London’s Markets shake-off COVID fears

Reason # 1 – London’s unexpected support

At the beginning of the crisis a significant number of companies looked to shore-up balance sheets and there is a clear evidence that the London markets have risen to the challenge and ‘stepped-up’ where – in recent times at least – companies may have looked for funding requirements to have been met from private sources (whether family or private equity (PE)).

Whilst there is an argument that a lot of these fundraisings were ‘obvious’ or ‘easy’ and the more complex restructurings (i.e Rolls Royce) will pose a greater challenge in H2 2020; London is maintaining its momentum and companies are continuing to raise money during what are the typically quiet summer months.  In particular and we are seeing strong enthusiasm for the healthcare and resource sectors, taking advantage of significant investor cash.

Reason # 2 – Lack of PE support

With the PE market remaining sluggish and risk averse there is evidence that bank financing for PE deals is and will remain limited.  Consequently there is a renewed interest in the ‘IPO option’ that may not have been expected 12 months ago.

There are a number of companies looking at IPOs in H2 2020 who were not prioritising the option at the beginning of the year – or are restarting mothballed processes.

Reason #3 – Continued growth in dual listings

Overseas companies are seeing London’s response to the Coronavirus crisis and are inevitably considering the benefits of adding a London listing.

London’s range of investor profiles giving access to a larger pool of potential investors, attracting more capital and liquidity which can often allow investors to take advantage of undervalued stock prices, permitting capital to flow more freely between markets is a clear draw for overseas companies.

London’s strength combined with a surprising lack of investment opportunities for certain industries (and this is particularly pertinent among some vehicles like UK Smaller Company funds) creates a significant opportunity.

This lack of competition has real benefits, not least the potential for better valuations. We’ve seen LSE-listed companies trade at a premium across a variety of market valuation analyses.

Going forward whilst there are clear challenges ahead it is fair to say that London has surpassed expectations and with some significant listings on the horizon in 2020 (not least Memery Crystal client, Yamana Gold) there are reasons to be optimistic that may not have been felt in March.