CFA, Head of Primary Markets, Americas
Brexit may have cast a cloud over Britain’s economy but UK investors and international growth companies seeking capital have a sunnier disposition. In fact, in Q3 the UK’s blue chip index – the FTSE 100 – had its best quarter since 2013 and as of September 30 is the best performing major index globally this year in local currency terms.
This may seem counter-intuitive but actually demonstrates the international nature of London’s capital market. For example, overseas revenue exposure of the FTSE 100 averages over 75% versus c. 30% for the S&P500.
Overall, London Stock Exchange (LSE) has more international firms listed than any major exchange, including over 100 from the US, evenly split across our Main Market and growth exchange, AIM (Alternative Investment Market). With UK investors focused on companies with overseas revenues, US small cap growth firms have unparalleled access to blue chip UK investors via LSE.
Recent examples illustrate this; Maxcyte, a Maryland biotech company raised c. $14m in an AIM IPO in March and has risen 21% to a market value of $48m. Similarly, LoopUp, a London-based software company with its largest revenue market and significant operations in the US, raised c.$11m post Brexit vote and has increased its market cap c.20%. Of note, since both companies have revenues below $20m and market values below $70m, it was inconceivable for them to raise growth capital from Blackrock, Octopus and Legal & General in the US public markets as they did on AIM.
This demonstrates a fundamental difference between the US and UK markets. Average market value at IPO for AIM last year was c. $100m and for NASDAQ it was over $500m.The reality is that the costs of being public and the relative lack of interest in smaller companies from quality institutional investors mean venture capital is often the only option for US companies in the $30m – $500m equity value range.
LSE strongly supports venture capital but can also offers founders and companies in the above size range public financing alternatives at lower cost, and VC shareholders with routes to liquidity and exit. This can be an independent strategy or a stepping stone to the US markets.
As the clouds clear post Brexit, US growth companies have a perfect window to achieve their strategic goals by accessing public growth capital through London markets.