[Edaily Marketin YunJi Kim Reporter] Although the British government is moving to relax listing regulations and provide tax incentives to revitalize the London stock market, exit activities by global private equity (PEF) firms are bypassing the London market. While sales to other private equity firms or strategic investors (SIs) remain the primary means of exit, there is a growing trend of even PE portfolio companies pursuing IPOs opting for overseas stock markets rather than London. Furthermore, with an increase in transactions where PE firms acquire London-listed companies and delist them, the UK government’s efforts to revitalize the stock market appear to be at odds with the trends in the private equity market.

According to global market research firm PitchBook on the 12th, only eight UK companies that received private equity investment over the past five years have launched IPOs in their home country. So far this year, there have been no instances of private equity-backed companies listing in London. UK-based alloy parts manufacturer DPC Holdings and resource exploration firm Metatech went public this year, but both chose overseas stock markets.

While an IPO is not the primary exit strategy for private equity firms, the London Stock Exchange has historically served as one of the main channels for them to realize returns. According to PitchBook, from 2016 to 2021, there were at least 10 listings per year of global private equity portfolio companies on the London Stock Exchange. However, since 2022—a year marked by a confluence of interest rate hikes, inflation, and the fallout from the war—the number of private equity-backed company listings in London has dropped significantly to single digits.

In fact, British companies’ preference for their domestic stock market is rapidly declining. The proportion of UK companies listed on the domestic stock market fell from 71% in 2019 to 46% last year. In fact, since 2022, there have been more delistings than new listings on the London Stock Exchange (LSE). Against this backdrop, “take-private” transactions—in which private equity firms acquire listed companies and convert them into private entities—are actually on the rise. In the first half of this year, take-private deals accounted for approximately 20% of the total value of UK private equity transactions. This represents a significant increase from the same period last year (13%).

As the IPO market contracts, PE firms’ exit strategies are also shifting. There is a growing trend toward relying on secondary buyouts—selling portfolio companies to other PE firms—or sales to strategic investors (SIs), rather than listing them on the stock market. In fact, six of the top 10 largest UK PE deals in the first half of this year were secondary buyouts. A prime example is the transaction in which Macquarie Asset Management acquired Energy Asset Group for $1.5 billion from existing investors, including EDF Invest and Asterion Industrial.

For several years now, the UK government has been lowering the barriers to listing in an effort to attract companies back to the London Stock Exchange. In fact, the UK Financial Conduct Authority (FCA) has streamlined the process for companies to exchange information with financial institutions while preparing for an IPO and has introduced a plan to exempt newly listed companies from stamp duty for three years.

It is against this backdrop that the government has reached out directly to major private equity firms. According to foreign media reports, the UK Treasury recently met with major private equity firms such as CVC Capital Partners and EQT to discuss the reasons behind the decline in London listings by their portfolio companies. This marks a shift from merely tweaking listing regulations and tax incentives to directly examining the decisions of private equity firms that actually hold the assets up for sale.

However, it remains to be seen whether fund managers will once again choose IPOs as an exit strategy. Unlike IPOs, where a company’s valuation can fluctuate significantly depending on market conditions, secondary buyouts or sales to strategic investors (SIs) allow for direct price negotiations with the buyer. Since this also avoids the burden of managing stock prices after listing, analysts explain that the more volatile the market becomes, the more realistic a sale may be as an option for private equity firms.

The report stated, “While the London Stock Exchange is struggling to attract new companies, it is simultaneously facing a trend where even existing listed companies are being acquired by private equity firms and converted into unlisted companies,” adding, “Although the British government is rolling out incentives to encourage listings, private transactions remain more active in the private equity market.”