IPOs have long played a central role in how most companies go public and are traditionally seen as the culmination of successful growth for firms reaching a certain stage of development.

Recently, however, the dominance of classic IPO models in UK markets has been significantly threatened: UK IPO numbers fell significantly after 1999 and particularly after the 2007-2008 Global Financial Crisis—with the annual average of 150.5 listings recorded between 2000-2009 being followed by an annual average of 82.2 listings between 2010-2019. Even though the UK has historically enjoyed significant popularity as a cross-listing destination, London accounted for only 5% of all IPOs between 2015-2020—and 4% of global IPO proceeds raised in the third quarter of 2021.

While variations in IPO numbers are partially explained by macro-economic factors, they may also be shaped by companies’ appetite for alternatives that allow them to stay private longer, or—if they go public—to retain some of the benefits of private ownership, or to evade some of the regulatory costs inherent in traditional IPO models. Indeed, it appears that companies are ever more reluctant to go public, and those that do so increasingly gravitate towards jurisdictions where firms can deviate from ‘one share, one vote’ principles—or methods of going public that can fairly be described as alternatives to traditional IPOs. Some involve only slight re-formulations of the traditional IPO structure—with companies using Special Purpose Acquisition Companies (‘SPACs’) as vehicles for raising equity finance—but others represent more significant departures from the traditional IPO model—with some firms seeking direct admission of their shares to listing in a public market without raising any finance at all (‘direct listings’).

With the UK’s exit from the EU on 31 December 2020, the opportunity has arisen to reassess the UK IPO model and to consider whether and how to address the UK’s dwindling IPO numbers.  The 2021 UK Listing Review (the ‘Hill Review’) recommended significant changes to the existing framework, and  this has been followed with further consultations—some of which have already resulted in changes to the UK regime.

In a recent paper, forthcoming in the Global Capital Markets Handbook (I Chiu and I MacNeil, eds), we look at recent, ongoing and proposed changes to the UK prospectus and listing regime, and we examine what the right balance for the UK IPO might be. First, we analyse how traditional IPO structures have been evolving in the UK: we discuss the benefits and costs of going public—for both companies and investors—and we analyse the goals behind the Government’s prospectus reform proposals and the recent changes made by the FCA to its Listing rules. Crucially, we note that such reforms give little attention to the role played by attractive capital-raising alternatives in the decline in IPO numbers. We then consider how the development of alternative investment models has been impinging on the classic IPO model. We analyse the growth experienced by the private market, with the development of venture capital and private equity, and the advent of crowdfunding, as well as a series of recent developments that are intended to facilitate access to the public markets—including SPACs, direct listings, and dual-class shares. Finally, we examine the extent to which new and proposed regulatory changes to the UK regime strike a satisfactory regulatory balance between issuers and investors.

Ultimately, we argue that although the Hill Review’s proposals have been described as a ‘fundamental overhaul’ of the regime,  the changes proposed (and introduced) to date are more limited than this rhetoric might suggest. In some regards this conservative approach is correct: in relation to SPACs, for example, the limited changes introduced by the FCA reflect the very real concerns about investor protection to which these mechanisms give rise. In other areas however the modest approach of the Hill Review and subsequent consultations and changes is less justifiable: in relation to the proposed reforms to the prospectus regime, for example, there is a failure to take full account of the successes of alternative capital-raising mechanisms such as private equity and equity crowdfunding.  As a result, these reforms are unlikely to provide companies with an IPO model that will operate as a meaningful alternative to these other mechanisms, or to address the concerns of retail investors wishing to invest in a broader range of companies than is available to them at present. The limited nature of these changes means that the reforms to the UK regime may fail to achieve the sought-after revitalisation of the UK IPO.

Jennifer Payne is the Linklaters Professor of Corporate Finance Law at the University of Oxford.

Clara Martins Pereira is Lecturer in Financial Law Education at The Dickson Poon School of Law, King’s College London.

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