The maths on London’s IPO drought

One thing to start: High-profile investor Terry Smith has accused Unilever of misleading him over its divestment strategy and warned that the spin-off of its food business bears “all the hallmarks” of Nelson Peltz, the activist investor who has targeted the group.

And a scoop: Santander has overhauled its Asia-Pacific business under new management, removing its top banker in Beijing, tightening employee oversight and scrapping perks such as free breakfasts.

In today’s newsletter:

• London’s listings slump, continued

• The investors committed to private credit

• Wall Street’s hot yacht summer

Brexit from the London Stock Exchange 

An uneasy fact is casting a shadow over the arrival of an M&A boom in London: the dealmaking is being driven by foreign buyers scooping up UK companies, as DD noted yesterday.

Of the $324bn in total UK M&A value this year through late June, nearly $200bn of it came from overseas acquirers buying domestic assets. Unfortunately for those who want to see a thriving City, there is no sign that a wave of listings is coming to replace them. 

Exits from the country’s stock market have massively outpaced new listings this year, the FT’s Ashley Armstrong reports.

The value of bids for companies on the London Stock Exchange is 27 times greater than the value of new entrants so far this year, raising fresh fears about the shrinking of the UK’s public markets.

There have been just seven listings in the first half of this year, raising £577.2mn in total, according to EY.

The dearth of listings adds to angst over the UK’s position as a global centre for equity finance as it increasingly struggles to compete with Wall Street’s deep, liquid markets.

By comparison in the US there have been 72 listings raising $128bn in the first half of the year, dominated by the $86bn SpaceX float.

“Let’s not pretend the inflows of companies coming to London are anywhere near enough to make up for the outflows,” said Charles Hall, head of research at Peel Hunt. “We need urgent action to address it.”

The government, regulators and the stock exchange have tried to stanch the bleeding. They’ve sought to attract more companies to list in London by relaxing rules, including on free floats and disclosure requirements.

Andy Haldane, the former Bank of England chief economist advising the UK’s likely new prime minister, Andy Burnham, recently proposed removing tax incentives on pension investments overseas as a way to encourage a home bias in investment.

The City’s defenders point to a number of possible IPO candidates this year and claim that London is still outperforming Europe for capital raising.

Some potential London listings this year, such as a €19bn float of software group Visma and an IPO of online travel agent Loveholidays, were delayed by external factors such as the “SaaSpocalypse” and the Iran war. 

“The UK now has the least frictional listing regime in Europe,” said Mark Austin, a partner at Latham & Watkins who sits on the UK’s Capital Markets Industry Taskforce. “Popular reports of its death are, as Mark Twain said, greatly exaggerated.”

New companies on offer leave a lot to be desired. The £2.2bn total market value of the new listings this year was mainly driven by the float of a stake in Uzbekistan’s national investment fund.

Large investors go big on private credit

The private credit market has had a tough time of it recently, with direct-lending funds pitched to wealthy individuals suffering a spate of outflows that have triggered managers from Apollo to Morgan Stanley to limit withdrawals.

Retail investors have been spooked by a handful of large defaults, writedowns and worries about the funds’ exposure to the software sector given advances in AI. 

But institutional investors, the bread and butter of private capital, appear unmoved. In fact, they are looking to capitalise on the retail pullback. 

North American direct-lending funds pitched to institutional clients such as pension plans and endowments raised at least $16bn in the second quarter, according to Preqin data analysed by DD’s Alexandra Heal and Eric Platt.

The three months to June 25 were the second-strongest quarter in four years for fundraising by the “closed-end” funds, which raise money only once and have a finite life, unlike so-called evergreen funds pitched to retail investors. 

The hope is that as retail investors leave the market, less capital will compete to make the same loans, leaving the remaining direct-lending funds able to demand better terms.

“Retail money has pulled back from private credit as they have digested the reality of lower return expectations” for loans made in 2021 and 2022, said David Colla, global head of credit investments at the Canadian pension plan CPP Investments.

But “the returns are still respectable”, he said. The retail withdrawal had “left a gap in the private credit markets which institutional capital is filling”.

It is often said that institutional investors are more sophisticated than their retail peers. Perhaps the time has arrived when we find out if that is true.

Private capital’s LPs own the yachts, sort of

Infrastructure investors are known for seeking to buy essential assets with resilient businesses that can withstand various economic waves and tides. 

So it makes complete sense that they have turned their focus to a core part of the “K-shaped” global economy: yacht marinas.

On Monday the French investment group InfraVia agreed a more than €1bn deal to acquire the Athens-based premium marina group D-Marin, marking a hefty return for the sellers at private equity group CVC, DD’s Ivan Levingston reported.

And the sale of D-Marin was just the latest in a steady flow of deals in the sector. 

In April, the infrastructure investor Stonepeak agreed the acquisition of US group Southern Marinas, while last year Blackstone’s infrastructure arm struck a $5.6bn deal to buy Safe Harbor Marinas, the largest US marina group and superyacht servicing business.

While yacht marinas may seem quite different from the world of power utilities and airports, there are certain similarities. For one, much of their revenue comes from sticky annual rental fees for berths. And for two, there is persistent demand.

“We see a constant inflow of new boats in the Mediterranean Sea, and the regulations of building a marina are very tough. You have a structural supply-demand imbalance,” D-Marin’s chief executive Oliver Dörschuck told the FT. 

The world of yacht marinas is also a very fragmented market, offering private investors the opportunity to consolidate the sector, another favoured strategy. It also benefits from a world of rising wealth inequality and the ability to squeeze the rich to anchor at Monaco and Palm Beach.

Ultimately, it means that the answer to “where are the customers’ yachts?” is increasingly inside a private investment fund.

Job moves

• Lazard has appointed former Goldman Sachs partner Kathy Elsesser to its board of directors. Elsesser succeeds retiring board member Andrew Alper.

• Apollo has hired Jason Genrich as a partner and head of software. He was previously a partner at Elliott Management, where he was involved in the hedge fund’s investments in Hewlett Packard Enterprise and Crown Castle.

• Insurance group CFC has appointed former Aviva executive Adam Winslow as chief executive as the private equity-backed business explores strategic options including a potential listing on the London Stock Exchange.

• Dechert has hired Leahana Grimley as a corporate partner in San Francisco. She joins from Kirkland & Ellis.

Smart reads

Family money Bloomberg pulls back the curtain on the family office of the president of the United Arab Emirates, Sheikh Mohamed bin Zayed al-Nahyan. Thought to manage tens of billions of dollars of assets, the secretive fund finances dealmaking around the world.

The fixer When Silicon Valley has a problem, it’s likely that Mark Dyne is the guy called in to solve it, The Information reports. He’s advised such important names in tech as venture capital firm Andreessen Horowitz and private equity firm Silver Lake.

Shipping bonanza A number of Greek shipping companies have made huge revenues transporting Russian oil in recent years, the FT writes, even as G7 countries attempt to curb Moscow’s energy revenues.

News round-up

Thames Water creditors willing to bid for utility even if it is nationalised (FT)

Aberdeen-backed internet provider seeks buyer after steep losses (FT)

Airbus to make first foray into engine manufacturing with hydrogen tie-up (FT)

Disney accuses US media regulator of trying ‘to sit in the editor’s chair’ (FT)

SpaceX wins bullish recommendations from Wall Street banks (FT)