London IPO market's Brexit pain laid bare

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Brexit blues: London IPO activity fell far more than on the continent in the second quarter of 2016

The statistics will come as a further blow to City equity capital markets bankers, who had been hoping that an expected vote to stay in the EU would see dealflow accelerate over the summer and beyond, but instead have been forced to hunt for different opportunities in the ECM sector – such as balance-sheet strengthening rights issues and M&A-driven issuance.

London’s market for initial public offerings bore a bigger brunt of the dealmaking downturn than elsewhere in Europe in the second quarter of 2016, with the sum raised by UK IPOs plummeting 75% from a year earlier in euro terms to just €1.2 billion, according to PwC’s latest IPO Watch, published on July 11.

IPO activity in the rest of Europe fell just 6% to €9.7 billion over the same period.

PwC pointed to “uncertainties surrounding the EU referendum” as denting London dealflow and dragging volumes to their lowest quarterly share of wider European IPO activity since 2009.

The decline, said PwC, was down to UK companies avoiding listing around the referendum, rather than pulling planned deals – the majority of pulled or postponed deals were in continental Europe, it said.

PwC capital markets director Vivienne Maclachlan said: “Companies, investors and bankers are all still grappling with what the referendum result means for the UK economy as well as the rest of the EU.”

The plunge in second-quarter flotation activity in the UK has left first-half supply across Europe, including the UK, at €14.4 billion in 2016 – less than half the levels witnessed in the first six months of the previous two years.

With little over €10 billion in IPOs now expected by PwC to come before the end of 2016, annual issuance is set to be less than half the €57.4 billion recorded in 2015. PwC said that following the referendum result, it expected IPO candidates to return gradually to the market towards the end of 2016 and early 2017, with the caveat that this would be “provided investor confidence improves and market uncertainties diminish”.

Maclachlan added: “There is uncertainty, and when you are relying on consumer spending you will want things to settle down.”

She expects companies in the financial services, housebuilding and retailing to put off their listing plans until 2017.

Erik Anderson, a managing director at Panmure Gordon, said: “People are hoping that in September, market conditions will be more receptive.”

Gareth McCartney, the head of Emea equity syndicate at UBS, told Financial News that among bankers there was still “a lot of pitching going on across all product groups for potential transactions post summer and into 2017”.

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