IPO search: Marcus Stuttard and Bod Buckby (pic: Terry Murden)
Stock Exchange executives Marcus Stuttard and Bod Bucky are looking for flotation candidates in Scotland. TERRY MURDEN went to meet them
When Tommy Cook chose to take his telecommunications testing company public he also marked a significant stock market milestone. The co-founder and CEO of Linlithgow-based Calnex Solutions managed to negotiate the bulk of the initial public offering (IPO) without meeting anyone. It was done entirely through Teams.
“It was one of the first, if not the first, time it had been done this way,” says London Stock Exchange (LSE) executive Bod Buckby, recalling how he met Cook in January 2020 just months before the Covid pandemic forced the process down the virtual route. “It proved that the capital markets were accessible wherever you happen to be. Since then it has become the normal way to do it.”
The remote connection has not been lost on those who want to spread the message about stock market membership beyond its core area around the southern regions of the UK. Traditionally, companies in the north have felt culturally as well geographically cut off from London’s financial centre, seeing it as someone else’s territory and preferring to raise capital locally through bank debt.
Buckby, who is the LSE’s head of UK primary markets for the north of England, Scotland and Northern Ireland, is on a mission to get more firms to choose a public equity route, spurred to some extent by the rising cost of debt finance. He has been in Scotland, accompanied by Marcus Stuttard, head of UK primary markets and head of the Alternative Investment Market – the LSE’s exchange for small firms.
They’ve been seeking out candidates for flotation and Buckby says they are encouraged by the quality of companies in Scotland. They’ve met a spread of founders in tech, life sciences and health care who are showing tentative interest in an IPO.
Alongside convincing ambitious entrepreneurs to choose the flotation route, the LSE is having to tackle its own challenges. It has been overlooked by some big companies such as the chip maker ARM, in favour of the US which is seen as more efficient and welcoming, particularly to technology firms. It has prompted calls for a shake-up of the listing regime to ensure London does not lose its place.
“The Financial Conduct Authority and Government are working on a series of regulatory reforms to strengthen the UK’s financial ecosystem,” says Stuttard. “It is proposed to go back to comply or explain rather than a prescriptive rules-based approach that will create more flexibility.”
He rejects the perception that London institutions are anti-technology and “don’t get it” and that much of the blame lies in seeking dividend income over growth.
“We have 250-plus tech companies across the market, a lower proportion than the US but over the last two years more than 30% of IPOs in London have been tech firms,” he says.
He adds that 40% of shares on the London markets are owned by US investors so firms can be quoted in London but still enjoy access to US institutions without the need to float on Wall Street.
“It’s also worth noting that 22 UK companies over the last decade have listed in the US and only three are above their IPO price. Non-US companies listed in the US also tend to underperform their domestic counterparts,” he says.
However, he acknowledges a need for a shift in approach by pension funds to invest more in the growth of the UK economy, a process that can be facilitated by government.
Progress, he says, is being made against a global slump in IPOs, down 90% last year after a strong 2021 when there was a sharp rebound from the pandemic.
Buckby explains that the clouds hanging over the world economy over the last year have meant investors have often had to sell down an existing position to create buying power for an IPO.
“It won’t spark into life until values rise and investors have a surplus of capital,” he says.”We are actively encouraging a pipeline [of candidates for an IPO] to make sure they are there as things can turn quickly.
“We have to make sure the regulatory environment and availability of capital is right when it does.”
Exits and failures
As for the task facing the pair in Scotland, they are selling a proposition against a recent history of market exits and failures. Stagecoach and Aggreko, both acquired, were two big losses from an already small band of Scottish listed companies, while the rapid collapse in value of the meals delivery firm Parsley Box, which led its Chris van der Kuyl-led board to cancel its AIM membership, was hardly a good advert for going public.
“For every firm that has underperformed you can find one that has done well,” says Stuttard, undeterred by the occasional casualty. “It is, after all, down to the decisions taken by investors and this is risk capital.
“The biggest challenge we have is the loss of companies that do not reach their growth potential because they sell too early.”
The pitch here is not to accept the first juicy cheque from a predator but to raise more capital for growth through a public issue of shares and to use that “paper” to acquire other businesses, ultimately leading to an even bigger cheque.
Buckby argues that this is how to turn a large local company into a global one; giving it a greater brand profile and using its shares to attract top staff through incentives.
While the focus is on those smaller, high growth firms that have the potential to become the next big thing, Stuttard says the LSE is also chasing established, larger firms.
“Smaller firms are actually quite well served [by AIM],” he says. “We need more of the bigger companies coming to market because they create positive role models and drive liquidity.”
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business