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

When it comes to achieving an exit, fast-growth UK technology companies have many options to choose from. Some may choose private equity, others a trade sale to a competitor. For many tech entrepreneurs, however, listing on the stock exchange is an effective way to realise value and drive future growth.

If you want to tap into a vast pool of capital, retain a level of autonomy, and benefit from the attention that comes with being a publicly listed company, an IPO becomes very attractive. But once you have chosen this path, there are further questions to be answered. Crucial amongst these is: where?

In this article, we will draw upon the experiences of four leaders from listed UK-based tech companies to find out how they decided on their listing location – and why. These include: Romi Savova, Founder of tech disruptor PensionBee, which allows customers to combine several old workplace pensions into one online pot; Mark Thurston, Chief Financial Officer at Endava, which helps companies with their digital transformation; Andy MacKinnon, Chief Financial Officer at Moonpig, a technology platform for sending cards and gifts; and Georgy Egorov, Chief Financial Officer of Vaccitech, a co-inventor of the Oxford AstraZeneca COVID vaccine. These interviews took place in March 2022, prior to the recent fall in tech stock prices and global equities more broadly. The topics addressed in this article continue to be particularly relevant as tech businesses adapt to the changing market environment and investor priorities.

Jump ahead to the company spotlights where we explore the IPO journey of PensionBee, Endava, Moongpig and Vaccitech

Read the company spotlights

The UK tech scene

The UK is home to a vibrant and innovative technology industry, as evidenced by 25 years of incredible growth stories in the Deloitte Technology Fast 50, which is one of the UK's foremost technology awards programmes. Fintech has long been seen as the jewel in the crown, but other sectors have gained traction in recent years too, including e-commerce, digital health, and food delivery.

Fintech has long been seen as the jewel in the crown, but other sectors have gained traction in recent years too, including e-commerce, digital health, and food delivery.

In our 2021 Technology Fast 50 report, we found that the UK is home to an extraordinary wealth of tech companies, benefiting from a crucible of growth drivers. Tech firms are leveraging data in fascinating ways to plot their growth strategies. They are harnessing top talent from across the whole of the UK to drive growth and innovation. They are also investing heavily in R&D: the Fast 50 last year invested over three times more on R&D as a percentage of revenue, compared to the S&P 500. But while there is little doubt that the UK is a strong contender in the global tech community, it does not rank as the prime listing venue for technology companies.

The headline figures may appear promising. Tech IPOs on the London Stock Exchange raised a record £6.6bn in 2021 – more than twice the figure from 2020. However, this is one seventh of the $69.3bn (£47bn) raised by tech IPOs in the US’ NASDAQ and New York Stock Exchange in the same year.

Indeed, new listings on the London Stock Exchange represented just 5% of global IPOs between 2015 and 2020. In 2021, the UK accounted for 126 out of 2682 global IPOs, or 4.7%.

Is this cause for concern? First, let’s review how the UK performs against the rest of the world in terms of gross domestic product (GDP). Given that the nation represents between 2.5% and 3% of global GDP, based on current estimates, its share of IPOs would appear greater than its economic clout. Yet the UK’s performance is muted when compared to the US, which generates 16% of global GDP yet claimed around 40% of global IPOs.

It all comes down to the UK or US

Savova floated PensionBee on the London Stock Exchange in April last year. She says that for her – and many other UK technology leaders – the decision on where to list was simple: the US or the UK. “London is competing against the US, that’s the rival,” says Savova. “In conversations about where to IPO, UK firms rarely consider Frankfurt or other countries,” she says. “It’s always between the UK and US.”

This is because, for many UK-based firms, the size of the US market is a major draw. Mark Thurston floated Endava on the New York Stock Exchange in 2018. “I did wonder about listing in London,” he says. “The bar is lower, we would be a bigger fish in a smaller pool, and there’s no quarterly reporting and Sarbanes-Oxley to consider but the founder, John Cotterell, had his sights set firmly on the US as that’s where the major growth will come from.”

For Moonpig’s MacKinnon, however, the UK was a natural listing venue: it’s where the majority of Moonpig’s customers live, as well as the majority of employees who are based in the London Head Office. “While we have a sister brand in the Netherlands, which represents around a third of our business, we have always considered ourselves to be a British business with the consumer model being well understood here in the UK, so the FTSE was a natural place for us to be.”

“Since listing, we have seen an increase in profile as a London listed business,” he continues. “We used to get maybe two press articles a year and we would drive a small amount of consumer PR ourselves but now we can feature in dozens of articles a week. We also find that we receive good coverage by research analysts so in terms of profile, it has been a real positive.”

Every technology firm is different and has differing needs when it comes to IPO location. Thurston believes that, generally, those bringing a brand-new technology proposition to market will usually prefer the US. “The London Stock Exchange is like Jurassic Park,” he explains. “All dinosaurs and no new technology companies. Investors don’t really understand new tech in the UK. If you have a brand-new product or slant, it can be hard to get traction.”

However, the decision may not remain a binary one for much longer. Other stock exchanges are now vying for tomorrow’s tech and innovating to attract for listings. The Dubai exchanges recently saw huge gains, as has Singapore, Hong Kong and, in Europe, Amsterdam and Frankfurt. Of the 10 biggest tech IPOs in Europe last year, two listed in Frankfurt, two in Amsterdam and the balance on the LSE and Nasdaq.

Are valuations a key factor?

We often hear that investors’ pockets are deeper in the US – and that valuations can be much higher as a result. This is why many talented British tech entrepreneurs prefer to move to the US to grow their ventures. “When I’m out in Boston, attending biotech events, I hear a lot of British accents,” says Vaccitech’s Egorov. “It’s very clear that these tech entrepreneurs are moving to the US to commercialise their ideas.”

However, many consider valuation disparity between the public markets of the UK and the US to be a myth. Large institutional investors are market agnostic when it comes to valuing a company and they benchmark against a global peer group, using similar bases to value a business. This is especially relevant for tech companies, which tend to be global in scope.

If valuations remain consistent across different bourses, the next consideration is the availability of a peer group. Listing on a stock exchange where there are comparable businesses means that the analysts and commentators in that territory are likely to understand you and your metrics of success. This creates industry clusters on different exchanges: 98% of the US’ listed biotech companies are on the Nasdaq, for example.

A few years ago, it would have been unheard of for a biotech business to list in London. “The view was that you had to go to the US for a sensible biotech valuation, as there weren’t any comparables on the LSE.” Vaccitech’s Egorov says: “If you look at the S&P 500, after technology, healthcare is the largest constituent,” says Egorov. This is why the 2021 IPO of Oxford Nanopore was viewed as a gamechanger for London. It will now provide a strong peer to future UK biotech listings.

"UK investors are believed to have a myopic focus on dividends, whereas US investors are more comfortable with forgoing short-term gains for long-term value."

Significant differences between the US and the UK

Investment strategies and appetites seem to vary between the UK and the US. UK investors are believed to have a myopic focus on dividends, whereas US investors are more comfortable with forgoing short-term gains for long-term value.

Savova warns that investor attitudes are holding back the UK. “UK investors have been overly focused on slow-growth, dividend-paying companies,” she says. “Companies pay dividends when they have nothing better to do with the capital. They don’t see opportunities for growth, which is why they return money to shareholders. When the market rewards that behaviour and creates this self-reinforcing cycle, it is detrimental both to the companies and the UK.”

Moonpig’s MacKinnon echoes this sentiment, however he believes it is possible for UK listed firms to offer investors both profit and growth. “The level of emphasis that investors place on growth in the US is different,” he says. “In the UK, there is generally a greater focus on profitability. We have found a balance. In our current guidance, we target a flat percentage profit margin and, everything above that figure we reinvest to underpin and drive revenue growth.”

There are also very few loss-making companies on the LSE. Highly innovative companies that are creating a new market, rather than competing with existing players, are more likely to be loss-making, so the dearth of these high-risk companies is notable. In the US, investors are used to the likes of Uber and Spotify and the Nasdaq is seen as the place to invest in high growth, high risk, high volatility companies.

What next?

Higher valuations in the US are a myth. UK investors can be too risk averse. The size and scale of the US market will make a US listing very attractive. This is the state of play, according to these technology leaders. The UK can be a great place for tech businesses to IPO but it could be better. How can we make the UK more attractive? In the next ‘Future of the UK tech sector’ article we explore this issue in detail and suggest ways to increase the UK’s competitiveness in the battle for the tech IPO.

Company spotlights

Key Contact

Milan Sallaba

Technology Sector Leader for the UK

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