Some of the biggest exchanges in the U.S. have recently won listings from the U.K. market. Think names like chip maker ARM, building materials maker CRH and FanDuel owner
Flutter.
New York is a beacon because of its deep capital markets and large base of retail investors. And the U.S. has always been more comfortable than the U.K. with higher-risk companies. It tends to give higher valuations to technology or biotech companies, and investors in the States are more willing to take a bet on firms that have yet to make a profit.
Ultimately, though, the attraction for U.K. firms just comes down to size—and it isn’t specific to any one industry.
“The U.S. market is still the place that you want to be,” said Michael Harris, global head of capital markets at the New York Stock Exchange. “Companies want to tap into the deepest pool of capital with the most savvy pool of investors.”
London’s Lost Luster
For Americans, it could be an opportunity to get in on the ground floor in initial public offerings as London-listed companies such as CRH and Flutter build their brand and reputation. As the companies become more well known in the U.S., their reputation, and their value, are likely to grow.
But while New York has always had pull, the recent spate of U.K. firms looking across the pond has left London wondering if it’s pushing money away. The aging population that has seen U.K. pension funds invest less in equities, and regulation that requires more disclosure about companies’ interactions with third parties are often cited as reasons for why the U.K. might be shunned.
More broadly, it’s another knock to the swagger of the City (as London’s financial district is known), which sees itself at the vanguard of global finance. The string of announcements comes after years of economic underperformance for the U.K., and months after the government’s program to bolster growth forced the resignation of Prime Minister Liz Truss after just six weeks in office.
Arm is the biggest name so far to give London a miss. It was started in Cambridge in the 1990s and was listed on the
London Stock Exchange
until the Japanese firm SoftBank took it private in 2016 for $32 billion. With customers from
Apple
to the U.S. government, expect a higher valuation than that when it sells shares again. On March 3 it announced it would seek a U.S.-only listing later this year.
Before that, building materials maker CRH, a member of the blue chip FTSE 100 index, said it would move its listing to New York. Flutter, the betting firm that owns Paddy Power and FanDuel, said it would seek to sell shares in the U.S., as did software developer WANdisco.
London’s financial district worries its beauty is fading. For the first time, the City of London Corporation didn’t rank the U.K. capital as the world’s leading financial center. It ranked itself as a tie with New York in a March 30 report, followed by Singapore, Frankfurt, and Paris.
Brexit Beneficiary
In a sense, New York is also a beneficiary of several factors pushing U.K. firms outside their home base. The country’s withdrawal from the European Union and the accompanying higher barriers to trade may be making companies think twice.
Analysts led by Beata Manthey at
Citigroup
wrote in a March 6 note that U.K. shares trade at a 40% discount to the U.S. market. They screened for companies that might be able to lift their market value by moving shares to New York. CRH popped up. So did energy giants
BP
and
Shell.
Others were industrial companies such as
Ashtead,
and financial services company
Experian,
as well as consumer services firm Compass.
“We’re in a moment where the narrative is negative about London,” said Stuart Newman, a senior partner for capital markets at PwC. “In a post-Brexit world, London has to rediscover its place.”
However, for British firms to take advantage of U.S. listings, they probably have to have large operations across the Atlantic already. Indeed, a series of firms that got their shares listed in the U.S. through special purpose acquisition vehicles, or SPACs, have seen their values plummet.
Electric vehicle company Arrival (ARVL) went for a U.S. listing with a SPAC. Its shares have dropped from about $30 to less than £3.
Cazoo
(CZOO), a used-car retailer, has dropped from $200 to $2. Wejo (WEJO), Babylon (BBLN), and Paysafe (PSFE)—all lesser-known tech companies—are other names that gambled on selling shares in the U.S. and didn’t get great results.
Mark Austin, a partner at Freshfields Bruckhaus Deringer and the author of a U.K. government review on London listings published last year, said there are things the City can do to improve—but it still has plenty of advantages.
“All is not lost, London’s still one of the largest equity markets,” Austin said in an interview. “It just needs to get its skates on and get cannier at promoting itself.”
At the same time, he acknowledged that New York has probably benefited from the Brexit vote.
“There’s a momentum behind the perception that the U.S. is a much bigger market,” he said. “And it’s true, always has been.”
Write to Brian Swint at brian.swint@barrons.com
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