January 25, 2021

Calls for change to LSE in bid to attract more multinational tech firms

The UK’s Investment Association (IA) is in the process of asking regulators to undergo a “rebranding” of some of the London Stock Exchange’s (LSE) key requirements, Sky News reports.

In an effort to attract more multinational, fast-growing technology firms to float in London, the IA is submitting its recommendations to a review this week led by Lord Jonathan Hill.

The idea is to remove any reputational disincentive for companies who want to use it.

Hill is the former EU financial services commissioner, and currently serves as the Treasury’s non-executive director.

What are the changes?

One of the proposed changes would see premium listings on the London stock market retain a “one-share, one-vote” structure. This would allow shareholders to maintain protections.

The IA, whose members include Blackrock, Fidelity and Legal & General Investment Management, also wants to adjust London’s standard listing category.

The idea is to remove any reputational disincentive for companies who want to use it.

Insiders tell Sky News that the IA will, in addition, demand any reduction in the 25% free float requirement for listed companies to 20%, move to the higher threshold over a three-year period.

On top of these three more specific changes, the IA wants the LSE to more generally accelerate London’s initial public offering (IPO) process.

Sky News sources say the suggestion will be based on more investments into digital technologies, which could spur the LSE to start looking for more partners.

And the IA wants to the LSE to encourage more special purpose acquisition companies (Spacs) to list in London.

Spacs have enjoyed great success in the US. In 2020, the US was home to 445 total IPOs, 248 of which were Spacs returning on average more than 5%. Comparatively, the US housed 213 IPOs in 2019, with a notably lesser 59 of them being Spacs.

The Hut Group

The US enjoyed a boom in IPO listings in 2020. These included Airbnb, data analytics firm Palantir and food delivery service DoorDash. But the UK got off to a slower start.

Walmart-owned Asda killed its London IPO plans last year, whilst Vodafone chose Frankfurt over London for its 2021 listing.

But in August, Manchester-based consumer brands group The Hut Group announced it was listing on the LSE in September.

The announcement broke the London IPO lull. Its $7 billion listing marked the biggest London stock market debut by market capital since Royal Mail in 2013.

It has since seen some of the UK’s unicorns, including Darktrace, Deliveroo and TransferWise, draw up plans to go public.

Dual-class share structures

THG Holdings, The Hut Group’s parent company, listed with a golden share arrangement for its founder, Matthew Moulding, already in place.

This is why a source close to the IA’s submission told Sky News the body was arguing against measures to encourage dual-class share structures.

“We don’t believe that dual-class shares should be allowed anywhere near the premium segment of the London market,” says one contributor to the IA’s submission.

Lord Hill’s review will focus on these dual-class share structures, as well as on free float requirements.

As an extension of this, the IA also highlights that corporate governance standards in privately owned companies should be raised.

The City of London Corporation also highlighted this point last autumn. It said: “The goal should be to motivate equity listings in London, including within the tech sector where competition is particularly fierce, while maintaining high corporate governance standards.”

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