UK Capital Market Insights
Our BDO UK Capital Markets Insights report analyses activity on AIM and the Main Market of the London Stock Exchange on a quarterly basis. We review transaction activity such as IPOs, fundraises, sector trends and significant deals.
In this update, our Capital Markets team digests Q1-22 in this interactive overview.
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Following a strong year for the capital markets in 2021, the first quarter of 2022 has been rather turbulent. Fundraising across both markets was impacted by geopolitical events in Ukraine.
In addition to global headwinds, heightened domestic concerns over inflation and the threat of a future UK recession further suppressed performance across both markets.
As a result, funds raised on the Main Market were the lowest since Q1-20 and for AIM the lowest since Q3-19. For context, both of these comparative periods were impacted by uncertainties relating to Brexit. Average fundraises across both markets were significantly lower than the preceding six quarters, with no transactions greater than £300m in size across either market in this period.
Despite this, there were still some positive signs for the UK markets. The FTSE fell less overall in Q1-22 than other major international markets and both the AIM and FTSE All-Share recovered somewhat into April 2022, albeit this has not been sustained into May.
Despite economic headwinds, a significant number of Q1-22 fundraises were driven by funds looking to invest in companies across the technology, renewables, real estate and natural resources sectors, suggesting that investors were still willing to back certain sectors. Furthermore, it appears that the investor community still has capital to deploy and, while the market for fundraises and new IPOs is expected to remain quiet in the immediate short term, we are aware of a queue of private businesses positioning themselves to IPO once the markets settle.
Key Facts and Figures: Q1 2022
Fundraising declined across both markets; combined fundraising was at its lowest since Q1-20, with no transactions over £300m in Q1-22
Amidst economic and geopolitical headwinds, the FTSE All-share index fared better than other international markets, ending just 2% down on its opening position for 2022
AIM indices declined sharply in Q1-22, as concerns over economic growth held back the high-growth market
Financial services (funds) performed strongly across both markets relative to other sectors, with investment in technology and renewables sectors attracting particularly strong interest
There were just ten new admissions on AIM and 17 on the Main Market, compared with 15 on AIM and 20 on the Main Market in Q1-21.
Main Market: Q1 2022 insights
While the FTSE indices ended the quarter just 2% down overall, there was significant volatility over the quarter. The FTSE declined nearly 10% at the beginning of March on the back of geopolitical events. The recovery over the remainder of the quarter was driven by the FTSE 100, as banking stocks and natural resources (which make up a significant proportion of that index) performed strongly on the back of expected rate rises and increased oil prices.
Funds raised on the Main Market totalled £1.9bn in Q1-22, the lowest since the same period in 2020 (Q1-20: £1.9bn), which was significantly impacted by the start of the Covid-19 pandemic, and substantially below the same period in 2021 (Q1-21: £4.9bn). That said, the reduction in funds raised was driven by a reduction in the average value of fundraises (£19.1m in Q1-22, compared to an average of £73m across the last six quarters), whereas the number of transactions remained broadly constant.
There were only 12 IPOs in Q1-22, compared with 15 in Q1-21. New admissions were largely in the financial services sector (£0.3bn in Q1-22), primarily through two transactions - Hiro Metaverse (investing in videogames and metaverse technology, raising £118m) and New Energy One Acquisition Corporation Plc (investing in low carbon technologies, raising £175m). No other new admissions raised more than £10m.
Further issues declined to £1.5bn in Q1-22, the lowest since Q1-20 (£1.4bn) as average fundraises were the lowest since the comparative period in 2020 (£18.7m in Q1-22, £16.8m in Q1-20, and an average of £55.8m across 2021).
The three largest sectors in Q1-22 were financial services (funds) (£1.5bn), real estate & REITs (£0.3bn) and healthcare & pharma (£0.1bn). No other sector raised more than £10m in total over the quarter. Financial services (funds) growth was mainly driven by the volume of transactions, with 121 transactions in Q1-22 (out of 206 total transactions). Financial services (funds) also had four of the five largest transactions in the quarter, with the only other transaction over £100m being LXI REIT Plc’s secondary fund raise.
AIM Insights: Q1 2022
The AIM All-Share continued its downward trajectory (which started in September 2021) and continued throughout Q1-22, falling nearly 20% in the quarter. The worst performing sectors on AIM were retail and healthcare & pharma. Conversely, natural resources and mining companies performed strongly relative to other sectors due to the increase in oil and commodity prices. However, the improvement in these stocks was not sufficient to offset the decline in retail and healthcare in Q1-22.
Total fundraising on AIM (£0.6bn in Q1-22) was the lowest since Q3-19 (which was impacted by concerns that Brexit deadlines would not be met and the wider impact of Brexit on the domestic economy). The decline in fundraising was driven by both a decline in transaction volumes (the lowest since Q1-20), and the value of average fundraises (which was in line with Q3-19). Average fundraises were £19.1m in Q1-22 (calculated on those transactions which raised funds), compared to an average of £73m across the last six quarters.
There were ten new admissions on AIM in Q1-22 raising £87m in total. This was the lowest number of new admission transactions since Q3-20, when markets were still recovering from the initial impact of the pandemic. Fundraises on new admissions were also at their lowest level since the beginning of 2020. The new joiners were primarily in the mining sector, reflecting the continued strength of commodity prices, and wider supply/demand dynamics.
Further issue fundraising of £0.6bn in Q1-22 was substantially lower than Q4-21 (£2.3bn) and the lowest since Q3-19. This reflected a decline in transaction volume, together with average fundraising proceeds being approximately a third of the previous quarter (Q4-21: £22.9m, Q1-22: £7.7m). The largest transaction in the quarter was a further fundraise by Marlowe Plc (£131m), in the Industrials sector, to fund a pipeline of acquisitions. All other transactions were less than £100m in value.
Industrials, driven by the Marlowe Plc transaction (above), was the highest grossing sector on AIM in Q1-22 with £0.2bn raised.