The London Stock Exchange is at a crossroads. As the United Kingdom adjusts to life after Brexit and a global epidemic, Rishi Sunak, the country’s chancellor, has been eager to promote London as a tech powerhouse where new businesses may thrive through IPOs. Two IPOs in a month happened as a result of this purposeful endeavor to welcome new business: Deliveroo (OTC: DROOF) and Darktrace (LSE:DARK). In the end, both IPOs showcased the best and worst of London’s IPO scene.
Sunak pleaded with Lord Hill, a former European Commissioner for Financial Stability, in 2020 to enact reforms that would encourage “the most inventive and successful enterprises” to list on the London Stock Exchange rather than the Nasdaq or the New York Stock Exchange.
Deliveroo chose to list domestically this year, giving London its big break. In what would have been London’s biggest launch in ten years, the company aimed for a $12 billion market cap. Deliveroo’s listing, on the other hand, was a flop. As soon as trading began, the company’s stock plummeted, resulting in a market cap of $6 billion, which is half of what analysts had predicted.
(Photo courtesy of Investing Cube)
Attempts at recovery have been short-lived after more than two months on the London Stock Exchange, with investors deciding to avoid purchasing into a company with a questionable commitment to employees’ rights.
Along with the company’s treatment of its employees, there’s also the issue of the dual-class structure, which gives CEO Will Shu excessive authority over the company’s actions for the next three years.
London’s eagerness to alter its regulations to fit a new generation of internet businesses resulted in the city and chancellor resting their hopes on the IPO of a company that had been spurned by investors. The early arrival of Darktrace’s IPO, on the other hand, may have insured the London Stock Exchange’s salvation.
The Return of Darktrace
Despite the fact that Deliveroo’s IPO fell short of expectations, it provided a good reality check for Darktrace to build on. When the Darktrace IPO was first announced, there was conjecture that the company may be valued at up to GBP3.6 billion. However, in the aftermath of Deliveroo’s tumultuous IPO, the business reduced its valuation to between GBP2.4 and GBP2.7 billion.
“While the early pop is substantial, it’s also worth noting that the IPO process has been clouded by speculations and controversy,” Megabuyte analyst Indraneel Arampatta said of the revision.
The UK behavioural security startup soared over 40% after its valuation was slashed shortly after its introduction. The stock climbed to 355p in early trade after being priced at 250p for a GBP1.7 billion LSE offering.
For investors turned off by Deliveroo’s more restrictive structure, Darktrace’s more transparent voting rights model is a breath of fresh air. The London Stock Exchange has received a huge boost from the company’s healthy start in the public eye, after investor confidence was shaken by the advent of Deliveroo.
Taking Advantage of a New Investment Environment
The successful Darktrace IPO comes at a critical juncture for the London Stock Exchange, as a perfect storm of renewed interest in IPOs has been accompanied by a new generation of individual investors entering the market, thanks to the increased prominence of investing platforms.
According to Maxim Manturov, head of investment research at Freedom Finance Europe, the surge in retail investors is a good thing “the aftermath of the epidemic and the subsequent stimulus packages As a result, a pool of funds was created into which individual investors may begin investing in equities. According to a Fidelity estimate, there will be 26 million retail accounts in 2020, up 17% from 2019, and daily trading activity will be $1 billion “obliterated.”
(Image courtesy of Investors Chronicle)
The IPO market has entered a boom time, as shown in the figure above, which London may have been set to miss out on as a result of the Deliveroo IPO. Despite the fact that the city is on track to break its most recent records over the course of a year of listings, it is still trailing behind the larger volumes of US and European exchanges.
The successful offering of Darktrace could result in a new flurry of companies opting for London’s favorable conditions as the location for their IPO. At a time when investor sentiment and the number of initial public offers (IPOs) are at an all-time high, the UK must endeavor to attract additional listings and new trade.
London revealed its inexperience in a market that is becoming socially aware and skeptical of firms’ underhanded techniques by relying on Deliveroo and its questionable ethics. Darktrace, on the other hand, has emerged as a savior, demonstrating to the world that the LSE can be a viable listing venue. Darktrace’s entrance could be a turning moment for London IPOs at a time when the city is in desperate need of new companies to help secure some prosperity in the wake of Brexit and COVID-19./n
