Market Tracker trend update: IPOs in Q3 2020

Market Tracker trend update: IPOs in Q3 2020

Lexis®PSL Corporate and Market Tracker has conducted research to examine the current trends in IPO activity between 1 July 2020 and 30 September 2020.

Background and approach

This Market Tracker update reviews IPO activity between 1 July 2020 and 30 September 2020 (Q3 2020), using data from Q1 – Q2 2020, 2019 and 2018 for comparative purposes. It looks at IPOs on AIM and the Main Market (both premium and standard listings). We reviewed a total of 142 companies that were admitted to trading during this period (82 on the Main Market and 59 on AIM), and an additional 13 that were announced during 2020 but had not, at the time of writing, completed an IPO. Introductions and transfers between markets were not included in our data set, but we included companies listing GDRs on the Shanghai-London Stock Connect.

Data for this report has been sourced from the Market Tracker transaction data analysis tool which allows users to access, analyse and compare the specific features of corporate transactions. This is an update to our ECM UK Trend Report, which reviewed IPO activity and emerging trends in 2019/H1 2020.

The percentages included in this report have been rounded up or down to whole numbers, as appropriate. Accordingly, the percentages may not in aggregate add up to 100%.

The final date for inclusion of developments in this report is 30 September 2019. Reference has been made to developments after this date if considered noteworthy.

Transaction highlights

  • 2020 has been a quiet year for deals, but activity across AIM and the Main Market combined bounced back in Q3 to the same volume as in Q1 2020
  • Q3 transaction volume has declined on the Main Market in comparison to the same period in previous years, while the volume of AIM IPOs in Q3 has increased
  • A standard listing is emerging as a more popular option than a premium listing, with all companies admitted to trading on the Main Market in Q3 2020 opting for a standard listing
  • Companies joining the Main Market in Q3 2020 raising more in aggregate gross proceeds than for Q3 in previous years
  • Market capitalisation of companies joining the Main Market in Q3 2020 higher than in Q3 for previous years
  • Increased activity in mining, healthcare, and digital services
  • 24% of companies raising funds via IPO or issuance of GDRs during Q3 2020 incorporated outside the UK

Transaction volume - Main Market

Main Market IPO activity in 2020 was depressed throughout the first three quarters of the year, with overall activity ranking as the quietest on record in the past ten years. The depressed IPO market was a stark contrast to a very active secondary issue market as companies turned to investors to raise much needed equity finance to help them get them through the COVID-19 pandemic. For more on this, see our trend analysis: Coronavirus (COVID-19)—trends in secondary equity fundraisings (1 April 2020–30 June 2020)

The pandemic had a dramatic impact on investor uncertainty and market volatility in Q2 2020, where the only listing to take place was China Pacific Insurance’s listing of GDRs on the Shanghai-London Stock Connect segment of the Main Market of the London Stock Exchange (LSE). The Chinese-based company was admitted to trading towards the end of the quarter on 22 June, following three months of no new listings on the LSE. It became the second company to issue GDRs on the scheme since Chinese brokerage, Huatai Securities, raised over £1bn by issuing GDRs following its launch in June 2019. Despite a particularly quiet year for new issues, the Shanghai-London bourse has continued to attract issuers, with Chinese company China Yangtze Power raising £1.6bn in GDRs on the scheme in September.

The lifting of some pandemic-related restrictions in Q3 appears to have encouraged cautious investor activity. In August, Australian mining company Castillo Copper was admitted to the standard segment of the Official List and to trading on the Main Market, with a market capitalisation of just over £20m. Activity gained traction in September, which saw three companies admitted to trading on the Main Market. This included the biggest transaction of the past three years, an IPO by UK-based luxury retailer The Hut Group, which raised £920m in gross proceeds and saw the company admitted with an opening market capitalisation of £5.4bn. Nevertheless, Main Market activity has showed a steady decline in the past three years, with transaction volume decreasing by 33% from Q3 2019 to Q3 2020 (Q3 2019: 6, Q3 2020:4) and by 62% when looking at the period Q1 – Q3 (2019: 26, 2020: 10).

Transaction volume - AIM

2019 was a particularly slow year for IPO activity on AIM. Activity declined significantly, with seven IPOs in Q1 – Q3 2019, representing a decrease of 79% from the previous year. This trend has continued into 2020, which saw seven companies successfully admitted to trading for the period Q1 – Q3 2020, although it should be noted that this was despite Q2 2020 seeing no new listings on the junior market. 

Transaction volume – Main Market vs AIM

While total transaction volume on AIM remains low, our findings indicate that the number of AIM IPOs as a proportion of overall transaction volume has increased in Q3 2020, representing 50% of all IPOs during the period. This compares with 38% in Q1 2020 and 28% in 2019.

Standard listings

All Main Market IPOs in Q3 2020 were admitted to the standard listing segment. This reflects a wider trend that we saw emerging during 2019, where standard listings increased in popularity. In 2019, 46% of Main Market IPOs were on the standard listing segment. This data does not include introductions and transfers from AIM. For the period Q1 – Q3 2020 this increased to 80%.

Our findings indicate that in 2020, a premium listing has become the least popular option for companies seeking admission to the LSE. Although it has historically been a popular option for companies incorporated overseas and/or pursuing a dual listing, half of the standard listings in 2020 were by companies incorporated in England & Wales. Mining and investment companies also represented half of all the standard listings in 2020, continuing the trend we saw in 2019 where natural resources and investment companies made up most of the companies undertaking a standard listing.

For more on this emerging trend, see our Market Tracker report: Standard listings in 2019.

It was interesting to note that the largest IPO in terms of market capitalisation and gross proceeds raised in the past three years, The Hut Group, chose a standard listing which means that the company will not be eligible for inclusion in any of the FTSE indices (as standard listed companies are currently excluded from the FTSE UK Index series). The company opted for a standard listing to allow for a share structure whereby the CEO retains a ‘founder share’ which will give him enhanced voting rights in certain situations, the purpose of which being to deter any unwelcome acquisition of the company.

Typically, companies list on the standard listing segment as they are not eligible for a premium listing or do not wish to comply with the more rigorous continuing obligations of a premium listing. In addition to allowing dual-class structures, a standard listing means the company does not need to comply (or explain non-compliance) with the UK Corporate Governance Code.

Gross proceeds in Q3 (2018 – 2020) – Main Market

Although fewer companies pursued a listing in 2020, the ones that did took advantage of the opportunity to raise funds, with £2.5bn raised in Q3 alone. This was largely contributed to by China Yangtze Power Co’s listing in September, which raised £1.6bn in gross proceeds through an issue of global depository receipts (GDRs). The average gross proceeds raised per IPO in Q3 2020 was approximately £619m, which is a significant increase on the £127m average in Q3 2019 (2018: £120m).

 

Gross proceeds in Q3 (2018 – 2020) – AIM

While gross proceeds per transaction increased significantly on the Main Market, the opposite was true for companies admitted to trading on AIM. Between Q1 – Q3 2020, £152m was raised, compared to £299m in 2019 and £963m in 2018. Average gross proceeds were £22m per IPO over the same period in 2020 (2019: £42m; 2018: 28m).

 

Market capitalisation in Q3 (2018-2020) – Main Market 

The aggregate market capitalisation of companies admitted to trading on the Main Market in Q3 2020 was £5.8bn, comparatively high in relation to Q3 2019 and Q1 2020. This figure was almost entirely due to the IPO carried out by luxury retailer, The Hut Group. The size of The Hut Group IPO pushed the average market capitalisation on admission for Q3 2020 to £1.9bn, nearly four times the average market capitalisation per company in the previous two years (2019: £553m; 2018 £509m). 

*excludes China Yangtze Power Co Ltd and China Pacific Insurance Co Ltd (both of which listed GDRs in London)

Market capitalisation in Q3 (2018-2020) – AIM

In contrast to activity on the Main Market, aggregate market capitalisation on AIM in Q3 remained lower than in previous years, reaching £328m in total during the period, a slight decline from £370m in Q1. The average market capitalisation in Q3 was £82m per transaction, a 36% decrease from the £123m average in Q1 2020 and a 40% decrease from the £138m average in 2019. 

 

Industry sector and impact of COVID-19

Metals, Mining & Extraction has emerged as a popular sector in 2020, accounting for 25% of successful IPOs in Q3 across both the Main Market and AIM, and attracting companies incorporated outside the UK. Canadian company AEX Gold and Australian-based Castillo Copper were both admitted to trading during the period. There have also been announcements of an intention to float from Canadian companies Yamana Gold Inc and Wheaton Precious Metals, and UK-based Tirupati Graphite, which operates in Madagascar and India. In a related development, investment in precious metals has featured this quarter, with Critical Metals, a company focused on the natural resources development and production sector in the continent of Africa, admitted to trading on the Main Market on 29 September.

An increased focus on digital and remote services in Q3, accelerated by the COVID-19 pandemic, also appears to be influencing the type of companies choosing to pursue a listing. In its announcement of an expected intention to float, The Hut Group highlighted its focus on digital and e-commerce solutions. The boom in e-commerce also saw Kazakh mobile payments provider, Joint Stock Company Kaspi, revive its IPO plans. The company had announced in October 2019 that it was postponing its plans due to unfavourable and uncertain market conditions, particularly in the technology sector. However, on 25 September 2020, it announced a potential intention to float, which was confirmed on 2 October. E-sports is another area tipped for growth, which has been accelerated by the COVID-19 pandemic restrictions. Guild Esports, a UK-based owner and developer of e-sports teams announced its IPO in September. The company completed an oversubscribed placing and IPO on 2 October.

Unsurprisingly, Healthcare is attracting positive investor attention. Digital mental healthcare service Kooth plc was successfully admitted to trading in September 2020 and noted in the market overview of its admission document that the pandemic had created conditions that contribute to a severe negative affect on the population’s wellbeing: a lack of social interactions, restricted access to open spaces, confined living conditions with young children and elderly relatives and anxiety associated with working from home, being furloughed or made redundant are all proven to contribute detrimentally to mental wellbeing.’ As a provider of online mental health services, the company felt that it was well placed to address the gap in the market. Similarly, Umuthi Healthcare Solutions, a technology led healthcare business focused on the distribution of pharmaceuticals and the provision of medical facilities in remote areas of South Africa, announced an intention to list on the standard segment of the Main Market. Admission was expected in September, however at the time of writing had not yet taken place.

Despite the many challenges posed to certain sectors by the COVID-19 pandemic, for example Travel, Leisure, Hospitality and Tourism, some companies have seen these as an opportunity. An unexpected IPO on AIM from restaurant group Various Eateries was completed on 25 September, raising £25m. On admission, founder Hugh Osmond noted ‘To many, this crisis is an existential threat; but it is also a once-in-a-lifetime opportunity to build a new, major leisure business, based on how people want to live now.’

Country of incorporation

Of the IPOs and GDR issuances announced in Q3 2020, 24% (5) were by companies incorporated outside the UK, a list which includes Canada, Australia, China, and Lithuania. Of these, at the time of writing, three had been successfully admitted to trading. This compares with Q1 2020, where the only companies announcing an IPO based outside the UK were from Guernsey and the Isle of Man.

Country of operation

Companies operating outside the UK were still keen to pursue a listing on the London markets in Q3 2020, as evidenced by the fact that 62% of the companies that announced an IPO during the period operated either globally or in a region outside (or in addition to) the UK.

Cancelled, postponed and ongoing IPOs

Our research indicates that while 21 companies announced an IPO during Q3 2020, only 11 were admitted to trading at the time of writing. However, six of these were announced in September and appear to be in progress. Investment company Tellworth British Recovery and Growth Trust was the only company to formally announce that it had decided not to proceed with its IPO, citing insufficient demand as the reason.

IPOs admitted to trading in Q3 2020 – Main Market

 
DateCompanyCountry of IncorporationSectorMarket capitalisationGross proceeds raised
04/08/2020Castillo Copper LimitedAustraliaMining, metals & extraction£20m£1.3m
21/09/2020THG Holdings PlcEngland & WalesConsumer products£5.4bn£920m
29/09/2020Critical Metals plcEngland & WalesInvestment£2m£0.8m
30/09/2020China Yangtze Power Co, LtdChinaEnergy & utilitiesn/a£1.6bn

 

IPOs admitted to trading in Q3 2020 – AIM


DateCompanyCountry of IncorporationSectorMarket capitalisationGross proceeds raised
09/07/2020Elixirr International plcEngland & WalesProfessional services£100m£20m
31/07/2020AEX Gold Inc.CanadaMining, metals & extraction£88m£43m
02/09/2020Kooth plcEngland & WalesHealthcare£74m£16m
25/09/2020Various Eateries plcEngland & WalesTravel, hospitality, leisure & tourism£65m£25m

 

Further reading

For more information regarding some of the transactions covered in this report see our blog posts:

Kooth in successful AIM float while Hut confirms blockbuster deal

IPO fever as coronavirus lockdown eases

Elixirr just the tonic to revive AIM

Canadian gold miners seek dual listing on AIM

China Pacific Insurance dips a toe back into the IPO market

Kazakh firm cancels IPO

 

 

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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.