Article The current IPO market Why now could be the right time to list 02 Dec 2020 — 4 min read The Team Stephen NewtonOliver BishopCaroline Pitt In the first two articles in this series we explored why Elixirr decided to IPO, and the process of listing during a pandemic. This article looks at the current market, and what to think about when considering an IPO as part of your growth strategy. There is money out there for good firms Don’t be fooled by the doom and gloom that pervades the headlines these days; there is great appetite in the market for quality equity investments. In a near-zero or negative interest rate environment, companies providing double-digit returns are highly sought-after. There is great appetite in the market for quality equity investments. In a near-zero or negative interest rate environment, companies providing double-digit returns are highly sought-after… Many high-profile companies, such as Zoom and Peloton, have seen massive share price growth this year. There are also many small firms with consistently strong growth stories – just ‘under the radar’. IG’s September top small-cap stocks to watch included a wide variety of firms, from mining to online retail, all of which navigated the pandemic adeptly and are reaping the rewards as a result. Of the top 10 investment company sectors by % share price growth in the last 10 years, ‘UK Smaller Companies’ came 2nd in the rankings. This sector saw an average return rate of 378.51% (equivalent to 17% CAGR), coming behind only Biotechnology & Healthcare. The investment potential of a young, growing business in public markets is unlimited. Why then have there been relatively few listings in UK markets in recent years? Might now actually be a great time to go public..? Step back, or be bolder The turbulence of recent years, both in the political arena and the COVID-19 pandemic, has stunted activity. Only 17 companies have gone public on the London Stock Exchange (LSE) so far in 2020, down from 35 in 2019 and 79 in 2018. However, fundraising by firms already listed tells a different story. The LSE has recorded £22bn raised in 2020 (to date), compared to just £12bn for the same period last year – an 83% increase. Evidently, access to capital during challenging markets is a real advantage for listed companies, whether it be by necessity or for new ventures. The LSE has recorded £22bn raised in 2020 (to date), compared to just £12bn for the same period last year – an 83% increase. Access to capital during challenging markets is a real advantage for listed companies… Downturns change markets. Unless you are fortunate (like being a producer of hand sanitiser in 2020!), the health of your business is conditional on continuously identifying and adapting to external change. If this requires funding, raising capital through an IPO can facilitate bold steps. This is regardless of whether the funding is to be used for acquisitions, infrastructure investment, or R&D. High-performing firms spend their way out of challenging markets. A McKinsey study found that high-performing businesses increased their absolute capital expenditure by 90% during recovery periods, compared with an average of 25% across all firms. A listing can both raise this capital, and do so at a pace that the business owner controls, not at the behest of private equity funds or bankers. How to prepare If the macro view has sparked your attention, it’s time to think from a company perspective. Crucially, an IPO as an end point. It is a significant step towards a long-term objective. Considered in this light, there are a number of factors to contemplate before diving in… Outside of the listing process itself, the company vision must be sufficiently clear and detailed for investors to get behind it financially. This must be supported by a sound long-term business strategy, and how key considerations such as staff incentivisation are managed. It helps for the company to be stable and profitable, with a strong track record of growth. Investors will also want you to have robust infrastructure – from financial reporting to leadership. That being said, it doesn’t need to be perfect. A true entrepreneur is likely to never be 100% satisfied with their position, but waiting for perfection means waiting forever. Time should be of the essence to get on with delivering the strategy! Walk the talk During our IPO process, Elixirr NOMAD and broker finnCap offered us some sage advice: A good company will sell itself, regardless of the market. Undertaking a major transformation like an IPO during a pandemic, recession, or other period of change is a risk. But, as any good entrepreneur knows, it can pay to be bold. Undertaking a major transformation like an IPO during a pandemic, recession, or other period of change is a risk. But, as any good entrepreneur knows, it can pay to be bold. One thing that is certain is that a downturn is the right time to look at your business strategy. Change happens quickly, and you need to be ready. If, like us, you are in a position to be bold and make long-term strategic bets then now is a great time to do it. An IPO might just be the answer to facilitate the change your business needs. Get in touch if you’re considering this as your next step, or any other strategic options.