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Brexit expected to impact on private equity-backed IPOs

The amount of investment businesses can expect to raise floating on London stock exchanges is likely to diminish the closer the UK gets to Brexit in March 2019, a corporate finance expert has said.13 Mar 2018

Rosalie Chadwick of Pinsent Masons, the law firm behind Out-Law.com, said that she expects investment trends seen in the run up to the UK's June 2016 referendum on membership of the EU to be repeated towards the end of 2018.

It means "time is of the essence" for companies to proceed with an initial public offering (IPO) they may be considering on the London markets, she said.

"As the referendum on EU membership neared in 2016, IPO candidates moved to hit an execution window in the early summer," Chadwick said. "We are likely to see a similar trend this year as companies seek to float in the early summer before the typically less busy late summer period which, in 2018, will be followed by a fourth quarter where investors are likely to be nervous in the face of Brexit."

Chadwick was commenting as Pinsent Masons published a new report analysing the private equity-based IPOs that took place on the London Stock Exchange in 2017.

According to that report, there were 69 IPOs on the LSE last year, up from 60 the year previously. The majority of those IPOs – 45, or 65% – took place on the Alternative Investment Market (AIM), a sub-market to the main LSE designed to support floatation by smaller businesses.

Private equity-backed IPOs accounted for 21 of the 69 cases, and together raised £3.1 billion – more than double the equivalent values raised in 2016. All IPOs taken together in 2017 raised a total of £7.1bn, the report said.

Of the 21 private equity-backed IPOs, 13 involved flotations by companies on AIM. The report said those figures show that there is a "continuing movement away from the Main Market as the dominant market by volume for private equity flotations". There was an equal spread of the 16 private-equity backed IPOs across the Main Market and AIM in 2016.

According to the report, private equity investors also gained more proceeds in total from IPOs they had backed on AIM than from those that had listed on the main LSE market.

"This is a consequence of the greater number of AIM floats, including a £271 million sell-down on AIM’s biggest IPO of the year (Eddie Stobart Logistics), and the fact that in three of the largest private equity IPOs on the Main Market the private equity sponsor either sold down nothing or only a small proportion," the report said.

The two largest private equity backed IPOs in 2017, of ContourGlobal and TI Fluid Systems, were undertaken on the Main Market, however. The initial market capitalisations of those flotations were £1.67 billion and £1.17 billion respectively.

"The increasing numbers show that that an IPO can constitute a very successful exit for private equity investors and deliver high-quality companies into public ownership – a trend which we expect to continue," Chadwick said.

"It was interesting to see an increase in AIM flotations – we have analysed private equity IPOs since 2013 and the historical trend shows that 74% of private equity-backed IPOs were on the Main Market so this year is unusual and may reflect an increase in confidence for the AIM market," she said.

Pinsent Masons, the law firm behind Out-Law.com, has published a report on private equity IPOs in 2017. You can request a copy here