End of IP-“slow”?: The Hut Group halts London’s IPO lull with £4.5 billion flotation

September 23, 2020

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3 min read

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What's going on here?

Despite considering its options overseas, e-commerce retailer The Hut Group plans a London initial public offering (IPO) that would value it at around £4.5 billion, potentially the biggest listing of a British company in the UK since 2013.

What does this mean?

In potentially the first major IPO in London since the COVID-19 crisis started, The Hut Group (THG) is planning to go public on 16 September 2020. The IPO aims to raise around £920 million giving THG a pre-listing valuation of around £4.5 billion. This would make THG the biggest British listing since Royal Mail’s IPO in 2013.

THG has benefited from a major pick-up in online shopping as people stayed away from physical shops during lockdown. The Manchester-based retail company – which owns brands such as Myprotein, Lookfantastic and MyBag – saw its revenue increase by almost 36% in the first six months of 2020 compared to the same time last year.

Matthew Moulding, CEO and co-founder of THG, could have listed the company in the US and followed other UK-based retail technology groups like Farfetch onto the New York Stock Exchange, but insists listing in the UK “feels like the right thing to do”.

What's the big picture effect?

Only seven companies have carried out IPOs in the UK so far this year – the fewest since 2009. US and Chinese IPOs, meanwhile, have been booming. Strong demand from investors has produced a bumper crop of 125 IPOs on the US’s Nasdaq and 133 on Shanghai’s Star Market in the year to date.  

In the US’s case, it might be because its stock market is breaking records almost daily, while the UK’s hovers around 20% below its peak. This makes companies more inclined to sell shares and get a higher price in the States. 

As for China, it’s been benefiting from souring relations with the US: the country’s firms are “coming home” and IPOing on the Chinese and Hong Kong stock markets instead.

Why have stock market listings remained sluggish in the UK while the US and China’s are shining? 

Bankers have long argued that uncertainty surrounding Brexit has put the brakes on what would otherwise be a steady stream of deals in the UK. Investors are hungry for large, high growth companies, many of which see the US and Asia as better places to list. 

The tech sector is the prime example of this trend. Tech companies who have chosen to list in New York over London have seen higher valuations of their companies. By contrast, London has traditionally been a centre for financial and commodity stocks, both of which have been hit hard by the pandemic.

Having said this, UBS’ head of European equity capital markets, Gareth McCartney, points out that the UK may simply be a few years behind the US. McCartney believes the UK has a good base of private tech companies like Revolut and TransferWise but needs time to develop.

“The DNA is there; it’s just a question of maturity,” he said. London still “stacks up well” compared with other European exchanges.

Going forward, even if The Hut Group’s IPO proves a big success, one blockbuster deal on the London exchange is unlikely to cause the floodgates to open. According to McCartney, “[IPOs] will be slow and steady” for the foreseeable future in the UK.

Report written by Thomas Farrell

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