IPO Conference 2024: Now’s the time to think again about listing

Over 50 business owners, leaders and senior equity market stakeholders absorbed a wide range of thought-provoking content and ideas at the annual Investec IPO Conference. While it was acknowledged that current market conditions remain challenging for IPOs, the conference gave cause for optimism and confidence for companies considering this next stage in their growth that now is the time to begin preparations.

Be prepared for changing investor sentiment

Investec CEO Ruth Leas welcomed guests and noted that Investec has been dual listed since 2002 in London and Johannesburg. “We are well placed to share our experience of being listed on the London market,” she said.

Pointing out that there had been reduced IPO activity in London in recent years, Ruth offered an upbeat perspective: “Things will turn, they always do. You have to accept uncertainty and get on with it.”

With high interest rates ending the era of low-cost debt and high levels of gearing, there is now a growing appetite for going public, she observed. “We need to be adaptable to the changing circumstances that we all face and be ready for market opportunities.”

Macro conditions indicate return to economic growth

Sandra Horsfield, Economist at Investec, also emphasised that “we have clearly gone through a challenging period.” However, she added: “The good news is that lots of factors have pulled inflation down and we think we will continue to move towards a stage of sub-2% inflation in the UK.” With that, she noted, household purchasing power is rising, and room for policy rate cuts is opening up.

Despite high interest rates, the UK economy hasn’t fallen off a cliff, she observed. Across the major economies, “although high interest rates have hurt housing investment, business investment has held up well. Fiscal incentives and interest in artificial intelligence (AI) have helped.”

What’s more, while world trade and manufacturing output struggled in 2022 and 2023 it has now “turned a corner”, supported by lower energy prices and supply chain pressures easing.

IPO window is opening

Focusing on the equity and IPO markets, Carlton Nelson, Head of Corporate Broking and PLC Advisory at Investec, told delegates: “We firmly believe a window is opening for the IPO market, especially as we know the likely direction of travel for interest rates. We are seeing notable inflows into equity funds globally and although there has been outflow from UK equity funds there are glimmers of hope, especially for small-cap funds.”

He pointed to the strong start in 2024 made by the European IPO equity market. “European markets are an early bellwether that the UK market is beginning to open up,” he pointed out. “We think the IPO window in the UK is likely to be limited over the next few months and become busier towards the end of the year – now is the time for companies to start thinking about IPOs.”

Carlton also pointed to 2020 and 2021 as an important reminder of the benefits of the permanent capital that comes with a public listing. That was when UK PLCs benefited from investors injecting much-needed capital into businesses to help them cope with, and in many cases capitalise on, the Covid-19 pandemic.

Turning to what investors look for in small- to mid-cap IPOs, he highlighted the “Four Ms”: market, business model, management, and metrics: an attractive equity story and market opportunity, supported by clear key performance indicators (KPIs) and a strong management team. Finally, he encouraged companies to begin their IPO process by test marketing and building early relationships with investors. “The aim should be to secure ‘cornerstone’ investors and give companies confidence to go ahead with their IPO,” he said.

Private meets public

A new initiative to give privately owned business certain access to capital markets was outlined by conference guest Marcus Stuttard, Head of AIM and UK Primary Markets at the London Stock Exchange (LSE). He gave a brief insight into the Private Intermittent Security and Capital Exchange System (PISCES) regulatory framework that will allow shareholders in private companies to trade their shares in a controlled environment.

The LSE sees this as helping bridge the gap from private ownership to an IPO. “We have been working closely with the FCA and Treasury to launch later this year, enabling private companies to stay private but get periodic access to liquidity,” he said.

Cheers to IPOs

Guest speaker Sir Tim Martin, Founder and Chairman of pub chain JD Wetherspoon, spoke passionately about the company’s IPO journey in his inimitable style. “We were planning a floatation – why? It just seemed like great fun!” he said.

Despite tough economic conditions, Wetherspoons went ahead with its IPO in 1992. There was a “palpable sense of relief,” he said, as funding pressures abated.

The company kept to a brisk pub opening schedule throughout much of the 1990s. “That would have been difficult if we weren’t a public company,” he said. “Flotations are an important way of channelling capital to companies who need it.”

Sir Tim said he remains pleased with his decision to take his company public. With no plans for a dynastic, family-run business, he pointed to another benefit of a public listing. “We’ve got over 40,000 employees, and over 10,000 who have been with the company for more than 10 years,” he said. “So, you have to be very hard-hearted if you don’t really care about what happens in the future. You want the business to be preserved, and being a public company gives you a chance of doing that.”

His parting advice to companies thinking about listing? “Weigh up the circumstances. Markets go up and down, but if you want to float, then float – don’t let it put you off.”

Panel views: plenty of support for IPOs

The conference rounded off with an informative panel discussion chaired by Ben Griffiths, Director of Equity Capital Markets at Investec. The panellists were Andy Brough, Head of Pan-Europe Small and Mid-Cap team at Schroders, Victoria Stevens, Partner and Fund Manager at Liontrust, and Richard Watts, Co-founder at Chrysalis Investment Partners LLP.

They looked at the benefits of IPOs, and the ramifications of becoming a public company. Insights were shared on their approaches to assessing IPO candidates and building relationships with those companies.

Andy pointed to the UK market’s response to Covid-19 as “its finest hour”, but recognised the need to broaden participation in equity ownership to improve liquidity. Victoria said she continued to be passionate about the importance of a thriving UK stock market, and the number of “amazing businesses in the UK that we [UK investors] can support at the right moment in their journey”.

Richard said that a set of time-honoured yet straightforward rules should be observed by any firm interested in going public. “It’s the old mantra, really, of under-promise and over-deliver.”

All three panellists agreed on the importance of IPOs in sustaining vibrant equity markets through providing investors with fresh ideas and opportunities to channel growth capital into new areas.

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