Companies flock to the stock market to raise funds in pandemic

More than £21bn of funds were raised in the first half of 2020, representing the busiest first half for follow-on fundraising since the end of the financial crisis in 2009. Existing issuers dominated the market raising funds via a range of placings, rights issues and other transactions.

Scott McCubbin, EY’s UK and Ireland IPO leader, said: “Whilst IPO activity has been almost extinguished by Covid-19, in what is historically the busiest quarter of the year, the markets were focussed on supporting fundraising by existing issuers to shore-up finances to mitigate the impact of the pandemic.”

The main market saw just one IPO take place, Blackfinch Spring, which raised £3m in the second quarter of 2020. The Shanghai listed China Pacific Insurance Group also raised £1.44bn by listing GDRs (Global Depositary Receipt) in London - the second listing under the London Shanghai Stock Connect programme.

AIM didn’t register any IPO activity in the second quarter, but did celebrate its 25th anniversary. Since, launching in 1995 with 10 companies valued at £82m, over 3,800 companies have been admitted to AIM during its life span raising over £115bn. The third quarter of 2020 opened with the AIM admission of Elixirr International last week.

Despite the headwinds, EY said stock prices and valuations are recovering, reflecting improved investor sentiment and risk appetite.

The volatility index (VIX®) has also receded considerably from its high in March, approaching levels more receptive for companies to go public. As a result, first half deals that were originally shelved and pushed into 2021 are now being considered for potential second half of 2020 listings, although EY said it is likely that market activity will be again dominated by fundraising activity from existing issuers.

New IPO candidates will need to embrace the new virtual marketing norms with face to face road shows being replaced by virtual marketing presentations.