London’s Equity Capital Markets Ecosystem London and the UK’s strengths as a listing venue May 2021 London’s Equity Capital Markets Ecosystem 2 Contents Foreword Foreword 2 Key messages 3 Introduction 7 London and the UK’s strengths as a listing venue 11 Future challenges and opportunities 23 Appendix 1: Primary and secondary market players 36 Alderman William Russell Catherine McGuinness Appendix 2: Listing options in London 39 Rt Hon Lord Mayor of the City of London Policy Chair of the City of London Corporation Appendix 3: List of interviewees 40 Following a turbulent year for position. London will have a pivotal capital markets globally, London new role in attracting listings, so has demonstrated immense this is a good time to reflect on London has valuable resilience for raising equity. The the strengths, opportunities and strengths as a listing ability to raise equity is a crucial challenges that will ensure London’s building block for a vibrant position as a premier listing venue. venue forming a economy, delivering much-needed competitive offer for funding for a range of businesses in The ecosystem that underpins prospective issuers, the UK and across the world. London’s success in raising equity consists of a densely connected to ensure a successful The UK Listing Review, chaired network of advisers and specialists. capital-raising journey. by Lord Hill, was launched by the They bring renowned expertise to Chancellor in November 2020 as listing companies and access to a part of a plan to strengthen the deep and diverse pool of investors. UK’s position as a global financial centre. It highlighted areas of work to improve the capital’s competitive View online at: theglobalcity.uk/capital-markets London’s Equity Capital Markets Ecosystem 4 Key messages London and the UK’s key strengths as a listing venue A powerhouse The centre of global for raising equity trading activity 1 2 3 4 5 6 London is home to Europe’s There are a range of options The presence of regional The world trades in London Open and accessible markets London offers a large, largest exchange for listing frms ecosystems bolsters the UK’s have a truly international international London stands in the middle of the capital markets offer reach and diverse investor base The market capitalisation of The LSE’s Main Market provides world’s trading day, overlapping London Stock Exchange (£5.1tn) is large firms with access to capital The UK’s nationwide offer includes with 27 markets globally. An London is home to 756 Listing in London enables firms to larger than Euronext (£4.1tn) and from a broad investor base. deep pockets of regional equity- advantageous time zone makes international listings, well ahead access a broad range of investors, Deutsche Brse (£1.7tn). Even amid Its premium and standard raising activity. UK AIM-listed London a competitive listing venue of competing venues such as unique in diversity and global a turbulent year in 2020, London listings cater to different capital companies outside of London for businesses across the world. Nasdaq (409). International issuers spread from around the world. raised more than £9bn across 43 requirements. AIM offers tailored account for nearly £70bn of market London retained its position as are drawn to London because of Some 53% of investors in London initial public offerings, more than support for smaller companies capitalisation. Europe’s most active market by the openness and accessibility are international, the most diverse three times the £2.4bn raised on seeking high growth through its value in 2020, with proceeds demonstrated by the LSE, and investor base of any major global Euronext. nominated adviser (Nomads) accounting for a third of the total markets that have a track record exchange. network and accommodates a proceeds raised across Europe. of global success. International broad range of firms. issuers account for £2.8tn in market valuation on London’s Main Market. London’s Equity Capital Markets Ecosystem 6 Challenges and opportunities Challenges Opportunities Home to a densely connected ecosystem of professional and specialist support 7 8 9 10 London has one Competitive Established support A world-class 1 Capturing tech listings that 6 Learning from international of the world’s pricing in an IPO in a wide range regulator and would otherwise go to the US competitors by mirroring rules densest clusters of sectors innovative business The competition within in competing venues of supporting environment London’s ecosystem With more than 300 professionals reduces the cost of years of experience, London’s reputation 2 Increasing competition from other 7 Taking advantage of growing raising capital compared The City of London, London has a well for stability, the rule of forms of fnance opportunities from emerging with other markets. The the centre of the established reputation law and high standards markets underwriting fee, the equity capital for successfully raising of regulatory oversight largest direct cost in an markets ecosystem, equity. Prospective attract international 8 Strengthening expertise IPO, is typically £700,000 3 accommodates 133,100 issuers seeking to list firms, particularly from A shrinking market for smaller frms in the UK, almost half in growing sectors workers per km2 in in London can access emerging markets. In the price in the US (more financial, professional a closely connected recent years, the LSE than £1.3m). and associated business network of advisers who has been praised for 4 Ongoing uncertainty around the 9 Leading on ESG investment services. Listing provide high-quality, launching the Green EU-Exit companies benefit tailored support in a wide Economy Mark and the from raising funds in a range of sectors. Environmental Social and 5 The costs of a more digitalised 10 Capitalising on the benefts of competitive market with a Corporate Governance IPO process a more digitalised IPO process strong cluster of advisers, (ESG) Disclosure Score, analysts and investor cementing London’s experience in a particular commitment to net- industry. zero and sustainable investment innovation. London’s Equity Capital Markets Ecosystem 8 Introduction London’s equity capital markets are a driving force for the It is a pivotal year to refect on London’s capital markets for UK economy, providing access to a deep pool of capital and raising equity, given the publication of the highly anticipated specialist expertise, enabling innovation and facilitating growth across the UK. UK Listing Review. The recommendations made in the review are paramount in shaping our global competitive offer. London’s equity-raising ecosystem Table 1. GVA and Employment Contribution of AIM 2019 Reviewing relevant reports, analysing data and conducting a is comprised of a network of highly specialised professionals who support programme of high-level stakeholder interviews highlighted listing and trading activities and are located Direct Indirect Induced London’s strengths as a listing venue and the opportunities close to each other. They include advisers, brokers, lawyers, accountants, financial public relations specialists and regulators. £2 and challenges for raising equity in London. 0.3bn There are also experienced market n infrastructure providers, including the b .5 3 LSE and clearing and settlement services 3 £ GVA providers. The concentration of capital markets expertise brings significant direct benefits to the UK in terms of employment, £67.2bn gross domestic product and tax. Total GVA Companies listed on London’s AIM segment, London’s market for smaller £13 companies seeking high growth, supported .4bn more than 900,000 jobs, including direct, indirect and induced employees.1 Induced employees accounting for the wider 430 employees of AIM companies and their ,387 suppliers as they spend their wages in the 8 1 ,1 wider economy. Between 2015 and 2019, 1 8 the direct economic contribution made 1 Employment by AIM companies has grown by 35%, from £24.8bn to £33.5bn. And the overall 905,590 economic contribution of AIM was £67.2bn Total employment gross value added (GVA) in 2019, as detailed Sources in the charts to the right. 1 Grant Thornton (2020) Economic impact of AIM. 2 About three million employees work for 94,085 small and medium-sized quoted companies 2 Hardman & Co (2019) How small and mid-cap listed on the LSE’s Main Market and AIM, quoted companies make a while a total of 7.2 million people are substantial contribution to markets, employment and tax employed by LSE-listed companies.2 revenues. Left: City of London skyline London’s Equity Capital Markets Ecosystem 10 The UK Listing Review helps address some of the factors that have been affecting London’s equity capital markets. These include recent US successes in capturing £51.2bn valuable tech listings against a backdrop of £51.2bn in equity capital was raised a decline in listings globally. on the London Stock Exchange representing The recommendations made in the Listing 6% of global equity capital raised during Review will shape the direction of raising this period. equity in London. In this report, we aim to highlight London’s underlying strengths as a listing venue, and the opportunities and challenges the City faces as it looks to bolster its position as a competitive listing venue. We reviewed existing reports and analysed data provided by the LSE and businesses (FAME). We interviewed senior figures from a range of financial and professional services firms and market infrastructure providers. We also spoke to companies that listed in the immediate wake of the Covid-19 pandemic (see Appendix for a full list of interviewees). Sources As for tax contributions, AIM-listed firms The breadth of follow-on deals and the Above: alone contribute around £3.2bn.3 Small issuance of company shares after initial Paternoster Square, 3 Grant Thornton (2020) City of London Economic impact of AIM.