IPO market could rebound in 2017 after Brexit pause

Scottish stock market flotations could see a 'resurgence' next year as firms look to cash in on global investor interest partly triggered by the weakness of sterling, a report out today says.

The EY report also said the weaker pound could stimulate flotation interest from abroad. Picture: Daniel Leal-Olivas/AFP/Getty Images

It comes as the CBI employers’ group also flagged better business prospects at the weekend, saying that the latest survey of its members showed the majority expected an “autumn surge” in output after the post-Brexit vote slowdown.

Mike Timmins, executive director in corporate finance at corporate advisory giant EY, said: “The outlook for IPOs amongst Scottish businesses looks increasingly bright, buoyed by the markets’ strong recovery and the added interest of international investors looking to take advantage of the weaker pound.”

Sterling fell to 31-year lows against the US dollar immediately after the Brexit vote in June, and has only slightly recovered.

The flotation bounceback would follow a “summer pause” to absorb the implications of the EU referendum result, which added to a slow start this year in the market for initial public offerings (IPOs), says the EY corporate advisory and accountancy giant.

“The EU referendum result has compounded the so far slow 2016 for the UK IPO market, but the recovery in market pricing is likely to make IPOs an attractive option again for Scottish businesses”, according to EY’s IPO Eye report.

In the third quarter of 2016 there were a total of just six public listings, down from 13 in the previous quarter.

These comprised two listings in the main market that raised £183.3 million and four on the smaller Alternative Investment Market (Aim) raising £42m – a total of £225.3m.

The EY report said that of the six IPOs that were priced and started trading in the third quarter to end-September only one was a foreign business, SEC SpA, an Italian media and entertainment group that raised £3.4m, “reflecting the international implications of the Brexit vote”.

However, the report says newly listed stocks in Q3 2016 have outperformed veteran assets – trading at an average of 32 per cent above list price.

In addition, although UK IPO activity was at the same level as a year ago, the capital raised by companies coming to market increased 18 per cent. “Looking ahead higher valuations and lower volatility could see IPO activity pick up,” EY said.

Timmins added: “IPO is a clear route to market for companies, particularly in the technology sector. Tech businesses, which have strong representation in the Central Belt, see IPOs as a viable option to raise capital for their expansion plans.

“We could well see a resurgence of IPOs in 2017, as firms look to take advantage of global investor interest in the UK market.”

The CBI said a positive net balance of 22 per cent of businesses expect output to grow in the next three months – the highest in a year.

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