IWANdisco is already the third case within five days. The software manufacturer with a focus on processing large amounts of data, which counts Google and Amazon among its customers, is listed in the AIM segment for small and medium-sized companies on the London Stock Exchange (LSE). But on March 6, the company, which has headquarters in Sheffield, UK, and in San Ramon, California, announced the next step: a listing in New York.
Concerns about losing WANdisco soon, like two other companies at the beginning of March, quickly spread in London. For example, the Japanese tech group Softbank has decided to list its own chip manufacturer Arm in New York. CRH, one of the world‘s largest building materials specialists with a market capitalization of £30 billion (€34 billion), is also moving its primary listing to Wall Street.
LSE boss David Schwimmer said he was relaxed about CRH’s decision. “If companies that make decisions like this have their main focus of business in the US, then so be it,” he said. In the future, too, the LSE will do everything to interest companies in the stock exchange. London remains a very popular trading place.
In fact, CRH’s business is heavily dependent on the North American market. Last year, the United States and Canada accounted for three-quarters of its $5.6 billion pre-tax profit.
However, market liquidity and valuation are likely to play at least as important a role in the decision. The Dublin-based group is worth around 15 times the expected future profits to investors. Smaller competitors listing in the US are valued at 25x to 30x.
The gap is evident in other industries as well. On average, the S&P500 index has consistently outperformed the FTSE350 by at least two-thirds over the past few years – and the gap has widened since the pandemic.
Meanwhile, trading activity in the UK index has been steadily down for almost two decades. While an average of three billion shares changed hands at the beginning of 2004, it is now only around one billion.
British pension funds are withdrawing
One of the reasons is the dwindling interest of British pension funds in national stocks, Schwimmer said. Two decades ago, these institutional investors still held around half of their portfolios. Today, after adjustments to the accounting regulations, it is just under five percent.
Arm, CRH and WANdisco are just the latest examples of development. Last year installation specialist Ferguson moved its main listing to the US and mining company BHP to Sydney. Flutter, an Irish gaming company, is also considering the move.
According to information from the “Financial Times”, the mineral oil company Shell has also considered moving the listing to North America, but decided against it. Oil giant Saudi Aramco finally dumped Britain’s financial center in 2019, choosing to list in its home country despite months of courtship from British finance and politics.
Between 2010 and 2017, no year did more than five UK companies choose to list on a foreign stock exchange. In 2021 there were 23.
It’s about more than the reputation of the financial center London. Companies listed on a stock exchange hire lawyers and communication agencies in the country, work with insurers and fund companies.
Particularly painful for the British government are the decisions made by technology groups such as chip expert Arm, which they would like to tie closely to the country in the hope that further cutting-edge technology will develop or settle in their vicinity.
Prime Minister Rishi Sunak had particularly courted Arm and met with Softbank boss Masayoshi Son and Rene Haas, Arm’s CEO, before Christmas to convince them of the advantages of the London stock exchange.
Arm referred to a rule for the disclosure of transactions within the group as justification. The company was reluctant to list at two locations for cost reasons.
“For London, this is further confirmation that plans to market the LSE as a haven for fast-growing tech companies are not working,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
The government is now aiming to revamp London’s attractiveness as a stock exchange with a package of reforms that has already been announced. The so-called Edinburgh Reforms, presented by Chancellor of the Exchequer Jeremy Hunt at the beginning of December, are intended, among other things, to modernize the rules for stock exchange prospectuses, short selling and investment research. Among other things, numerous “onerous EU legal provisions” that are still in force are to be abolished or replaced.
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