UK Investor Magazine: Datasite's Merlin Piscitelli on London as an IPO destination

• Datasite's Merlin Piscitelli compares London with New York, Europe and Asia for IPOs.
• Covers companies staying private longer and the FCA's listing reforms.

Datasite executives speaking with authority on deal markets, directly relevant to IPO and M&A buyers.

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For today's podcast, we're going to be taking a deep dive into London and looking at London as a destination for IPOs.

And to do that, we're very kindly joined by the Chief Revenue Officer of Datasite, , Merlin Piscatelli.

Merlin, thank you for being with us today.

Thank you, Jonathan.

Wonderful to be here.

So this is a podcast I've been looking forward to ever since we had it booked in.

But as we're recording this, we've actually had some very interesting news out earlier on today from the FCA, and that's something we're going to be discussing later on in the podcast.

But before we get into it, Merlin, please, would you be able to give us an introduction, first of all, to yourself and also to data sites, please?

.

Yes, of course.

My name, again, is Merlin Piscatelli.

I'm the Chief Revenue Officer for Europe, Middle East, and Africa for DataSite.

DataSite, we are a technology that facilitates the due diligence processes in the M&A world and also in the IPO world.

So as you're getting your company ready to list on an exchange, you're going to start working some 18 to 24 months in advance in preparing the associated documents .

this technology doing over 15,000 of these transactions a year.

So again, we're a leading indicator of what's going on in the marketplace.

Fantastic.

So I think, Merlin, a good place to start now would be is to take a broader approach when looking at London.

And we're going to follow on after that with more specific topics.

But to start with, it would be a good idea to get a flavor from where you're sitting, Merlin, at this point in time.

, what do you see as the biggest influences on companies when looking at London as a destination for listing?

Yeah, I think the allure of London is still there, right?

It is a financial capital of the world.

You know, call it number one, number two, number three, depending on what lens you're looking through.

So it is still an extremely attractive financial center.

And I think the markets here are extremely, they are truly attractive.

, a general flow of IPOs across the globe.

We've definitely seen that not be as attractive as it has been in, say, the past couple of years.

And we do see that as a cyclical flow over the 17 years that I've been in the industry and been in London.

You see those cyclical flows.

But I think it's a little unique right now in the sense of coming out of the pandemic.

And what we've seen this year is you've really just seen a lack of IPOs coming to the London market.

, you still see a number of them.

If you look at 299 global IPOs, you see a fair amount of capital raised in those IPOs.

So good companies that are built to go public are still going public.

You have a volatile backdrop of a market that has been volatile, and nobody likes to go public when it's in volatile markets.

You don't want to catch it on a downdraft.

You don't want to catch it on the wrong day, wrong week.

You could be penalized for that.

But when you think about London and the fact that there's only been four, in the first quarter and only raising 81 million pounds.

Seems like it's really we've hit the bottom of an IPO cycle as it relates to London.

So yes, indeed, I think IPOs in London down about 40% since 2008.

And we're going to be discussing that a bit later on in the podcast and how some of these proposals today from the FCA look to fix that.

But of course, in the headlines very recently, Merlin, holdings, of course, used to be a London listed companies before it was taken private.

And the plans now are for them to list in the United States.

I mean, how much of a blow was that for London?

And do you think that has something to do with what we saw this morning from the FCA and the proposals they're putting out there?

100%.

I think it's a huge blow for London.

You know, it really starts at the root, the core, .

You call it the tech roundabout here.

Not that they're in the tech roundabout.

They're actually located outside of that.

But they are one of those companies that everybody has been tracking and watching for a number of years and really felt it was a London homegrown opportunity and company that should be really listed on a London exchange.

And there's been a lot of time and effort put in by politicians and others to try to get that listing here.

, and are you going to maximize shareholder value?

And are you going to really get the fair value for a company and bringing it to market?

And I think that the exit value, if you will, and the listing value that they would get in the attraction of the U.

S.

market is just so much greater that they really just couldn't compete.

The London Stock Exchange and London markets couldn't truly compete with that, even though they tried all efforts to do that.

has a lot to do with governance.

And it has a lot of act, you know, and it's really that access to capital and that wider, wider breadth of capital that you get in the U.

S.

And then it's also, you know, from talking to people, it's it's the access to the retail investor, which is much more prominent in the U.

S.

than it is in the U.

K.

You have a three hundred and forty million population.

You have investors ranging from all sizes in the U.

S.

in the .

It seems to be much more concentrated here.

And so when I talk to clients like Arm, they look at that market as just much more attractive than London at this stage.

So when you're speaking to companies, Merlin, over the last few years, I mean, it would be good to get a flavor of some of the companies that you've been speaking to, apart from Arm, that have actually decided to list elsewhere instead of London.

.

I know you've outlined some of them there, but those specific companies have actually chosen to go elsewhere.

Yeah, I wouldn't want to name specific companies.

I'm in arms in the public domain and it's announced, but I wouldn't want to, because we've had London successes.

Well, I think it's sometimes it's hard to call a success or a failure, right?

Because if you look at the IPOs that happened in a hot market, call it 2022, you still had over 50%.

of those IPOs that went public that were trading at the end of last year below their listing price.

So, you know, yes, you had a lot of them that got off the ground and were successful listings, but they didn't actually perform well as a public company.

And then you have things like our companies like the THG, the Hutt Group, THG, that also had kind of and still are having a bit of a rough go as a public company where they're caught up in the volatility and the challenge of being a to your investor base and having that institutional pressure that's there.

So I think a number of those things are impacting the attractiveness of an IPO.

Let's be honest.

Is it attractive to be a public company?

Are all companies aren't built to be public companies?

They're not built to be reporting quarterly and to have that public scrutiny on them on a quarterly basis.

Sometimes you have very cyclical earnings.

.

And again, people are scrutinizing every move that you make.

And maybe you're not mature enough or built up a maturity in your business or the diversification of your business that allows you to be public.

So there's a question of, is it attractive to be a public company?

The other question is, where is it attractive to be a public company?

And where can you get your best shareholder value for early investors in that company?

.

I don't want to mention names, but there have been many that have chosen to go either the U.

S.

route or stay local.

And that's the other problem with London, right?

London used to be attractive for European companies.

And now you see it may be more attractive to stay in Paris, to stay in Germany, to stay listed on the OMX up in Stockholm.

They may get more value out of those exchanges than they do out of London, where London used to be the, call it the international, , first port of call before going to the US.

So when we're talking, Merlin, about staying private for longer, I mean, is that a trend that you see continuing going forward?

Of course, there's changes that are coming in from exchanges that want to make it more attractive to LISP.

But some of the issues there that you outlined about having to report to the market are particularly onerous for companies.

So do you think this notion of companies staying privately, for longer, is something that's going to persist and increase going forward?

Or do you think if we see changes within exchanges that it may halt that trend?

It's a very interesting time for that question because if you asked that question a year ago, money was so cheap, private equity is so prevalent, and there was so much access to capital in the private markets, obviously close to free.

So that was the competitive nature, .

on those changes.

.

That would make the going public more of an attractive exit route for early shareholders and founders and would be attractive to potentially then further that share price.

Because really, what are you doing?

You're accessing capital.

And so how can you access capital?

If it's attractive in the private markets, which it has been for the last so many years, the cost of that capital is very low.

So as you see that cost of that capital increase in the private markets, the cost of capital in the private markets versus the cost of being public and what that means to be publicly traded and all the regulations and filings that you have to do and the team that you have to build to be able to be a public company.

So I think that's a question being asked right now.

I know it's a question being asked right now.

And that question wasn't really asked if you think about it the last couple of years because you had so much mezzanine capital.

You had so much late stage capital.

and private capital, private debt that was available to you as a private company, that it was a better option for you.

So I think we're at the cusp of a potential change of that.

And I could see the IPO markets becoming more attractive as the regulation barriers come down, but also the cost of private capital going up.

So Merlin, now let's look at these proposals from the FCA.

I mean, just on the face of it, of course, you haven't had to dissect them all.

But do you feel they go far enough to make London a more attractive destination and competitively attractive compared to the likes of the United States?

I think they'll be scrutinized in the next few days, a few hours.

You know, at first glance, I don't think they're enough.

And I just I think that we're in.

I don't claim to be an expert in that.

.

So we just work with a lot of companies that are heading in that direction.

So speaking to a lot of general counsels and CFOs that are dealing with these and talking about what is attractive and what's not.

And you hear things about executive compensation.

You hear things about share structures that are allowed in the U.

S.

that aren't allowed here.

The scrutiny of some of the governance and things like that and some of the rules that are applied over here are are still considered extremely stringent.

And we had that happen before, right?

With Hong Kong was looking to take a lot of London's listings and they loosened up some of those regulations that people had to adhere to.

So people tilted towards a Hong Kong listing, which gave them access to capital from a different region and area of the world.

So I think you can't all of a sudden try to level the playing field.

, you have to go a step further and, you know, make yourself more attractive than the others because you are competing against the others.

And I think that's what people need to really think about is you are in a competitive world that people are competing for talent and everything else under the sun.

So now you have to compete for these companies to come to you and make your market attractive for them.

You can't just loosen things up from where they were and expect to be competitive.

I think you've got to go an extra step above .

So, of course, you have to get a different level of attractiveness that may not be there right now.

So, first glance, I don't think they're enough, but it's a step in the right direction, I would say.

So, of course, you just covered the regulatory side, but now I want to address, Merlin, if we may, the availability of capital here in London as a centre.

I mean, from where you're sitting, how has that changed over the last sort of five to ten years?

.

Yeah, I mean, I don't want to use the word and I don't want to get into a political debate, but I mean, it is 100% a knock-on effect of Brexit.

of Brexit in the years leading up to the actual implementation, anything over $100 million that needed to be financed essentially had to come through London.

There was no other option for European deals but to come through London at that ticket size.

You now start to see those ticket sizes being underwritten and financed and invested in whatever, you know, if you're going IPO or you run an M&A deal, is now being done out of other jurisdictions that used to just always rely on London for that.

Now, part of that is you have a lot of capital that moved from London and was now accessible within the European framework, whether that is through Dublin, whether that is through Paris, Frankfurt, Stockholm.

These financial centers have increased their investing power.

They've increased their footprint.

You have entire deal teams there that are able to originate and execute.

They no longer have to rely on London.

You also see, and people don't, again, talk about this much, but you see the strength of the Middle East.

I mean, if you look at the sheer number of IPOs, you look at what's going on in Dubai and Riyadh, you would look at the listings there, and they're having all-time record highs of listing.

Why access to capital in the Middle East and that access to that capital has shifted to that area.

You don't need to list in London to get access to that capital.

They're flush with capital.

in the Middle East.

So you're staying more local there.

And so that's kind of proliferating in giving London some challenges because they now, you know, they used to not really compete with other European financial centers because they were in that union.

Now they are competing against those other financial centers.

And then you bring the Middle East being, you know, really almost competing directly with London as a financial center versus, you know, being at a rung underneath London and thinking, , that they would compete with more Frankfurt, Paris, Stockholm, Milan.

They've now kind of almost sprung above them as financial centers.

So the competitive landscape, again, has changed.

And I think London has to look to do a lot more to up its game and to become relevant again, to be honest with you.

Yes.

So that's a pretty damning assessment there of London.

So we've obviously spoken there about the capital side of things.

, but when you're sort of looking really into its place in Europe, as you mentioned there, do you feel that companies could be looking at dual listings?

Now, obviously, this is not just applicable to Europe, but as you mentioned there, Asia.

Do you think that we could see more and more of the companies that are listed here in London looking at some of those financial centres and thinking, well, hang on, we're listed here in London, but we could be listed here in London and have another listing elsewhere and access capital there.

Is that a trend that you see continuing going forward?

Well, I don't know if it's a trend.

I wish it was a trend because I think that that could potentially keep more people on a London exchange and not have what we're seeing now as people essentially moving their listing, right?

That's a big deal versus being dual listed.

Yes, there's, again, costs involved with dual listings, .

If you look at something like Johannesburg and the JSE, it is required if you're a South African company to be dual listed.

So there may be something in that that if you are a UK domicile headquarter company that you have to be listed here and then you can then dual list in other exchanges that will give you, in some ways, the best of both worlds with a home listing and then a secondary listing that would give you potential access to other markets.

So it's an interesting topic to see if there's any changes in that area from a regulator , but also just from a structure of some of these deals.

And if that becomes attractive, I have not seen any trends in dual listings.

Only the ones that I see are more required to do that.

The only trend I see is in some ways the delisting and relisting in a more accessible market, which again, we need to stop that trend because we need to keep some of these good companies based here and listed here.

to attract more of them and then figure out a way to seek that international investment and access those funds that may be based in Asia or in the US that want to participate in that company.

So Merlin, just to finish off now, what are the three key things that you see that needs to happen here in London to make it a more attractive place to list in the future?

.

I'm going to start at the grassroots of it.

And I think underpinning all of this is really a lack of business incentives to drive the innovation engine that is needed to sustain the growth of companies.

And the urgency of that change really needs to come from the government.

We have to create that innovation that's going to create those companies that are going to have that, , you know, that are going to be listed companies that are going to, we're going to watch them flourish and grow and become household names outside of the UK, but globally.

So I, for me, it starts at the, the change that need to be made at the innovation investment and the business changes to make London extremely attractive for businesses to be here.

And that will then attract the talent that needs to be here because London is a great place to live.

It's, it's still a massive financial center, but we got to work on those kind of foundations.

pieces is number one for me.

I think then the second piece is the regulation changes that need to attract these companies.

And in business, whether it's tax changes and it's share structure changes, these need to happen because business have to look at it and say, this is how I can, we're competing.

We have to look at it as a competitive landscape and say, how do we compete against the U.

S.?

How do we compete against the Middle East?

How do we compete against?

and other Asian exchanges.

And I think we just have to spend a lot of time looking at the competitive landscape and say, we need to go above and beyond what others are doing to create that attractiveness.

So there's three in there, and that's really the competitive landscape and attractiveness.

It's regulation and business changes that need to take place at the government level.

And then it's grassroots and foundational investment in the innovation engine and the urgency around that to create , speed, and sustainable growing companies in the UK.

Thank you very much, Merlin.

So just one final point here.

You mentioned earlier on in the podcast that simply here in the UK, the retail investor isn't as active, and obviously there's not as many as the United States.

Is that a big consideration for companies when they're looking at London?

I think it is.

I mean, it's institutional at the foundational level, right?

You start with your inner , institutional investors, institutional investors that underpin any IPO or that underpin the large shareholdings, right?

And those are going to come through your funds and everybody's, you know, USA, you have your 401ks and you have your ISAs and things that are going to underpin that institutional shareholdings.

But then it is, yeah, it's, you have a population that is active investors.

And I think prior to some of the volatility post the pandemic, you had a big upswing in some of these eToro's and kind of self-trading without brokers.

That's probably a better word for that.

But you are essentially investing your own money.

And the volume is not that great here if you compare that to other markets where people are doing a lot more retail investing.

So you have the institutional that are underpinning it.

You have the icing on the cake, which is the retail that gets that engine up and going.

to start doing that.

And now that's been with the volatility has happened in the market.

A number of that, those retail people have been burned.

So you've taken some of them out of the game.

But it's in the U.

S.

You you're attracting people in their early 20s as they start to make some money.

They're getting involved in that in the equity game.

And then you have obviously big funds and a lot of that goes into that.

So that is a big.

.

.

That's great.

That's great.

Very fascinating, Merlin.

Thank you very much for being with us today.

Appreciate the time, Jonathan.

Hope you have a good rest of your day.

Yes, thank you very much.

And thank you very much to everyone for listening.

Thank you.

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