If you were a UK tech business looking to IPO, where would you go?

When Romi Savova founded PensionBee in 2014, her goal from day one was an initial public offering (IPO). PensionBee is a pension provider with a difference, allowing customers to easily combine multiple pensions into one online pot. Savova, who worked in investment banking, risk management and financial technology at the likes of Morgan Stanley and Goldman Sachs, created the venture after struggling to understand the opaque and complex world of pensions herself.

In the world of financial services, where trust and visibility are vital, Savova wanted PensionBee to have the strong governance and credibility associated with being a listed business. “We always knew we would list. The question wasn’t ‘if’ but ‘when’,” she says.

PensionBee is firmly focused on the UK market so the London Stock Exchange was a natural home for the technology firm. Savova never considered rival bourses such as the Nasdaq, despite the perception that US investors have deeper pockets: “We still had exposure to US investors, even though we listed on the LSE,” she explains. “Investors all over the world invest freely both at home and abroad. Where you are listed isn’t really a factor. We like to be seen as a UK business, because that is a strong differentiator for us. We also wanted our customers to participate in the listing, which was easier in London.”

While the listing location was never subject of debate, the timing of the IPO was a careful consideration. PensionBee decided to go public in April 2021, just two months after another technology firm – Moonpig - made its successful debut, sparking a whole wave of IPOs. However, another company listed just weeks before PensionBee’s IPO date, and lost a quarter of its value on opening day. Did this give Savova pause? “No. That company is a completely different business. Watching what happened to them was shocking for anyone in capital markets but we were sufficiently differentiated and unaffected by the governance issues that they were fighting.”

“What was opportunistic about our decision to list last year was the growth trajectory of the company,” continues Savova. “We have achieved significant growth and visibility, which meant we were comfortable meeting investors in a public context. We also needed capital and listing was preferable to another round of private financing. We wanted independent governance rather than shareholder representational governance. Finally, the general market sentiment was supportive at that time.” PensionBee listed on the High Growth Segment of the LSE. “This enabled us to list a smaller proportion of free float,” Savova explains. The Financial Conduct Authority has subsequently decided to relax the free float rules for the Premium market too, taking the minimum requirement from 25% to 10%. “We are now moving to the Premium segment,” reveals Savova. “We meet the governance rules and we want to be in the FTSE because that creates additional demand for shares.”

The changes to free float rules have made the UK more attractive to IPOs, she says, but there are still challenges yet to overcome. She cites the impact of the EU’s MiFID II trading rules, which require brokers to charge fund management clients for research separately from trading fees. “This has made it much harder for companies to acquire the right level of research post listing and has shifted the cost of research onto companies, which is undesirable,” says Savova. She also warns that the UK’s tendency to favour slow-growth companies that routinely pay out dividends could be hampering innovation and dynamism, especially in technology. “Companies pay dividends when they have nothing better to do with the capital,” she says. “They don’t see opportunities for growth and expansion so they return money to shareholders. When markets reward that behaviour, it is detrimental, both to the companies and the UK.” In order to have a strong and flourishing IPO market in London, Savova is calling on the government to liberalise research and to encourage investment into newly-listed companies as a distinct asset class, with Enterprise Investment Scheme (EIS) style incentives for investors. She also believes that reforms to capital gains tax could encourage more retail investors to participate in the stock market. “But it is important to invest in financial education overall,” she says. “We just don’t have that culture in the UK, and investment advice is often unaffordable.”

PensionBee has performed strongly over the past year, despite the ongoing macroeconomic turmoil, doubling revenues and increasing assets under administration by 90%. Savova is confident about her company’s future on the LSE. “If we want to ensure that our economy remains a top three global power, which it could be, you have to pay attention to what the stock market is doing,” says Savova. “I believe the government will do whatever it takes to make London a premium listing destination. If we support these listings as an asset class, support research, and support retail investors, then we will be at the top.”

One of the chief considerations when choosing where to list is which location can give you the most visibility amongst customers and partners. For Vaccitech, which co-invented the Oxford AstraZeneca COVID vaccine, the answer was simple. The US is home to the largest and most sophisticated pharmaceutical industry in the world.

“You want to be close to the companies that want to work with you, be that in co-development or licensing,” says Vaccitech Chief Financial Officer, Georgy Egorov. “From a pharmaceutical industry perspective, the US is the largest market, representing a 70% share.”

The US biotech industry also dwarves the UK. “If you look at the S&P 500, after technology, healthcare is the largest constituent,” says Egorov. “This means that analysts there really understand the sector. Here in the UK, analysts might cover pharma and biotech but in the US there are niche specialists for biotech. This is important because they are two very different business models: one is cashflow generative and profitable, and the other has delayed cashflow and question marks over profitability.”

According to Egorov, US investors therefore have a greater understanding of biotech. This, combined with the size and scale of the US, means access to a deeper pool of liquidity. “This is why so many Brits move to the US to commercialise their ideas,” says Egorov. “I hear so many English accents when I’m over there. In the UK, our R&D capability is first class, but we are yet to see significant biotech companies because the ecosystem is in the US.”

Nevertheless, the decision to list on the Nasdaq was not entirely straightforward. “We considered Hong Kong, which is now a top three market from a market cap standpoint,” says Egorov. However, the US has a much higher tolerance for loss-making companies; there can be issues for non-cash-generative companies listed in Hong Kong. The time difference was also an issue; 12 hours between Hong Kong and New York. “In Hong Kong, the understanding of biotech isn’t that high, and we didn’t want to become an orphan stock.” An orphan stock is a company which has its headquarters, investors, and listing venue in different locations. “This meant that it all came down to the US or UK.”

Vaccitech’s valuation was not materially different in London in New York. “Our business is valued on discounted cashflows not peer analysis,” says Egorov. “So that was not an issue.”

As to fears that Vaccitech would swiftly move operations to the US following its Nasdaq IPO, the fast-growth firm has instead moved to a larger purpose-built state-of-the-art wet laboratory at the Harwell Science and Innovation Campus in Oxfordshire. “The biggest part of our operations is here,” says Egorov. “We have built our reputation here. When we say we are a spinout from Oxford University, everyone knows who we are.” However, recruitment constraints as a result of Britain’s departure from the European Union have become a challenge.

While some biotech companies have called for greater government investment, Egorov instead recommends a lighter touch. “We don’t need another massive sovereign wealth fund. If the government wants to stop companies leaving the country, we need open borders, R&D incentives and more incentives on stock options.”

Vaccitech’s journey to the public markets was an extraordinary one. “No one would have thought it was possible for us to go public only a couple of years ago,” says Egorov. “We were only five years old and small. In biotech, it typically takes 13 years to take an idea to market but we already had six clinical trial assets, which is unusual.”

The pandemic provided an unexpected tailwind for Vaccitech, which found itself at the eye of the storm. “We were working on a vaccine against MERS with Oxford University,” says Egorov. “When COVID-19 hit, we realised we could recalibrate that vaccine. We made massive progress in a short time and the banks said that the capital markets were now open to us.”

The path to become a public company in the US was not exactly straightforward for Vaccitech. It did not help that unfounded concerns about the safety of the Oxford AstraZeneca vaccine emerged right after the company hit the button on IPO preparations. The compliance required as a result of the Sarbanes-Oxley Act is onerous, as are the quarterly reporting rules in the US. “As an investment banker, I thought I worked long hours…” says Egorov. “But it’s super interesting and rewarding. This company does good in the world. I’m not out there saving lives, but our scientists are, and that’s what gets me out of bed every day.”