Many had expected that a vote for the UK to ‘Remain’ would lead to a busy remainder of 2016, helping to make up for a lacklustre first half in which $ 3.5 billion was raised from companies listing in London. That figure was running 61% lower year-on-year.
The country’s surprise vote to end its membership of the bloc led analysts at EY to predict in a June 29 report that the decision would clip capital markets activity and sour sentiment for new listings.
In the days since the vote, just one company – Papillon Holdings – has listed in a $ 1.2 million deal.
Maegen Morrison, head of UK ECM at the law firm Hogan Lovells, said bankers in the City had expected to “put their feet hard on the accelerator” but now appetite was looking scant.
“Lots and lots of IPOs got pulled last week,” she said on July 5.
And wider ECM activity in the UK has been equally strained. Between June 24 and July 6, just $ 397 million was raised across 12 deals, compared with $ 1.5 billion from 13 deals during the same period a year ago, according to Dealogic. The $ 397 million figure is skewered greatly by a single $ 300 million convertible bond from FTSE 250 firm Tullow Oil.
Despite it being a summer that threatens to be even quieter than usual, equity bankers said this would not mean extended holidays and long lunches. Rather, they will be looking for alternative opportunities. One ECM banker told Financial News he was on holiday but was doing two-and-a-half hour conference calls every day.
Steven Halperin, the co-head of ECM in Europe, the Middle East and Africa at Barclays, was among a team of bankers working on the Tullow Oil convertible issued on July 6. He said he expected to see more such deals as the funding environment gets trickier for companies.
“This issuance comes from the energy sector as share prices and sentiment have improved in the space,” he said. “Looking at the market more broadly, I would not be surprised to see a resurgence in equity-neutral convertibles, as equity market volatility causes dislocations in parts of the bond market.”
Barry Meyers, the head of UK ECM at Barclays, said sterling’s post-referendum weakness versus the euro and the dollar could drive M&A activity, and in turn, equity raisings, as European and US companies eye takeover opportunities in the UK, and UK firms, too, look at acquisitions for growth.
Gareth McCartney, the head of Emea equity syndicate at UBS, agreed that “thematically, with interest rates likely to be lower for longer, yielding equities are likely to be well bid and FX volatility will likely create opportunity for M&A albeit in a more uncertain environment”.
Craig Coben, the global co-head of ECM at Bank of America Merrill Lynch, added the drivers of equity issuance might not be restricted to purely M&A. He said: “We will see rights issues to strengthen leveraged balance sheets or to finance M&A as well as spin-offs and other IPOs to satisfy regulatory or other imperatives.”
Some also remain hopeful that over the longer term IPOs will still make a return. McCartney said: “Although a number of transactions have been pushed back there is still a lot of pitching going on across all product groups for potential transactions post summer and into 2017.”