A Conversation with Chris Mayo

Why list in London?

The decision to list in London varies depending on the type of company in question. For instance, we often see smaller private companies from the US, particularly in the tech and life science sectors completing London IPOs. By "smaller," I mean those with valuations generally below a billion dollars, often even below $500 million, typically ranging between $50 to $500 million in market value. These companies choose London because it has a robust IPO market, particularly for smaller companies, and a high-quality investor base. Additionally, the cost of going public in London is much lower than US exchanges.

In the US, the cost of going public has surged over the last 20 years, and the investor base has increasingly shifted its focus towards companies with valuations well in excess of a billion dollars. Therefore, it's challenging for smaller companies to go public in the US, and London offers a viable alternative. As these companies grow, they can always opt to add a US listing later, and some have successfully done so after listing in London.

The second aspect to consider is our work with already-listed US and Canadian companies, especially in the natural resources sector, which includes mining, oil and gas, and clean energy. For Canadian companies, listing in London provides access to a deeper and broader investor base. The additional regulatory burden is modest because local Canadian rules apply in most cases, and there's little extra compliance required. The cost is also relatively manageable. This combination of a broader investor base and low additional burden has proven to be quite attractive. Over the past five or six years we’ve seen a huge increase in activity, and we've successfully helped a lot of Canadian and some US companies, particularly in sectors like mining and oil and gas, add a London listing and tap into this deeper pool of investors.

On Irwin’s The Winning IR podcast, you talked about the UK markets having long-term institutionally focused investors. So, are there any policy incentives in the UK that encourage that sort of investing?

Well, in the UK markets, particularly at the smaller end, there's a notable bias towards long-term institutional investors. Hedge funds, on the other hand, generally prefer larger stocks with more liquidity, as it's easier to short those stocks. This activity is mostly, but not exclusively, confined to mid and large-cap stocks.

When you look at the investor base in the UK, especially at the smaller end and in growth sectors, there are policy incentives that encourage long-term investing. For example, we had a software company from New York go public a few months ago, and they attracted Venture Capital Trust (VCT) investors quite heavily for their IPO. VCTs are tax-efficient closed-end vehicles for UK investors to enable investment in innovative companies listed on our growth market AIM as well as unlisted companies. This has been a valuable source of patient capital, particularly for smaller tech and life science companies looking to list in London. The Enterprise Investment Scheme (EIS) is another tax efficient scheme for UK investors which has driven significant capital into AIM-listed growth companies. So, these policy incentives have been quite effective in encouraging long-term investment.

Are there any specific industries or sectors that are currently underrepresented on the London Stock Exchange that you think have strong potential?

Yeah, there's been a lot of M&A activity and some geopolitical factors that have impacted various sectors. In healthcare and tech, there's a gap and that’s why we’ve seen a large number of smaller US companies in these sectors look to London. Investors are looking to get access to more companies in these areas, so there's a big opportunity there. The same goes for mining and oil and gas, particularly in energy transition materials like lithium, copper, and nickel. M&A deals have reduced the number of investable companies in London in these sectors.

For example, Canada has thousands of mining companies listed on the TSX and TSX-V, while London only has a couple of hundred. There's a big gap to fill there. The investor base is underrepresented, or under-allocated, in terms of their sector exposure. They'll probably be interested in areas showing secular growth opportunities, like energy transition. As we move towards electric vehicles, materials like lithium, copper, and nickel are going to be very important and there aren't enough investable opportunities currently in London, which suggests a really good opportunity for US and Canadian companies, whether they're private or already listed, to access more investors through London.

Given your extensive experience, what advice would you give to a company planning on a public listing in the current market environment?

One of the advantages of the UK's listing process is the ease of initiating conversations with investors prior to listing without committing significant time or money. Unlike other markets where you might need to draft a registration statement, prospectus, or an admission document before “testing the waters,” you can gauge investor interest right from the start in the UK. Part of my role is to help companies connect with the right advisors to determine whether going public would be a viable and productive move for them.

Generally, the process takes about 12 months. While I've seen companies complete IPOs in as little as 3-4 months, that's quite rare. A more realistic timeline is a minimum of 6 months, and more likely around 12 months.

It's also crucial to consider governance issues, such as assembling the right board and implementing proper financial controls. Your financial statements and controls should meet certain standards, and firms specializing in IPO readiness analysis can help you assess this. You will undergo a rigorous legal, financial and operational due diligence exercise with advisors as part of your listing.

Companies already listed on stock exchanges like the TSX, NYSE, or NASDAQ already have robust controls in place and experience operating and reporting as a public company to a high standard, so the focus shifts more towards fact-finding with advisors to determine if there's sufficient investor appetite for your shares. So, whether you're a public or private company, the approach varies, but the importance of early engagement with advisors and potential investors remains a constant.

With the challenges facing the London Stock Exchange from abroad, is it worth buying UK equities right now?

Well, the first thing to say is that the challenges facing the London Stock Exchange, when you look at the data, aren't as prevalent as people might think. A pronounced narrative has emerged that isn't necessarily backed by data. For example, is it common for UK companies to list in the US? Actually, no. People might be thinking about high-profile IPOs and assume that means there are lots of companies doing it, but that's not the case. And when UK companies do list in the US, either through IPOs or secondary listings, their performance, if you look across all the data, is very poor. So, there’s not a good track record for UK companies coming to the US and performing well. Many people don't understand that.

This false narrative may be reinforced by big IPOs happening now, but we have data to support our position. From a London perspective, there's been a lot of work done from a regulatory standpoint to make the listing rules more friendly for companies. Over the last few years, there have been numerous changes, like adjustments to dual-class voting stock and free float requirements—just a couple of examples. We've made London a more progressive and welcoming listing venue.

And if you look at the total equity capital raised in London year to date, the overall rate is substantially higher than it was at the same point last year. Again, this is something people might not think about. So, there's a narrative here, but when you dig deeper, things are not quite as they seem.