Covid 19 Impact on the UK IPO Market and Global Landscape

Summary

• UK witnessed a 53 per cent decline in its IPO volumes in the wake of the coronavirus outbreak
• UK’s financial sector continues to hold a bigger momentum, with 50 per cent of total IPOs during the last 18 months
• The UK has succumbed to the recession after recording an economic fall of 20.4 per cent in the second quarter of 2020 in comparison with the first quarter of the year.

The Initial Public Offering (IPO) activities across the globe were subdued during the first half of 2020 in the wake of the COVID-19 virus outbreak. The pandemic triggered the stringent lockdown worldwide, which caused the global share market to tumble.

As expected, the impact was not only on the secondary markets but the primary markets as well, the IPO activities across the US, EMEIA and Asia-Pacific witnessed a major decline as the stock markets tanked ruthlessly, dampening the companies’ plans about their new listings.

Amid the economic challenges posed by the coronavirus pandemic, the IPO market in the UK has also experienced a cold response. In the year 2020, the UK witnessed a 53 per cent decline in its IPO volumes across AIM and the main market YTD. The number looks extremely worrisome if you compare it with 2019 and 2018.

As the coronavirus outbreak started taking a toll at the companies, especially during the second part of 2020, UK saw a sharp fall in its IPO volumes by 81 per cent in comparison with the second quarter in 2019.

This slump period did not see any fresh issuers at AIM; however, there were two venture capital trusts (VCT) listings at the London Stock Exchange’s Main Market namely Blackfinch Spring VCT plc and Puma Alpha VCT plc.

The country witnessed the creation of investment institutions and special purpose asset platforms leading the IPO market. Talking about the sectors, the country saw the finance industry continuing to hold bigger momentum and constituting 50 per cent of total IPOs during the last 18 months. Sectors such as consumer products, materials and industrials had presented a good show throughout 2019 and 2020.

Healthcare sector has been at the forefront during the coronavirus pandemic, and subsectors like pharma and life science have shown impressive growth during these turbulent times.

The healthcare sector saw more than 150 deals and AIM-listed firms raised over £775 million during the period of these five months beginning from March.

Meanwhile, the country did not see much IPO movement in sectors like hospitality, retail and automotive industries.

Below is the table that shows UK IPOs by sector in 2019 and 2020 (YTD)

The outlook for the UK

Undoubtedly, the country has succumbed to the recession after recording an economic fall of 20.4 per cent in the second quarter of 2020 in comparison with the first quarter of the year. There seems little recovery for the country as Office for National Statistics has suggested that the UK’s economy grew by 1.8 per cent in May and 8.7 per cent in June month on month in the backdrop of easing out in lock restrictions. The British economy may have to pass the choppy water in the coming days considering the continuous effect of coronavirus along with uncertainty over the Brexit deal.

Talking about future IPO activity in the country, there are factors such as the upcoming US general elections in November 2020, uncertainty over Brexit and fear of the second wave of coronavirus which could impact the IPO market in the UK.

Meanwhile, other countries are also facing a challenging time due to the spread of coronavirus and any major events in these regions can also affect the British IPO market to a large extent.

Below are the seven regional trends, which have been seen in the IPO markets around the world in 2020 till now:

Americas IPO activity: US IPOs constituted most of the global IPOs in the first half of 2020, accounting for 79 per cent by deal numbers (64 deals) and 91 per cent by proceeds ($22.3 billion). This comprised five unicorn IPOs too. Healthcare and technology industries saw the highest number of IPO activity in the US, representing 55 per cent and 25 per cent by deal size, respectively. The healthcare domain topped the proceeds ($10.2 billion), with 46% activity from 35 IPOs.

Asia-Pacific IPO activity: The YTD 2020 IPO activity in Asia-Pacific is up by 2 per cent by deal volumes and 56 per cent by proceeds. However, the second quarter of the year witnessed a decline of 18 per cent by deal numbers, while proceeds increased by 28 per cent.

China saw a 29 per cent increase in IPO activity with 17 deals and an upsurge of 72 per cent by proceeds ($30.9 billion) YTD 2020 compared with 2019. While IPO activity in Japan plunged 17 per cent YTD 2020 with 34 deals and proceeds ($625 million) fell by 53 per cent. Australia and New Zealand witnessed a slowdown in their IPO activity 41 per cent by deal numbers and 82 per cent by proceeds.

Indian market witnessed 16 IPOs, raising $1.4 billion YTD 2020, a decline of 61 per cent by deal volumes, and a reduction of 9 per cent by proceeds.

EMEA IPO activity: The region saw volatility in its stock market in the wake of the coronavirus outbreak. IPO volumes and proceeds sharply fell by 50 per cent and 44 per cent, respectively, compared with the same period of 2019. From June, there have been signs of recovery as few blue-chip IPOs made head way to the market.

MENA IPO activity: The IPO activity slumped 11 per cent by numbers (8 IPOs) and fell 43 per cent by proceeds ($0.9 billion) YTD 2020.

Below is a sector-wise activity in the IPO market from January 2020 – June 2020 globally:

(Courtesy: Ernst & Young report)

The above table shows that technology, healthcare and industrial sectors have put up a good show in terms of proceeds and number of IPOs. Going by these numbers, it is likely that companies operating in these sectors may come up with attractive investment ideas and Capex plans for boosting capitalising on the demand in future.

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