As a banker Alastair Walmsley well remembers “the hairy moments” when, although everyone did their best, a stock market launch sometimes turned out unexpectedly.
One of his last IPOs (initial public offerings) at Morgan Stanley had been a much sought-after float which, for some reason, turned out less than perfect over the longer term, although it was one they got away with “by the skin of our teeth” and continues to flourish.
Now as head of primary markets at the London Stock Exchange Group (LSEG), he is not involved with the cut and thrust of individual flotations and is instead concerned about convincing owners of the overall merits of listing on public markets as a way to fund growth. He also maintains relationships with those companies already on the range of markets run by the LSEG.
When he joined the Stock Exchange in June 2012, the markets were still suffering the IPO drought caused by the financial crash; a drought that particularly affected companies with low market capitalisations which were seen as high risk.
“There is no doubt the liquidity diminished post the financial crisis and this has been true across the board in small cap companies,” he says, noting that investors sought what they saw as safer classes of assets or “under the mattress” investments, depending on your perspective.
That began to change in the second half of last year with a number of high-profile deals coming to market, such as Merlin Entertainment, owners of Madame Tussauds, and the privatisation of Royal Mail.
During the year, 40 IPOs came to the main market, one third of them sponsored by venture capitalists, and overall there were 105 floats last year raising just under £16 billion. This was double the total for the previous year, but nothing like per-crash levels.
Things are looking stronger this year, but it does not feel like a market which is ‘irrationally exuberant’
At least it has allowed Mr Walmsley to get on with his main task of trying to persuade the owners of some, but not all, companies that the public markets are an effective way of funding growth compared with other sources of capital which tend to be shorter term, such as angel investors, venture capital and bank borrowings.
Although it is his job to promote public markets, he is still passionate about his task. “When a company comes to the public market, the bottom line is do you want access to the biggest pool of permanent capital? And permanent is important. Does your company need that in order to meet its strategic objectives?”
Floats can be costly and complicated, and require a developed corporate structure, and not everyone wants to put themselves under the public scrutiny required by its detailed regulatory rules.
Sir Richard Branson’s Virgin famously did not remain a quoted company for long. “Some people just say I don’t want people to see just how much I get paid and I don’t want people to see how much I own of the business,” says Mr Walmsley.
He believes that putting the corporate structures in place necessary for a float – itself a form of maturing – can “transform” companies, although he declines to single out any particular company.
Equally, he is convinced that the AIM (alternative investment) market is one of the most effective in the world for providing funds for growing companies.
“The AIM market, we would argue, has always been incredibly successful for growing companies and gives them a real option which doesn’t exist in many countries around the world. AIM is about five times as large as any other growth market in terms of the number of companies listing,” he says.
Both the government and the Exchange have taken steps to make AIM a more attractive source of funds for companies.
Profits from AIM shares can now be sheltered from tax by having them included in ISAs and from April stamp duty will come off AIM shares.
Meanwhile LSEG has brought in a measure for fast-growing, mainly technology companies reducing the minimum free float to 10 per cent as long as there is a willingness to move eventually to the main market where the minimum free float is 25 per cent.
Other developments should make the markets more attractive as sources of capital for funding growth, he believes.
There was a considerable retail element in both the Merlin and Royal Mail floats, companies with strong and well-known brands, and this should help to restore public trust, given that financial services are “generally not widely loved at the moment”, he adds.
The fact that 14 of the main market floats in 2013 were sponsored by venture capitalists (VCs) indicated that VCs and public markets, which were seen as poles apart, are actually two complementary models.
Whereas before VCs were seen as “stealing” companies from the public markets through financial engineering, it is now acknowledged that it is difficult to turn around struggling companies in the glare of publicity.
Mr Walmsley believes things are looking stronger this year, but that it does not feel like a market which is “irrationally exuberant”. Instead owners and advisers are being quite disciplined and keen to bring the right quality of assets to market, and set “the right level” so owners and public-market investors really can be co-investors in growth projects for the future.
“If money from domestic and international investors, touch wood, continues to flow, then we are on track for recovery and a willingness to invest in risk categories – which IPOs are,” he concludes.
The Stock Exchange executive, who runs “to clear his head”, is personally on track to take part in the Barcelona Marathon next month.
