Connect with us

IPOs / FFOs

UK listing rules set for overhaul in dash to catch Spacs wave

Published

on


A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

IPOs / FFOs

Why it won’t be Deliveroo that casts a shadow on Darktrace

Published

on

By


You’d have thought a company would need to be brave or foolish to follow in Deliveroo’s smoky wake on to the London market. 

In the event, cyber security company Darktrace appears to be neither. Perhaps because this looks quite a different type of tech offering.

For a start, it has some proper technology behind it. Such is the enthusiasm for showing the UK can attract digital fare that there has been a tendency to pump everything with a website like it’s the next great tech play. 

But Darktrace boasts that it uses machine learning and artificial intelligence in cyber security software. Traditional cyber defence involves building walls against potential attacks, which then must be adapted and replicated as threats evolve and change. Darktrace, founded in Cambridge in 2013, instead deploys its software to understand what a business’s “normal” state is; it says it can then use that to identify and prevent attacks quickly.

In other areas, too, Darktrace should be able to shrug off comparisons. One of the less-discussed concerns around Deliveroo, whose shares fell again Monday to trade about 35 per cent below the offer price, was whether the app with bicycles model really translated into a viable, scalable business beyond its home market. 

Darktrace, in contrast, had more than 4,600 customers in more than 100 countries at the end of last year, up from about 1,600 in 2018. Its software is quick to deploy, meaning it can sell by installing its system and letting it show its worth in a two or three week trial. Subscription contracts mean predictable, recurring revenue.

The cyber company also isn’t as obviously riding high on the back of lockdowns. True, travel restrictions meant lower marketing spending. Normal sales activity would have largely wiped out the adjusted ebitda (earnings before interest, taxes, depreciation and amortisation) profit of $9m for the year to June 2020. (But still, something resembling a profit! In tech!). 

Sales constraints after a pandemic-related hiring freeze will help keep all-important revenue growth to 36-38 per cent this financial year, compared with 45 per cent in 2020, a slowing growth profile that might concern some tech aficionados.

Still, accelerated digital adoption and more remote working should be a boon for cyber companies longer term. And while Darktrace doesn’t have the top-line growth of some US software as a service or cyber peers, like Snowflake or Zscaler, nor is it seeking the same valuation. A mooted $5bn price tag is a sharp step up from its last private valuation of $1.65bn. But it doesn’t look out of line with where some sector companies are trading, according to Public Comps.

Governance is a more complex issue. Darktrace’s five founders, who remain on the management team, aren’t worked up enough about control to demand special treatment. Unlike Deliveroo, there will be no dual-class share structures. 

Its problems are legal rather than structural. Mike Lynch, the former Autonomy boss, was an early investor in Darktrace through his company Invoke Capital. He’s fighting extradition to the US on fraud charges, which he denies, related to the sale of Autonomy to Hewlett-Packard in 2011. His former chief finance officer Sushovan Hussain, also an Darktrace investor, was convicted on similar charges in 2018.

It’s hardly an ideal backdrop to a market debut. And the risk factors in the prospectus make for ugly reading: Darktrace was subpoenaed by the US Justice Department in 2018 and warns it could face potential liability under possible money laundering charges (though it considers successful prosecution a “low risk”)

Lynch left the board of Darktrace in 2018, sufficiently long ago to alleviate concerns about any day to day influence.

But the listing documents suggest a rather tortured attempt to put distance between two things that have been quite closely intertwined. Several Darktrace executives, including its chief executive, were previously employed by Invoke and Autonomy. Lynch was on Darktrace’s advisory council until March 2021, when he moved to a newly-created science & technology council. Invoke has historically provided services to Darktrace, including until recently two employees in its finance operations in Cambridge.

The question is whether potential investors can get comfortable with the reputational headaches — and to focus more on Lynch’s ability to spot homegrown tech potential and less on his continuing legal battles. If they can, Darktrace looks like the kind of tech listing the London market has actually been hoping for.

helen.thomas@ft.com
@helentbiz





Source link

Continue Reading

IPOs / FFOs

Paper producer Segezha plans Moscow IPO

Published

on

By


Paper producer Segezha is planning an initial public offering on the Moscow exchange, making it the latest in a series of Russian companies looking to tap surging investor demand.

Segezha, which is owned by oligarch Vladimir Yevtushenkov’s Sistema conglomerate, said on Monday that it wanted to raise at least Rbs30bn ($388m) in the IPO. It is seeking a valuation of more than $1.5bn, according to a person familiar with the plans.

The structure of the offering will allow Sistema to retain control of the company.

Russian companies are rushing to go public in response to high demand for emerging market assets and in case geopolitical tensions with the west make it harder to list.

The stimulus-fuelled global stock market boom and a rebound in commodity prices have helped Russia’s market recover quickly from the pandemic.

The Moscow exchange’s benchmark index hit record highs in March and Russian central bank rates remain near an all-time low. Last year, the bourse doubled its number of retail investors to 10m as homebound traders moved away from bank deposits.

In March, discount retailer Fix Price held the largest Russian IPO since the US and EU imposed sanctions against Moscow in 2014. Ecommerce site Ozon, which is co-owned by Sistema, has more than doubled its valuation to about $12.5bn after going public in New York last year.

But the sell-off of the rouble on tensions with the US and the military build-up on the Ukrainian border has underlined that going public remains precarious.

GV Gold, a midsized goldminer whose key shareholders include BlackRock, said late last month it would postpone its IPO — the third time the company has announced a listing then backtracked — because of “elevated levels of market volatility in both the global and Russian capital markets”.

Segezha, which reported nearly $1bn of revenue last year and operating profit of $242m, is the fifth-largest producer of birch plywood in the world and is in the top two for production of heavy duty “multiwall” paper packaging.

Prices for its products have rebounded during the recent economic recovery, while 72 per cent of its revenue comes from export sales in foreign currencies — allowing it to take advantage of the weak rouble at its mostly Russian cost base.

“Bringing Segezha Group to the public markets will crystallize the value of our investment, raise funds that would allow Segezha Group to continue to pursue its investment projects and provide investors with the opportunity to share in the company’s strong growth and benefit from attractive returns,” Sistema chief executive Vladimir Chirakhov said in a statement.

JPMorgan, UBS, and VTB Capital are joint global co-ordinators and joint bookrunners on the IPO. Alfa Capital Markets, Gazprombank, BofA Securities, and Renaissance Capital are joint bookrunners.



Source link

Continue Reading

IPOs / FFOs

Spac boom under threat as deal funding dries up

Published

on

By


A crucial source of funding for blank-cheque company deals is drying up, pointing to a slowdown for one of Wall Street’s hottest products after a record-breaking quarter. 

Advisers to special purpose acquisition companies, which float on the stock market and then go hunting for a company to buy, say they are struggling to find so-called Pipe financing to complete their planned acquisitions. Pipe is short for private investment in public equity.

Institutional investors such as Fidelity and Wellington Management have ploughed billions of dollars into Pipe deals since the Spac boom emerged last year, providing a route to the public markets for businesses ranging from established software and entertainment companies to speculative developers of flying taxis and electric vehicle technology. 

But people involved in arranging the deals say Pipe investors are overwhelmed by the sheer volume of transactions and put off by rising valuations. 

“There is a lot of indigestion,” said one senior bank executive. “The pendulum has swung to where if you’re in the market with a Pipe right now, it’s going to be really hard and painful. A Spac goes back into the ocean if you can’t get a Pipe done.”

Spacs raise money when they first list on the stock market but they typically require more capital to fund their acquisition. Large institutional investors also act as a form of validation of the target company’s business prospects and its valuation.

There have been 117 deals announced this year, but the growing backlog in Pipes could prove to be a big roadblock for the 497 blank-cheque companies that are still looking for a deal, according to Refinitiv data.

Only about 25 per cent of Spacs listed since 2019 have completed deals so far. Sponsors typically have two years to complete a merger, otherwise they have to return the capital they raised to investors.

Several market participants said the slowdown would lead to a “flight to quality” and put downward pressure on the valuations of acquisition targets, which have skyrocketed in recent months.

Almost all of the executives the Financial Times interviewed said they were seeing Spac deals recut to offer more favourable terms to Pipe investors. One said: “It’s called the buy side for a reason.” 

Because Pipe investments are considered illiquid — the money is tied up at least until the deal closes and there may be a lock-up period after that — investors can usually get favourable terms. They can see the deal before it has been announced to the public and are almost always able to buy in at the Spac listing price of $10.

But earlier this year, Pipe investors were clamouring to get in on Spac deals. The group of institutions that backed Churchill Capital IV’s acquisition of electric carmaker Lucid paid a 50 per cent premium to the Spac listing price to get a stake, almost unheard of at the time.

The recent reversal has Pipe investors negotiating lower valuations for businesses, giving them larger stakes for the same amount of money, and better pricing terms.

“There’s only so much illiquid exposure investors are going to want to take,” said another bank executive who has worked on numerous Spac deals.

The Pipe slowdown is bad news for banks, which are unable to collect on advisory fees if they cannot sell a deal to investors.

It is also starting to affect the pipeline of Spac launches, lawyers and bankers said. In the first seven days of this month, only four blank cheque companies have gone public. That compares with 41 during the first week of March and 28 in February, Refinitiv data shows. 

“Where we had been at a crazy, mad, rush pace in January and February, we’re kind of at a standstill right now on the IPO side,” said Ari Edelman, partner in Reed Smith’s corporate practice.

For those that already went public and are looking for a target, he added, “the hope is this is just a bump in the road. And then ultimately the deal gets done.”



Source link

Continue Reading

Trending