The recent Initial Public Offering (IPO) of Direct Line Insurance Group, valued at £2.6 billion and with an associated fundraising of £787 million, has spurred hopes in some quarters that the current drought of public flotations on the UK markets may be drawing to a close.
However, it is by no means certain that it heralds a return to the heady days of 2005/2006 when hundreds of companies had their shares admitted to trading on AIM and the Main Market.
This was starkly illustrated by the subsequent news that the Russian bank Promsvyazbank had cancelled its plans to dual list in London and Moscow, apparently as a result of concerns regarding valuation. Questions have been raised as to whether this will now adversely impact upon the London IPOs of other Russian companies currently in the pipeline. It is clearly important for both the City and the UK economy generally that the public markets return to good health as soon as possible. Therefore, the recent announcement by David Willetts, Minister of State for Universities and Science, that the Government is considering relaxing the Listing Rules for high-growth technology companies on the London Stock Exchange is a key development.
Although the details remain rather sketchy, one key aspect, which has been highlighted, is the suggestion that the free float for these companies could be reduced from 25 per cent to 10 per cent. This will need to be thought through in order to assess what effect such a change is likely to have on liquidity.
Another area of focus for the Government is expected to be corporate balance. Whilst any move to reduce the reporting obligations on high-growth tech companies is understandable, this will need to be carefully callibrated to avoid it becoming a disincentive for potential investors. The Government’s desire to examine ways to stimulate more UK IPOs of tech companies is a significant step forward. However, finding the right mechanisms to do so will not be without its challenges.
Jonathan Morris is a corporate finance partner at the international law firm Berwin Leighton Paisner LLP