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The exodus of firms from London’s capital markets has been a perennial worry. Not only to those who make their living out of peddling professional services, but also to His Majesty’s Government. After all, a hollowing out of UK capital markets could increase the cost of equity capital for British firms, shift their centre of senior management gravity out of the country, and hurt the tax base.
A new round of soul-searching has been initiated by the news that Wise — a British fintech firm, and London’s largest-ever tech listing — is planning to switch its primary listing to New York. And yup, having a homegrown firm snub the prospect of FTSE 100 inclusion in favour of retaining a dual listing in perpetuity has got to sting a little.
The firm made its stock market debut in 2021 by means of a so-called ‘Direct Listing’ — where an issuer skips a bank’s bookbuilding process, and public investors determine the share price on the day the company goes to market. As such, it didn’t actually raise any new equity in listing, but its debut was still a big deal. Those who bought it on its debut back in 2021 have made money.
🎉 🥳 🎉
And, as a great piece last week in MainFT found, this is more than can be said for those who bought into most of London’s wave of 2021 IPOs. In fact:
A quarter of the biggest companies in London’s bumper crop of 2021 listings have since left the stock market while those remaining have lost £10bn in value, highlighting the exchange’s struggle to retain top-tier businesses.
We’ve made a Marimekko chart to illustrate the amount of capital raised, and the annualised returns that investors would’ve experienced if they bought into London 2021 IPOs. Hover your mouse over each the coloured bars for more detail:
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Urgh.
We know that most stocks lose money. We also know that most stocks suffer a 85 per cent drawdown at some point in their lives. A big drawdown is no bar to becoming a global titan. So it would be wrong to take the first few years of stock performance as any kind of definitive measure of success or potential.
But it does raise the question as to how all those firms that have gone west in pursuit of American stock market riches have fared in comparison. We got in touch with New Financial — a London-based capital markets think-tank — who kindly shared their data.
The chart below shows the annualised performance of European stocks that made the leap across the pond for their US listing debut in 2021. It’s not quite like-for-like. It includes not only IPOs, but also SPACs of companies like Arrival — a UK electric van maker — as well as firms that moved their existing listings like Silence Therapeutics, a UK pharma company. Moreover, rather than plotting the capital raised (as in the chart above), the horizontal axis this time plots the debut market capitalisation of the firm:
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Double urgh.
While we can see fists being shaken in frustration across European finance ministries that so many firms chose New York over their local bourses, it looks like European investors dodged a number of bullets in 2021.
New Financial didn’t just analyse 2021 moves and IPOs. They crunched the numbers for all the big US listings of European firms over the past decade for a big report published back in April.
Of the 130 European companies, worth a collective $676bn, that moved their listing to the US over the past decade, their analysis found that:
70% of companies that have moved to the US are trading below their listing price, less than a fifth have beaten the S&P 500, and three quarters have not beaten the European market since they moved.
Behold, the data in a wondrous dataviz story:
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Where does this leave us?
Americans have, on the whole, done well to avoid buying European firms on US exchanges.
Europeans have not done terribly well in stemming the tide of firms seeking a US listing — though firms participating in the European exodus represent just 2 per cent of the number of listed firms over the past decade.
And almost everyone would’ve done well to avoid buying stock market debutants in 2021.