London’s IPO drought will continue despite the launch of a new exchange to help growth companies float, according to critics.
The UK government announced it was pressing ahead with a Private Intermittent Securities and Capital Exchange System, known as Pisces, in the 6 March Budget.
In a bid to reinvigorate the City’s lacklustre listings market, Pisces is set to offer a bridge between private and public markets, allowing private company shareholders to offload stakes and access a wider investor base.
The exact structure is currently under consultation, but won’t address the fundamental issues leading companies to stay private longer, critics argue.
Alasdair Haynes, chief executive of Aquis Exchange, said that by allowing companies access to public markets without a full float, there is even less incentive to go public eventually.
“I haven’t been a great supporter of Pisces,” he said. “You’ll keep all these companies in the private market much longer.”
Instead, the government should be pushing companies to list earlier, Haynes added, helping them grow and stay in the UK.
The fight to go public
The Pisces model was first proposed as an “intermittent trading venue” in 2022.
Cees Vermaas, chief executive of The International Stock Exchange, a private market in Guernsey, said the model being floated doesn’t address the concerns of private companies when they look to go public.
“Using an existing investor network looks very attractive, but you don’t disintermediate the market which adds costs,” he said.
“If you talk to companies about why they don’t want to list, they say it’s too expensive because it is full of intermediaries at every stage. Listing, trading, settlement and clearing — all of them will need to eat from the pie.”
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But Darko Hajdukovic, head of new primary markets at the London Stock Exchange Group, said a halfway point between private and public exchanges would provide a smoother route for firms.
“This will certainly make it easier for private companies who may choose to go public because some of the public disclosure regulations of the new venue will be applied to them,” he said. “[A company’s] needs will change as it grows and develops, whether that is eventually through an IPO or continuing to access liquidity in private markets. We can support them by ensuring a seamless funding continuum through their journey.”
Sorting out the slump
Last year was the worst year for IPOs on the London Stock Exchange since the financial crisis. There were only eight IPOs worth €844m on the main market, according to Dealogic. In the first two months of 2024, the exchange saw two new listings valued at €100m.
Pisces will be run by the LSEG. Chancellor Jeremy Hunt’s ambition to make the LSE “the Nasdaq of Europe” is creating an uneven playing field, said Haynes from Aquis, which competes with the LSE’s Alternative Investment Market for growth company listings.
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“Many politicians have asked me: ‘How do you resolve the status quo that we seem to have gotten ourselves into in the UK? What’s the fastest way?’,” said Haynes. “Let me eat their lunch… If you bring competition in, the incumbent changes pretty damn quickly.”
“Alasdair isn’t completely wrong,” said Vermaas. “[The UK government] should have spoken to see what the whole industry could do rather than only the LSE.”
LSEG declined to comment.
International examples
Nasdaq has operated a semi-public marketplace where private companies can trade since 2013.
Nasdaq’s market has buy-in from Citi, Goldman Sachs and Morgan Stanley. It received a second round of funding in February with the likes of BNP Paribas, UBS and Wells Fargo becoming its newest investors.
Junaid Baig, head of strategic investments at BNP Paribas, said the stake would give the French bank a governance role in the exchange, and was a natural extension of BNP’s existing business.
“An average time to IPO for tech companies has doubled or tripled in the last few years — that’s almost 15 years,” he said. “The company has needs in those 15 years, the incoming and existing investors have needs, and those have traditionally been filled by the banks.”
Hajdukovic said Pisces wouldn’t be starting from scratch; the roughly 300 existing members who facilitate trading on the main exchanges would have access to it.
“Firms that participate on the new venue will use the LSE’s trading infrastructure to trade” he said.
The Treasury consultation on the new trading venue is open until 17 April. A spokesperson said Pisces is a “ground-breaking proposal” that will help private companies scale up and boost the future IPO pipeline.
To contact the author of this story with feedback or news, email Jeremy Chan
