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Clydesdale flotation has sparked interest

Scottish companies build ‘appetite’ for stock market IPOs

London Stock ExchangeScottish businesses are showing an increased interest in the IPO market against a generally subdued level of activity.

Analysts at EY say there is a growing appetite for stock market flotations among Scottish companies, though they are more likely to come through at the end of this year and into 2017.

Edinburgh-based Mike Timmins, EY executive director, transaction advisory services, said: “The UK has experienced a slow start to 2016, brought about largely by market volatility, concerns regarding slowing economic growth and the uncertainty created by the EU referendum.

“Despite this, we have seen that well-priced businesses, often backed by private equity, attract investor interest and deliver strong aftermarket performance. Equally, the pipeline for future listing is strong with companies targeting longer-term listing dates towards the final quarter of this year and beyond.”

In Scotland, the IPO market has been dominated by the listing of Glasgow headquartered Clydesdale Bank in February (as CYBG alongside Yorkshire Bank) which Mr Timmins said has contributed towards increased interest in the market among Scottish businesses.

“Despite the reduction in IPO funds raised so far this year the appetite for IPOs is building in Scotland and is firmly on the radar as a realistic option for an exit or as access to capital. However, there has been a reset of expectations in relation to timings with later this year or 2017 more likely target dates for potential IPOs in Scotland,” he said.

In the first quarter of 2016 there were a total of 15 IPOs – nine on the Main Market and six on AIM – raising £1.65b. This compares to 13 listings over the previous quarter, raising a total of over £4b of capital, according to EY’s latest IPO Eye.

Mr Timmins added: “Given the broader political and economic backdrop, London prevails as the leading market in Europe for IPOs. This quarter, the Main Market and AIM accounted for 45% of European listings and hosted two of the top five largest IPOs globally in 2016 so far.

“The performance of IPOs in London demonstrates that well-priced companies, with a capable management team, will continue to realise value and Scottish businesses are becoming increasingly aware of this. Confidence in IPOs is building in Scotland and companies should be looking to capitalise on the opportunity when there is more stability in the market.

Private Equity remains in front

Over the first quarter of 2016 private equity-backed companies have again performed well in terms of raising capital on the Main Market and AIM.

Of the 15 listings this quarter, three were PE-backed IPOs (Metro Bank, Countryside Properties and Ascential), accounting for 45% of the total capital raised. The continued strength of PE-backed businesses is cementing their prominence on the London exchange.

Timmins says: “While the number of PE-backed IPOs in the coming quarters is likely to be significantly lower than the levels seen in 2015, we still expect them to be the drivers behind the majority of capital raised. The strong post-listing performance of PE-backed IPOs in 2015 is bolstering investor confidence in the markets and in these assets in particular.”

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