London Market Faces Major Threat from Private Acquisitions, According to Study
Rewritten Article:
The London Stock Exchange (LSE) faces a significant challenge not from the allure of foreign listings, but from the burgeoning private markets, a fresh report reveals. It dismisses the deceptive narratives that entice swift-growing firms to abandon London for a New York IPO as mere hype.
The US has received approximately $676 billion worth of European Initial Public Offerings (IPOs) and primary listing switches, according to the study by New Financial.
However, this figure accounts for only 4% of the total value of European stock markets. In stark contrast, more than $1 trillion has left these markets as a result of privately-held firms and private equity takeovers through delistings.
This amounts to over 1,000 companies and represents around 40% of all acquisitions of listed companies in Europe. The report terms this trend as the "unspoken giant" in the discussion about capital markets.
"While advocating for companies moving to the US makes for a more sensational argument to influence European policymakers to address the problem, the concerns arising from delistings is the other side of the same coin," New Financial states.
"European equity markets are perceived as relatively unattractive for issuers and investors alike, and addressing this issue requires a similar approach as dealing with the challenge from the US."
The research, sponsored by HSBC, additionally shows that the expected premium companies seek for their shares in US stock markets seldom matures to the extent imagined.
Debunking the Myth of Higher Valuations in the US
The gap in valuation between European and US companies virtually vanishes when adjusted for profits, the report finds, while the liquidity discrepancy largely disappears when considering the trading data structure. More than 70% of companies that have migrated to the US are trading lower compared to their IPO or listing price, with the same percentage underperforming the European market since their move.
Ian Hall, CEO of HSBC UK, comments: "One narrative paints that European and UK stock markets have lost their charm due to a steady stream of news about companies leaving for the US in search of higher valuations, better returns, and deeper pools of liquidity.
"These results suggest that much of the common wisdom about the potential benefits of switching may not be particularly accurate.
"While there is a group of companies for whom it makes complete sense to move...the experience of others has been less fruitful."
In 2024, as many as 88 companies delisted or shifted their primary listing from London's main market, contrasted with only 18 new listings, based on figures from the London Stock Exchange Group.
- The burgeoning private markets, responsible for over $1 trillion leaving European stock markets, have emerged as the "unspoken giant" in the discussion about capital markets, according to a report by New Financial.
- Contrary to popular belief, the gap in valuation between European and US companies nearly vanishes when adjusted for profits, as the report finds, and the liquidity discrepancy largely disappears when considering trading data structure.
- More than 70% of companies that have migrated to the US are trading lower compared to their IPO or listing price, with the same percentage underperforming the European market since their move.
- Ian Hall, CEO of HSBC UK, stated that much of the common wisdom about the potential benefits of switching to the US may not be particularly accurate, suggesting that the experience of some companies moving has been less fruitful.
