Over the last decade, the London Stock Exchange (LSE) has seen more firms exit through takeovers than join via new listings, raising serious concerns about its appeal. According to analysis by financial data group Dealogic, since 2015, 585 companies worth an astonishing £779 billion have left the LSE, primarily acquired by competitors or private equity firms. This far exceeds the 567 companies valued at £66 billion entering the market, highlighting the stark imbalance and struggles faced by the exchange.
Samuel Kerr, from Dealogic’s owner ION Analytics, pointed out the LSE's difficulties in attracting overseas firms. He noted, "Much of the slowdown can be attributed to the need to establish a new identity for the LSE since the UK left the European single market, with London no longer seen as the bridge to European markets it once was." While the Financial Conduct Authority (FCA) is working on reforms to ease the listing processes, it's yet unclear if these efforts will revive the LSE.
The situation was particularly bleak last year, when 60 companies worth £59.4 billion departed the LSE due to acquisitions, compared to just 13 new listings bringing £725 million to the market. Following a decade-high of 125 listings in 2021, the deal volume has plunged dramatically, averaging 61 departures annually.
Anticipation is mounting around the potential listing of Chinese fast-fashion giant Shein, which may offer a glimmer of hope for the LSE. AJ Bell investment director Russ Mould remarked, "If Shein lands, it’s a big one, but we haven’t got there yet, as it still needs to clear regulatory approval due to concerns about its supply chains." This IPO, if it proceeds, could set the stage for future growth, but uncertainties remain.
Another significant development looming over the LSE is Shell’s contemplation of relocating its listing to New York if efforts to boost its UK valuation do not yield results. With almost £152 billion at stake, the potential exit of Shell could spur other major players—like Rio Tinto, Glencore, and BP—to follow suit. CEO Wael Sawan expressed the urgency of closing the valuation gap with US rivals like ExxonMobil and Chevron by the end of 2025, making it clear, "If we work through the sprint and we still don’t see the gap closing, we have to look at all options." This statement raises alarms about the viability of the LSE if high-value companies decide to jump ship.
This troubling trend paints a grim picture for the LSE and the broader UK economy, as companies increasingly find more favorable conditions to thrive overseas. Although London has long been considered one of the world’s leading financial hubs, recent trends point to its decline as firms navigate sophisticated international landscapes. The urgency is palpable as analysts monitor whether forthcoming FCA reforms will effectively attract new listings and stem the tide of company departures.
Stock market dynamics are shifting, with other exchanges like New York confident and ready to accommodate companies feeling undervalued or constrained under current UK regulations. The competition is fierce, and with every significant departure, the narrative becomes harder for the LSE to manage. The hope now rests heavily on potential new listings like Shein and strategic reforms initiated by the FCA.
For the LSE, the next few years will be pivotal. The exchange not only has to retain existing firms like Shell and fend off those contemplating exit strategies but also reinvent itself to attract groundbreaking initial public offerings. Only time will tell if the LSE can navigate through these turbulent waters successfully.