Why Companies Are Leaving the London Stock Exchange

Two years ago, 88 companies left London's main market or moved their primary listing abroad while only 18 joined, the largest net outflow since the financial crisis, according to EY figures. That is a net loss of 70 companies in a single year.

Watch it play outFor every company that joined, almost five left

Two years ago, 88 companies left London's main market or moved their main listing abroad.

Only 18 new companies joined.

Set the arrivals against the departures and the market shrank by 70 companies in one year.

Replay

There are three ways out, and each has a different cause.

Three exits, three different causes

1. Low London valuations (FTSE 100 at a 37% discount) to Takeovers (Buyers pay a premium for cheap shares)
2. Low London valuations (FTSE 100 at a 37% discount) to Moves to New York (Firms chase US investors and indexes)
3. Low London valuations (FTSE 100 at a 37% discount) to Delistings (Thin trading, extra cost)
4. Takeovers (Buyers pay a premium for cheap shares) to A smaller London market
5. Moves to New York (Firms chase US investors and indexes) to A smaller London market
6. Delistings (Thin trading, extra cost) to A smaller London market

Takeovers follow from cheap prices. The FTSE 100 traded on 13.1 times the next twelve months' expected earnings earlier this year, a 37% discount to the S&P 500's 20.8 times, AJ Bell calculated, wider than the 33% average gap of the past decade. That multiple, the price-to-earnings ratio, is what a buyer pays for each pound of profit. When a US buyer can pay a big premium and still pay less than a US company would cost, bids follow.

Moves to New York are mostly about where the business is and who owns the shares. A company that earns most of its profit in America wants US index funds, US analysts and US shares to pay for US acquisitions.

Delistings are the quiet exit. Companies with a second listing in London, often foreign groups, find that few shares trade there and that the paperwork costs more than it is worth. Marsh McLennan, Woodside Energy, TUI and Just Eat Takeaway all dropped London for that reason, Reuters' tally shows.

Which companies moved their primary listing to New York?

The list is short but heavy. These were some of London's biggest and fastest-growing companies.

London's biggest departures came one after another

1. A decade agoSoftBank buys Arm£24.3bn takeover ends 18 years on the LSE
2. 4 yrs agoFergusonPrimary listing moves to New York
3. 3 yrs agoCRH, then ArmCRH moves; Arm picks Nasdaq for its IPO
4. 2 yrs agoFlutter, Smurfit WestrockBoth make New York their primary home
5. Last yrIndiviorDrops London entirely
6. This yrAshtead, Wise; Flutter exitsSunbelt and Wise list in the US; Flutter leaves London

Ferguson, the plumbing and heating distributor, moved four years ago. Its business is almost entirely North American. CRH, the building-materials group, followed three years ago. Arm, the Cambridge chip designer that SoftBank bought for £24.3 billion a decade ago, came back to the market three years ago on Nasdaq, not London. Its IPO raised $4.87 billion at $51 a share and valued it at $54.5 billion.

Flutter, owner of Paddy Power, Betfair and America's FanDuel, made New York its primary market two years ago. This summer it cancelled its London listing altogether, ending almost 26 years of trading there that began with Paddy Power's IPO. Its last London close was £75.88. Smurfit Westrock, the packaging group formed when Smurfit Kappa merged with America's WestRock, listed in New York two years ago and dropped London this summer.

Ashtead, listed in London for four decades, became Sunbelt Rentals Holdings on the New York Stock Exchange earlier this year, keeping a secondary London line. Nearly all of its operating profit comes from North America. Wise, the payments company and one of London's few large tech listings, began trading on Nasdaq this spring. Its chair said the US "gives us better access to the world's deepest and most liquid capital market."

Not everyone is going. AstraZeneca, one of the FTSE 100's largest companies, added a direct listing in New York earlier this year but kept London. Our piece on AstraZeneca's US listing covers that halfway house.

Did companies get higher valuations after leaving London?

This is the claim behind every move: list in New York and US investors will pay more. We checked each mover's share price from the day of the switch (or Arm's IPO) to the latest close and set it against the S&P 500 over the same stretch. These are price returns in dollars, without dividends.

Most movers trailed the US market after switching

Share price since the switchS&P 500, same period

−100−5050100150%0

111%22%

IndiviorShare price since the switch111%S&P 500, same period22%

79%95%

FergusonShare price since the switch79%S&P 500, same period95%

45%80%

CRHShare price since the switch45%S&P 500, same period80%

1%13%

SunbeltShare price since the switch1%S&P 500, same period13%

−23%5%

WiseShare price since the switch−23%S&P 500, same period5%

−61%48%

FlutterShare price since the switch−61%S&P 500, same period48%

IndiviorFergusonCRHSunbeltWiseFlutter

Two winners, five laggards. And the two winners have stories that have little to do with the exchange. Arm's market value is now about $314 billion, nearly six times its IPO price, as investors bet on its role in AI chips. Indivior is a US-focused drugmaker whose shares more than doubled after it dropped London. Neither proves that New York created the value.

Did CRH get a US valuation?

CRH is the cleanest test, because it moved for valuation and has US-listed rivals. It did get a lift at first: the shares more than doubled within about two years of the switch. Then they fell back. Today CRH trades on about 14 times forward earnings, while Vulcan Materials and Martin Marietta, the two big US quarry owners, trade on about 25.

Three years in New York, CRH still trades at half its US rivals' multiple

Martin Marietta25.6x

Vulcan Materials25.4x

CRH14.0x

Forward price-to-earnings ratio at the latest close.

That is not a perfect comparison. CRH owns more lower-margin businesses, such as asphalt and building products, than the pure quarry companies. But that is the point: investors value the business, not the ticker. Moving to New York did not turn it into Vulcan.

Since the switch, CRH's share price is up 45%. The FTSE All-Share, the broad London index, is up 36% over the same stretch, and the S&P 500 80%. CRH beat the market it left and trailed the one it joined.

What went wrong at Flutter and Wise?

Flutter shows that a US listing doesn't shield a company from its own problems. Its shares rose in New York at first, then fell. In the latest quarter, adjusted EBITDA fell 45% on higher taxes and spending, and the company cut its guidance and said its chief executive would leave. Its market value is about $13 billion.

Find the number

Flutter's shares have fallen 61% since it made New York its home. Which number explains most of that?

Flutter, latest figures

Last London closing price£75.88That is just where London trading stopped. Leaving London didn't move the business.Change in adjusted EBITDA, latest quarter−45%Profit is what investors pay for. Higher taxes and spending cut it almost in half, and the shares followed.Forward price-to-earnings ratio12.7xThis is a result of the fall, not a cause. A lower multiple means investors expect less.Market value$13bnAlso a result. It is what is left after the fall.

Tap the line you think is the tell.

Spotted it.Not that line. Profits. Adjusted EBITDA fell 45% in the latest quarter. New York investors marked Flutter down for the same reason London investors would have.

Explain every lineHide the other explanations

Wise closed its first day on Nasdaq at $15.40. It now trades around $11.81, down 23%, while the S&P 500 is up 5% over the same stretch. Its business kept growing: net revenue rose 19% to $2.5 billion in its last financial year. But a growing company on a new exchange can still fall.

The LSE's own count points the same way. Of the 21 UK companies that listed in the US over the past twelve years, Fortune reports, 13 have since delisted, four are trading up, and four are down an average of 71%.

How are takeovers draining the London market?

Takeovers take companies out one at a time, but steadily. Total UK merger and acquisition value more than doubled to £124.2 billion ($167.8 billion) in the first half of this year, according to PwC figures cited by Fortune. Many of the targets were London-listed companies sold at large premiums to their market price.

• Schroders, the fund manager, agreed earlier this year to a £9.9 billion takeover by Nuveen of the US.
• easyJet accepted a £5.7 billion cash bid from Apollo, the US private equity firm, at 715p a share, 81% above its price before bid interest became public. It will leave the market once regulators approve.
• Spectris, the precision-instruments maker, first agreed to a £4.4 billion deal with Advent at an 85% premium last year. KKR then outbid Advent and took it private.
• Alphawave, a chip-connectivity designer, sold to Qualcomm at 183p a share, nearly double its price before the deal became public.

Bidders paid 80% or more over London prices

Spectris (Advent)85%

easyJet (Apollo)81%

Offer price over the share price before bid interest became public.

Those premiums are a big one-off gain for shareholders. They are also a sign that the buyers think London priced these companies too low. Each deal takes a company, and its future returns, out of the UK market. We look at who is buying, and why, in the UK takeover wave.

How weak are London IPOs compared with New York?

Weak, though not as weak as two years ago. London had 18 IPOs raising £777.7 million two years ago, then 23 last year raising £2.1 billion, EY counts. Almost all of last year's money came in the last three months. For one stretch of three months, the main market had no new listings at all. The US had 223 IPOs last year, raising $45.5 billion.

The US had almost ten times as many IPOs as London last year

501001502002500

223

23

USLondon

The LSE's chief executive, Julia Hoggett, says London has its largest IPO pipeline in about two decades and argues that "commentators have mistaken a global structural shift for a specifically British problem." She has a point: the US averaged more than 300 IPOs a year in the two decades before the turn of the century and managed only 90 last year, by Fortune's count. Companies everywhere stay private for longer. But that doesn't explain why the biggest London companies are leaving.

What has the UK changed to win listings back?

Quite a lot, all aimed at making London easier for companies.

The FCA's new listing rules

Two years ago the FCA replaced the old "premium" and "standard" listings with a single category for commercial companies. Shareholders no longer vote on large deals or on deals with insiders. Founders can keep extra voting shares. Investors pushed back hard against both changes. Votes are still needed on reverse takeovers, where a listed company buys a bigger one, and on leaving the market.

The new rules shifted power from shareholders to boards

Old premium listing

• Shareholder vote on deals of 25% or more
• Vote on related-party deals
• Dual-class shares tightly limited
• Two tiers: premium and standard

vs

New single category

• Announcement only for big deals
• Board approval and adviser opinion on insider deals
• Founders can keep enhanced votes
• One category for all commercial companies

Stamp duty relief for new listings

The UK charges 0.5% stamp duty on most purchases of UK shares: £25 on a £5,000 purchase, £500 on £100,000. The US has no equivalent tax. Last year's Budget created UK Listing Relief, which exempts shares in newly listed companies for their first three years. AIM shares were already exempt. The Treasury expects it to cost £25 million in its first year, rising to £50 million.

Stamp duty is a small cost per trade, and only new listings escape it

Pick a purchase size and the kind of company

Shares bought

£5,000£20,000£100,000

Company

Existing listingNew listing

Stamp duty paid£25£0£100£0£500£0

£0£500

PISCES

PISCES, the Private Intermittent Securities and Capital Exchange System, lets investors trade shares in private companies at set auction windows. The FCA approved the LSE as the first operator last year, and the first trades happened earlier this year. It is a trial that runs to the end of the decade. Think of it as a stepping stone to a listing. It could also let growing companies stay private for longer.

Mansion House and the pension money

The biggest problem is demand. A quarter of a century ago, UK pension funds held 53% of their assets in UK shares. The latest estimate is 4.4%, New Financial found, and private-sector final-salary schemes hold just 1.4%. Since the turn of the century, the share of the UK market owned by British pension funds and insurers has fallen from 39% to 4%, by New Financial's earlier estimate.

UK pension funds have almost stopped owning UK shares

25 yrs ago53.0%

3 yrs ago6.1%

Latest4.4%

Share of UK pension fund assets in UK equities.

Last year's Mansion House Accord committed 17 of the largest workplace pension providers to put at least 10% of their default funds into private markets by the end of the decade, with 5% in the UK. The Treasury said it could unlock up to £50 billion, around £25 billion of it for UK businesses and infrastructure. Ministers have also pushed small pension schemes to merge into large "megafunds" that can invest in large projects.

The Mansion House Accord targets private assets, not listed shares

17Pension providers signedAbout 90% of active workplace savers

10%Default funds in private marketsBy the end of the decade

5%Of which in the UKUp to about £25bn

Notice what the Accord counts: unlisted shares, property, infrastructure and private debt. Not one pound of it has to go into the London stock market. A similar earlier pledge had only 0.6% of funds in qualifying assets by last year. Fortune notes that pension tax relief costs about £50 billion a year and ISA relief about £9 billion, with no requirement to buy any UK shares.

Is London's decline reversible?

Partly. The rule changes deal with what companies complained about, and the IPO numbers have recovered from their low point. But the big moves to New York were companies following their customers and their owners. Ferguson, Ashtead and Flutter earn most of their profit in America. No rule change in London brings that back.

What could change the trend is British money buying British shares again. That needs pensions and ISAs to lean back towards the home market, which ministers have so far avoided forcing. The new chancellor's first Budget is the next chance to change that, and nothing announced so far points that way. Until that happens, the UK will keep losing companies to takeovers at prices below what foreign buyers think they are worth.

Check the claimThree claims about companies leaving London

ClaimMoving to New York gets a company a higher valuation.Tap to checkMythFive of seven big movers trail the S&P 500 since switching. CRH still trades on about 14 times earnings, against about 25 for its US rivals.Flip backClaimLondon's IPO market has dried up completely.Tap to checkMythLondon had 23 IPOs last year raising £2.1bn, up from £777.7m the year before. Weak next to the US, but recovering.Flip backClaimTakeovers are a big part of the shrinkage.Tap to checkFactUK deal value more than doubled to £124.2bn in the first half of this year, and Schroders and easyJet are leaving to buyers, not to Wall Street.Flip backClaimThe Mansion House reforms will push pension money into the FTSE.Tap to checkMythThe Accord targets private markets. Pension funds hold just 4.4% of assets in UK shares, and nothing in it requires more.Flip back

What does it mean for UK investors?

Three things. First, the London market is becoming less of a growth market. When Arm, Wise and Flutter leave, the FTSE is left with more banks, oil, miners and consumer staples. A UK investor who wants growth now has to buy it abroad, which an ISA allows.

Second, the discount pays in a different way. Takeover premiums of 80% or more are real money, and cheap shares paying dividends compound. The FTSE 100 yields about 3.2% against 2.1% for the S&P 500, AJ Bell estimates. The catch: when a bid comes, you sell your winners on the buyer's terms.

Third, if a UK holding of yours announces a move, don't count on a re-rating. Look at where its profits come from and what US rivals trade at. The record says the business decides the price, not the exchange.

What are the caveats?

Our return figures are prices only and leave out dividends, which favours the S&P 500 a little against high-yield names. Start points differ, so each company faced a different market. Takeover premiums are measured against prices before bid interest became public. The LSE count includes all types of listed company, not only operating businesses.

Our read

London's shrinkage is real, and the moves to New York are the least important part of it. The companies that left were mostly American businesses with a British address, and the data shows the move rarely bought them a better price.

The bigger leak is takeovers, and behind them sits the real cause: British savers no longer buy British shares. Pension funds went from 53% in UK equities to 4.4%. A market that loses its natural buyers will be cheap, and cheap companies get bought.

The reforms are sensible but aimed at the wrong end. Listing rules, stamp duty relief and PISCES make it easier to come to London. None of them creates new buyers, and the Mansion House Accord steers pension money towards private assets. We don't expect the count of listed companies to return to anything like its old level.

For investors, that is not all bad news. A market priced at a 37% discount, under steady takeover interest, can be a good place to own shares. Just don't own only that market, and don't pay up for a stock because it says it is moving to New York.

Go deeper

• Valuation and expectations: how to tell whether a lower multiple, like CRH's against its US rivals, reflects the business or just the market it trades on.
• Multiples and normalization: compare a London stock with US peers fairly before you assume a re-rating.
• Position sizing and portfolio: build a portfolio that doesn't depend on one shrinking home market.

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