Heading up a company listed on the UK’s London Stock Exchange is a prestigious badge of honour and the London-listed market continues to draw executives of the highest calibre from around the world. But leading a listed company brings challenges too – scrutiny over pay, governance requirements and often intense public and media pressure.

Mike Trollope, Partner, within Eton Bridge Partners’ Interim Management Finance Practice explores the challenges and opportunities facing the UK’s public market in a series of blogs. In this first blog, Mike spoke to Marcus Stuttard, Head of AIM & UK Primary Markets, and Neil Shah, Head of Tech, Primary Markets, at the London Stock Exchange (LSE) together with contacts across his professional network to consider key developments in the UK’s public markets.

Global headwinds challenge IPOs, but market shows signs of recovery

London has seen a drop off in Initial Public Offerings (IPOs) from the high levels of three years ago, but the headwinds are not confined to the UK says Marcus; “The challenges of the last couple of years have been global, they are not specific to the UK, and they are not specific to public markets.” Having come out of the pandemic and seen a frenzy of activity in 2021, markets globally have had to readjust to higher interest rates. Looking at the levels of fund raising in the US, Europe and Asia, Marcus says those markets have seen drop offs of similar magnitudes to the UK.

Encouragingly, Marcus says that LSE has seen an uplift recently with over £21bn raised across AIM and the main market so far this year, more than the whole of 2023. The success in the London market in absorbing these chunky issuances demonstrates the depth here and its ability to not only support IPOs, but also the secondary issues. Marcus also points out that institutions have signalled that they are prepared to take shares off private equity (PE) in these sell downs. “That interrelationship between private equity and public markets is really important – we need both to be functioning properly,” says Marcus.

Meanwhile, Neil says the IPO pipeline for the London market is a lot stronger today than it was at the beginning of the year, in part due to interest from PE firms for potential floats. PE firms are coming out of a world of zero interest rates and some of their portfolio companies may have become too large for another PE buyer. The next buyer for some of these PE-backed businesses may well be a fund manager who buys into a market listing.

Growing calls to level the playing field on executive pay

London is Europe’s largest capital market with a deep pool of liquidity and the most diverse investor base of any major global exchange. But there have been concerns that remuneration for executives of UK listed companies is lower than elsewhere. Executive remuneration is a visible, and often thorny issue, with shareholder revolts over executive pay being relatively common in the UK. Top executives can earn far more across the pond with Schroders finding the average CEO in New York takes home $7.2m compared to only $1.4m for the average London-based CEO.

Concern that the UK could lose out on investment and talent have led to calls for UK executive pay to become more competitive. LSE’s CEO Julia Hoggett, writing in a blog, has called for a ‘constructive discussion on the UK’s approach to executive compensation’ flagging the role of proxy agencies in keeping executive pay here lower than in other regions, whilst the Investment  Association recently published updated executive pay guidelines that highlighted the need for ‘flexibility’ around pay structures.

Simplifying UK regulation to boost competitiveness

The regulatory burden can be perceived as weightier in the UK than elsewhere. The US, for example, is seen as having less stringent regulatory constraints and fewer restrictions on bringing high-growth companies to market. In a move aimed at increasing the UK’s global competitiveness, the Financial Conduct Authority (FCA) recently simplified listing rules scrapping the UK’s two-tier system of standard and premium listings. Maintaining a premium listing, which included membership of FTSE indices, came with extra requirements such as having to conduct shareholder votes before M&A. A single set of rules for all listed companies makes it more straightforward for companies to list here and better aligns the UK’s regime with international market standards.

Private Equity may not always be greener

Whilst we wouldn’t want to frame this as a private versus public market debate, there can be a perception amongst executives that private companies offer higher remuneration and less regulatory oversight. Though the potential for the executive team to receive high returns from PE payouts depends upon how successful the exit is, and is potentially harder to achieve now that interest rates are off their historic lows. We also see a far greater churn of CFOs in PE than in public markets, so it’s fair to say that public companies can offer greater stability.

Marcus also makes the point that the differential between disclosure requirements for private and public markets can be overplayed. He flags that CFOs of private companies may have to disclose frequently to their PE owners and the work that needs to be done to prepare is not dissimilar. Neil also comments that in public companies, investors can be pretty passive – if everything is going well, you may meet the investors only twice a year. To some extent, that may make it easier to ‘get on with the job’ in a public company than in a PE-backed one.

At the end of the day, it’s horses for courses. Both public and private companies offer opportunity and keeping both healthy and competitive benefits us all.

We would like to extend our thanks to Marcus and Neil for sharing their valuable insights on the UK’s public markets. In future blogs on this theme, we will be taking a closer look at some of the opportunities and challenges UK public companies face and how they can navigate the hiring environment to ensure they continue to recruit and retain leaders of the highest quality.

We look forward to sharing our next blogs in the series with you – in the meantime, please do get in touch if you would like to discuss your next steps in confidence.