The London Stock Exchange is facing a growing crisis as a wave of companies exit the market, posing a significant challenge to the UK's economy and its status as a leading global financial centre. Investment bank Peel Hunt, led by CEO Steven Fine, has sounded the alarm over what it describes as a "relentless" exodus of firms, driven largely by a surge in takeover bids from private equity firms and overseas buyers. This dynamic is exacerbated by weak initial public offering (IPO) activity, leaving the market increasingly depleted of vibrant, publicly listed businesses.

So far this year, London has witnessed 30 takeover bids for listed companies, with few substantial IPOs to offset these departures. Notable recent exits include fintech firm Wise, which chose to list in New York rather than London, and a string of bids for companies like Alphawave and Spectris, both caught in high-profile takeover battles. Peel Hunt’s loss widening to £3.5 million in its recent financial report underscores how much the decline in market activity is affecting market makers and brokers dependent on vibrant public markets.

The trend is particularly evident in the shrinking FTSE Small Cap Index, where approximately 10% of listed companies and 20% of market capitalisation have been lost this year alone. Experts warn that if current trends continue, London's smaller listed companies could disappear entirely by 2028, a scenario that would further undermine the city's financial ecosystem and attractiveness to investors. This downturn in listings is compounded by changed UK tax rules, such as the halving of inheritance tax relief, and a marked reduction in pension funds’ investment in UK equities.

This crisis is rooted in broader structural challenges. The London market has endured the largest net outflow of companies since the financial crisis, with 88 delistings last year and only 18 new public listings. Primary listings have declined by over 40% since 2007, a reflection in part of the UK’s economic structure which leans heavily on energy and mining sectors, and is less focused on high-growth technology companies that tend to favour US exchanges for their superior liquidity and valuations.

London’s Alternative Investment Market (AIM), historically a platform that supports smaller enterprises with fewer listing requirements, is similarly suffering. With 89 companies exiting AIM in the past year against only 18 new entries, the market is losing its role as a capital-raising hub for smaller, growth-focused businesses. Industry voices have urged policy changes, including measures to encourage pension schemes to reinvest in UK assets and reinstating tax incentives such as a tax-free savings plan for British stocks.

The takeover wave includes deals by private equity giants like KKR, which is locked in multiple bidding wars for London-listed firms, highlighting a landscape where companies are perceived to be undervalued. Some bids come with premiums exceeding 30%, indicating the market's consensus that UK-listed assets are significantly underpriced. Recent high-profile deals, like the £2.9 billion buyout of Deliveroo by US giant DoorDash and ongoing speculation around Metro Bank, underscore the active corporate appetite for UK assets, yet also signal the shrinking pool of independent listed companies.

Peel Hunt’s Steven Fine questioned why British assets, including infrastructure like small airports, are increasingly being snapped up by foreign funds, pointing to what he described as the “cheap" valuations driving this sell-off. He urged recognition from the government of the problem’s scale, arguing for renewed commitment to supporting public markets which bring transparency, investability, and employment benefits.

The situation presents a delicate paradox: a strong corporate appetite for acquisitions reflects confidence in the economy and available capital, but the resulting shrinkage of public markets could diminish London's global financial clout over time. While some optimism exists that economic stability and interest rate cuts could stimulate dealmaking and potentially new IPOs, the recovery hinges on structural reforms to make public listings more attractive and competitive globally.

Overall, London's stock market exodus deepens a multi-year decline in market vitality, with fewer companies listing publicly and more being absorbed by private equity or foreign buyers. Without concerted action to revitalise the IPO pipeline and boost investor confidence, London's position as a leading financial centre risks further erosion, with consequential impacts on economic growth, tax revenues, and job creation.

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Source: Noah Wire Services