Deal volumes over the past 18 months

Looking back at IPO volumes in 2019 compared to 2018, we saw a 51% decrease in the aggregate number of IPOs across both the Main Market and AIM which is perhaps unsurprising given the uncertainty surrounding Brexit and concern stemming from global trade tensions.

IPO activity levels since 2015

During the first quarter of 2020, as COVID-19 began to impact, we saw a handful of publicly announced postponements in relation to IPO transactions. No doubt behind closed doors a multitude of similar decisions have been made.

Whilst the financial markets grappled with economic lockdown, the second quarter of 2020 has seen IPO activity nearly reach freezing point with IPO volumes down 81% compared to the second quarter of 2019.  During this time, AIM did not see any new issuers on-board. The Main Market saw the listing of two VCTs (Blackfinch Spring VCT plc and Puma Alpha VCT plc) together with China Pacific Insurance (Group) Co., Ltd., operating in the Chinese insurance sector with its shares already listed on the Hong Kong and Shanghai Stock Exchanges. Now we are at the mid-way point of the third quarter of 2020 and we have gradually seen the easing of global lockdown restrictions, AIM has welcomed Elixirr International plc (a management consultancy) and AEX Gold Inc (a special purpose vehicle focusing on the exploration and development of gold in Greenland) to its market.

A sectoral perspective

2019 IPOs by sector                                                 2020 YTD IPOs by sector

We have seen a proliferation of investment trusts and special purpose acquisition vehicles dominating the IPO landscape. Accordingly, the Financial sector continues to gain momentum and accounts for approximately 50% of all IPOs in the past 18 months. Industrials, consumer products and materials have remained steady sectors throughout 2019 and 2020.

The healthcare and technology sectors remain ones to keep a close eye on. The ongoing pandemic has enabled many companies operating within the life sciences and pharmaceutical subsector to experience an unforeseen period of growth and they remain attractive sectors for investment.  Also, in the era of digital healthcare, companies with a technologically innovative product or service offering may follow the footsteps of their 2019 AIM listed predecessors such as Diaceutics plc and Induction Healthcare Group plc.

As priorities shifted towards preservation and survival, the large volume of follow on issuances across the UK markets this year has reinforced the appeal of being a listed company. During the five month period from March 2020 there have been over 150 follow on deals across the markets and within the healthcare sector alone we have seen over £775m raised by AIM listed companies with the overwhelming majority of those operating within the pharmaceutical and biotechnology specialisms.

As expected amidst a global pandemic, we have not seen any IPO activity within the retail, hospitality and automotive industries. During the period of national lockdown, we have seen follow-on issuances by prominent retailers such as Asos, Joules and Ted Baker in order to put sufficient funding in place and provide flexibility to restructure their respective businesses in the case of a prolonged downturn.

The outlook as Q4 2020 approaches

The UK is officially in recession for the first time in 11 years following a 20.4% economic decrease in the second quarter of 2020 compared to the first quarter. This is not wholly unexpected in light of unprecedented national and global measures in response to the COVID-19 pandemic. However, the Office for National Statistics has reported that on a month-on-month basis, the economy grew by 8.7% in June, after growth of 1.8% in May which coincides with the easing of national lockdown restrictions.

As emphasised above, we have seen a large volume of follow-on issuances and the introduction of the new EU Recovery Prospectus which is currently on the horizon would facilitate more efficient follow-on issuances by established listed companies. We envisage that the rise of follow-on deals will continue for the remainder of 2020 and also the start of 2021.

As the fourth quarter of 2020 approaches, we expect to see a resurgence of market activity. Our national equity capital markets team has seen an increase in IPO enquiries, particularly on AIM and we are currently instructed on multiple IPO transactions at differing stages. It is also likely that postponed IPOs will be resurrected and brought back to the table. However, we are mindful that issuers may still be proceeding with caution given (i) the risk of a second pandemic wave with a potential reintroduction of lockdown restrictions, (ii) the forthcoming US elections in November 2020 and (iii) current uncertainty regarding the legal and regulatory UK landscape as at 1 January 2021 once Brexit transitional arrangements cease. In light of these factors we may see a short window between now and mid-November where companies seek to implement an IPO.  There is of course also a chance that issuers will wait for more favourable market conditions or seek investment from alternative sources (for example through private equity investment). We anticipate that the real momentum will begin to build during the first half of 2021.