Longer durations of private company status anticipated among firms, according to Baillie Gifford, as the prolonged dearth of listings is predicted.
British businesses are anticipated to remain private for an extended period as the drought in Initial Public Offerings (IPOs) shows no signs of abating, according to an investor at Baillie Gifford. Pater Singlehurst, head of private company investments at the Edinburgh-based firm, pointed out that investors would need to regain trust in IPO-bound enterprises before any signs of revival in London floats could materialize.
Singlehurst's caution stems from the disappointing performance of several 2021 flotations, including Trustpilot, Deliveroo, and Alphawave, all of which experienced share price declines that saw their values halve within a year of listing on the London Stock Exchange. Singlehurst expressed concern that many private companies considering an IPO do not fully understand the disenchantment of public market investors following the 2021 IPO fiasco.
"From the perspective of a public market investor considering an IPO, why would you choose a company offering two years of financial data - potentially at a high valuation - when you could examine numerous public companies with longer operational histories and relatively stabilized prices?" Singlehurst explained to The Times. "Until public markets have a clear explanation of the utility of an IPO, companies will continue to remain private for a longer duration."
Concurrently, Baillie Gifford's analysis revealed a trend towards secondary private share sales. The firm noted that only two US tech firms - Stripe and Databricks - were able to raise more capital through secondary private sales than the entire tech sector managed via IPOs. In contrast, London remains the leader in Europe for secondary or follow-on fundraising, even as IPO activity wanes on the London Stock Exchange.
In 2024, London's stock exchange ranked 35th in the world for money raised from IPOs, generating $576.7 million (£459 million), accounting for just 0.53% of the global market. However, when including follow-on fundraising, the UK shot up to fifth position, with the country raising $28 billion (£22 billion) across 73 issues, marking a 53% increase from 2023. This influx included two $3 billion follow-ons from Haleon, which ranked among the top ten largest follow-ons globally.
The trend of raising capital and growing while private has contributed to the decrease in London IPOs. This shift towards private markets represents an industry transition, with companies choosing secondary transactions, private fundraising rounds, or follow-on funding over traditional IPOs as the primary means of accessing capital and achieving liquidity events.
"Given the disappointing performance of recent IPOs and the increasing popularity of secondary private share sales, it appears that many companies are choosing to remain private for a longer duration, as the financial data they provide may not seem as attractive as the operational histories and stabilized prices of public companies. Moreover, the continually flourishing secondary private sales, as demonstrated by the UK's leadership in Europe for such transactions, suggests a transition towards private markets, where companies are accessing capital and achieving liquidity events through means other than traditional IPOs."
