies listed in 2019 and 58 in 2018. The Hut Group’s listing alone represents almost half of the amount raised in the UK’s equity market. This lack of listings is partly due to the fact that the UK is traditionally a destination for commodity and financial listings, which have been strongly impacted by the pandemic. Although, there were not any great expectations for London’s IPO market this year, even before the pandemic. This relates to the prolonged economic uncertainty surrounding Brexit, along with the potentially better prospects for a US listing instead.

Far ahead of the UK, the US and China IPO market have picked up substantial pace in recent months. Refinitiv reported the week ending 28 August was the most active week in recent history for listings in the US, with at least 17 companies filing to go public. This disparity may represent investor preferences towards high growth companies, many of which view both Asia and the US as superior places for flotation. Financial Times also highlighted that "big investors were increasingly disinterested in smaller companies", likely relating to the lack of liquidity issues in smaller companies. Further, in the current period of economic downturn and extremely low-interest rates, investors are evermore selective about the IPOs they participate in. Gareth McCartney, UBS' head of European ECM emphasised that investors are looking to highly liquid, large, high-quality growth organisations.

This begs the question: Why did The Hut Group not list on one of the US exchanges?

Listing on a US exchange has been the route for numerous other European companies like Farfetch, a UK retail tech group, and Swedish streaming service Spotify. Even though Matthew Moulding, The Hut Group's founder, recognises that the US market is more accomodating, the group will be listed in the UK because "it feels like the right thing to do". The group also confirmed it will be listed with a founder share structure which will give Matthew's the power to reject any takeovers. Whilst this 'standard' UK listing provides the founder with greater control and protection, it also means that the group cannot be included in the FTSE indices, nor can it be tracked by investment funds.

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Key terms

The Alternative Investment Market (AIM) is a sub-market or specialised unit of the LSE that caters to smaller, riskier companies. The Aim listed companies tend to be small-cap and allow these companies to raise capital on an exchange with greater regulatory flexibility.

Premium vs Standard listings

Essentially, firms must meet the UK’s highest regulatory and corporate governance standards to maintain a premium listing on the London Stock exchange. Whereas, with standard listings, companies pay lower fees and only need to comply with the EU’s core standards.