There's been a drought of IPOs across Europe and the US. Fewer companies have been coming to market, and, particularly in the UK, there’s been much debate about how many domestic entities have been listing in the US instead of London. This has centred on a recurring theme: the UK’s regulations have rendered it uncompetitive for UK companies, making a listing here less appealing to founders.
Additionally, smaller companies already quoted on AIM weren't moving to the Main Market, even with the further perceived credentials it would have afforded. The cost and time of publishing a new prospectus required by the FCA’s listing rules and the level of ongoing regulations were seen as greater deterrents.
In the middle of 2024, after a lengthy period of consultation with a range of stakeholders, the FCA finally announced extensive reforms to make a Main Market listing on the London Stock Exchange (LSE) more attractive.
In the foreword to its guidance, Nikhil Rathi, the CEO of the FCA, states that its aim is to “encourage a wider range of companies to choose to list, raise capital, and grow in the UK, while maintaining high standards of market integrity and consumer protection.” The reforms have been widely described as ‘revolutionary’ rather than the more typical incremental evolution, but the success of the provisions still needs to be tested commercially, having been in place since July.
Furthermore, we anticipate an additional significant set of rule changes during H1 2025 from the FCA which will complete the transformation of the UK listing regulatory landscape. Only once these have been introduced will we truly start to see the impact for UK equity markets.
The changes to the rules are extensive, but the key points relate to eligibility for Main Market IPOs and for companies then undertaking M&A transactions once listed. Highlights include:
The requirement for a three-year revenue track record has been removed. This will make it possible for earlier stage, growth companies to come to IPO. This is expected to be particularly appealing for technology companies, where we’ve seen explosive growth over a short period, and who can IPO earlier in their growth story.
While companies will still have to disclose their working capital position, the requirements have been revised from ability to confirm that there’s at least 12 months available capital to a statement on how much cash resources they actually have. It will be interesting to see whether companies do utilise this, or if the marketability requirements of IPO fundraising will mean that companies will continue to provide statements to the old standard in order to obtain sufficient institutional support. It’s important to note that regulatory change of this type doesn’t change investor attitude to risk. However, we may see some specific circumstances that mean companies can achieve an IPO when previously they couldn’t.
The FCA has increased the flexibility of the dual class share structures on the Main Market and also removed the requirement for a controlling-shareholder agreement. While there are several amendments designed to ensure that there’s robust challenge by the board in circumstances where there’s a controlling shareholder and that there’s no circumvention of the listing rules, overall these amendments are expected to make UK listings more attractive to founders looking at IPO.
The prior rules for companies on the Main Market were seen as being overly onerous, leading to UK-listed companies losing out on growth opportunities and being overlooked as bidders in M&A processes. The requirements to produce fulsome circulars and seek shareholder approval on transactions had reportedly seen UK-listed companies losing deals due to the time required for completion of these workstreams. That process has now been simplified with the circular requirement removed. This is expected to make UK listings more attractive for new entrants and give existing UK-listed companies a boost to their M&A plans.
An IPO isn't the endgame. Getting on market doesn't mean you never need to raise money again. A key strength of the UK is that it has always been a centre for follow-on funding, with an evergreen pool of capital and investors supportive of secondary fundraisings. The regulations, however, haven’t always make it easy to access this cash.
The UK currently operates a separate rulebook to the FCA’s listing rules, the prospectus rules, which apply to a follow-on funding and that typically requires the publication of an additional prospectus. The longer lead time and advisory costs involved in the production of a prospectus have clearly been a burden on companies that contributed to the reluctance to list, or to move from AIM to the Main Market.
Changes to the prospectus rules are anticipated in the first half of 2025 and will significantly reduce the number of times that a company needs to produce a prospectus, making it easier and quicker to raise follow-on equity funding. Additionally, companies on both the Main Market and AIM will be able to raise money from retail investors at the same time, and with no cap, as they raise funds from institutional investors.
This will also revolutionise retail investor participation on AIM IPOs, which are currently limited on retail participation without adding further costs and time to the process. Once these changes are implemented, AIM IPOs will be able to take advantage of retail investment appetite on a much wider scale and at the IPO-pricing offered to institutional investors.
2024 saw the introduction of a specific listing category for overseas listed companies. This has significantly reduced the requirements from the FCA for ongoing obligations as there’s a presumption that eligible companies will have a ‘home regulator’ with equivalent rules. Once the prospectus rule changes are implemented this will see the Main Market secondary listing become easier to manage and more cost-effective with advantages for companies over an AIM dual listing in terms of flexibility. Looking forward, there’s potential for overseas issuers to get a secondary listing without publishing a prospectus on admission subject to further consultation. This means that there could be opportunities for companies considering a dual listing in London to achieve this very efficiently.
Leveraging the existing listing also means overseas listed companies may face fewer diligence requirements in order to complete the eligibility review with the FCA.
The FCA's actions are the accumulation of several years of focus on UK capital markets by the Government and regulators to shift the perception that London isn’t an attractive listing venue, when companies have the ability to choose where to IPO, because the rules don’t support competitiveness on the global stage.
The changes to the listing and prospectus requirements all amount to a much more conducive business environment for listed companies. But they're not a panacea. An uptick in IPOs following these changes couldn’t happen without wider investment stimulus efforts also coming to fruition. The UK is also moving forward with several initiatives to stimulate investment in UK equities – whether from pensions or fund managers, or individual investors. It’s the coming together of all these which will support a vibrant ecosystem for UK-listed companies.
And while the simplification of regulatory requirements does mean companies will save time and money, there are no shortcuts to IPO readiness. An adviser with a full-market view can help you get there.
Grant Thornton has recently been approved as a sponsor by the FCA, allowing us to advise on the full spectrum of UK capital markets, covering both AIM and the Main Market. For more insight and guidance on how we can help you, get in touch with Samantha Harrison.
