London’s status as Europe’s top financial hub and centre for initial public offerings is, in recent times, in question.

Market volatility, regulations, and fierce competition from financial centres such as New York and Saudi Arabia are changing the playing field, posing a challenge for the UK capital in drawing in investment. 

With just 23 IPOs last year – a 40% decrease from the levels of 2022 – listings on the London Stock Exchange collectively raised just $1 billion, the lowest on record since 2009. Additionally, some companies are now opting for London as a potential backup destination for an IPO, as opposed to a first choice.

London plays catch-up with New York

New York and its exchanges frequently lure high-profile IPOs due to the sheer size and breadth of the US markets, providing unparalleled access to a vast pool of capital and investors. It has also had significant success attracting listings – especially technology companies – with incentives and streamlined regulations, a potential competitive edge over London, where bureaucracy and stringent standards sometimes steer away investment.

Valuations also play a role: LSE-listed companies tend to have lower valuations compared to their US counterparts.

GCC emerges as a new contender

Other regions, such as the Gulf Cooperation Council countries, are also emerging as new challengers to London. In 2023, GCC companies raised $10.8 billion through IPOs, fuelled by initiatives like Saudi Arabia’s Vision 2023, aimed at economic diversification and reducing reliance on oil and gas. 

Saudi Arabia’s IPO pipeline for 2024 has already grown by 30% YoY, with 56 companies seeking to float shares. The region’s new focus on sustainability, technology, renewable energy, agritech, infrastructure, tourism, education and healthcare is driving investor interest.

After ebullient debut, what lessons can Raspberry Pi take from ‘worst IPO in history’?

Reclaiming pole position

To revitalise its IPO market, London must take action. The Financial Conduct Authority’s proposed new listing rules, outlined in consultation paper CP23/31, is a good start. The reforms ease eligibility criteria with new listing categories, and a disclosure-centric approach, which allows for more flexible paths to an IPO, enhancing London’s appeal.

In fact, the proposed rules may already be encouraging dealmakers working on capital transactions to pick up activity. Sell-side deal kick-offs on Datasite, which facilitates over 14,000 new deals annually, is healthy with a 6% year-over-year increase between October 2023 to March 2024. The activity is led by the consumer and healthcare sectors, which have climbed 27% and 12% respectively. An increase in deal kick-offs is often a good indication of a pickup in M&A, and potentially IPO activity, in the next six to nine months.

Still, regulatory reforms may not go far enough. London must confront challenges surrounding market stability, political uncertainties and its overall business climate. Next month’s UK general election poses both risks and opportunities for companies considering an IPO. On the one hand, the uncertainty surrounding the election could further dampen IPO activity in the short term, with companies holding off until the election is complete.

Labour general election manifesto pledges to ‘drive innovation’

Rather than risk initiating a new deal or listing, which will immediately become exposed to the financial and market conditions brought about by campaigning and policies. On the other hand, a new administration could provide greater financial incentives and promotional efforts for listings, potentially boosting London’s IPO market in the long term. 

London must lean into its prestigious financial history and talented workforce. It remains Europe’s top venue for sale of shares in listed companies, and in May, the City attracted several recognisable listings spanning the retail, tech and healthcare sectors. 

By capitalising on its inherent strengths, paired with regulation reforms, London has the potential to reclaim its status as a leading destination for companies looking to tap global markets.

‘Don’t waste time on unsuitable investors’