Rosalie Chadwick: More Scots flotations on the horizon

Glasgow-based fashion retailer Quiz recently confirmed it is considering a £200 million ­flotation on the London Stock Exchange (LSE) and if it goes public will become the first sizeable initial public offering (IPO) that Scotland has seen for some time.

'We could witness levels of activity not seen on the LSE for the last five years,' says Rosalie Chadwick, head of corporate finance at Pinsent Masons. Picture: Contributed
'We could witness levels of activity not seen on the LSE for the last five years,' says Rosalie Chadwick, head of corporate finance at Pinsent Masons. Picture: Contributed

Originally a kilt-making company formed by Mohammed Ramzan, Quiz could lead the way for a number of other Scottish-owned companies coming to the market in the next 18 months.

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FreeAgent, the Edinburgh online accounting company, was the last ­Scottish IPO and raised £10.7m in its November flotation, achieving an admirably strong £34.1m valuation, no doubt assisted by being eligible for venture capital trust (VCT) funds as part of its fundraising on IPO.

With tax advantages for investors but strict criteria on how the funds can be used, VCTs are nonetheless an ­attractive prospect for early-stage high-growth enterprises.

Currently, there is something of a dearth of companies that VCTs can invest in. However, there is a number of young Scottish businesses, particularly in the healthcare, biosciences and tech space, which are VCT-qualifying and would be well-suited to consider this category of fundraising.

It is also noticeable that more companies backed by private equity (PE) are looking to the LSE as a means to generate funds which will spur further growth, or in some cases, once on the market will seek to provide its PE backers with further opportunities to realise their investment.

One example is Inflexion Private Equity, which two years ago floated travel company On The Beach (£240m) and in March generated £33m when it reduced its stake to 11.8 per cent before raising a further £42m last month when it sold a second tranche.

Another trend emerging is the resurgence of resources (mining, oil and gas services) companies coming back on to the markets – welcome after a near five-year hiatus – and as we head in to the business end of Q3/4 I expect this to intensify. Indeed, already this year we have had five resources companies come to the market.

Notwithstanding the oil price cooling off in the last few weeks, there is once again a genuine appetite in the markets for resources companies, which can be attributed to several factors.

Increased confidence resulting from more stable commodity prices resulting in a spike in merger and acquisition activity; a number of traditional oil and gas investors have recently come out of positions and are looking to redeploy those funds; secondary offerings dating back 18 to 24 months have enjoyed strong performances since issue.

The net result is increased interest and buoyancy in the resources sector, not only from specialist fund managers but also generalist funds, which on reviewing portfolios have recognised that they are underweight in resources stocks and are now looking to strengthen their positions.

Smaller oil and gas companies ­traditionally view the capital markets as their prime source of financing – particularly the Alternative Investment Market (Aim) – which can sit alongside any debt component.

Over the last four or five years the equity market has not been open to them but it is ­evident that this dynamic is now changing. General market sentiment is that oil and gas is becoming more attractive and businesses seeking funds to underpin growth are increasingly eschewing debt and private equity in favour of the capital markets.

In the first half of this year 37 companies opted for IPO on the LSE, (25 on the main market, 12 on Aim) raising just over £3.4 billion. More than 61 per cent of those IPOs have traded up in price with the best performer (financial services) enjoying a 121 per cent upswing.

The second half of 2017 is all set for an increase in IPOs and financings in the oil and gas space and other strong performing sectors such as health care, biosciences and tech, and in a Scottish context we could witness levels of activity not seen on the LSE for the last five years.

Rosalie Chadwick is partner and head of ­corporate finance at legal firm Pinsent Masons