The Great British Sell-Off: An Unhealthy Hollowing-Out of London's Public Markets

Another day, another trio of UK-listed companies falling to foreign takeovers. This past Thursday saw Bath-based Rotork, a manufacturer of safety valves, acquired by Swiss group ABB for £4.1bn. Gooch & Housego, a specialist in precision optics, was bought by a US investment firm for £346m, and financial services and pawnbroker firm Ramsdens was also taken over from the US for £230m. While these deals delivered “splendid one-day news” for shareholders, offering premiums of 73%, 41%, and 49% on pre-action share prices, collectively they represent “yet another depressing chapter in the tale of London’s incredible shrinking stock market.”

The scale of this capital exodus is starkly laid out in a recent Peel Hunt report, “Selling the Family Silver.” Since the start of 2023, a staggering £285bn in stock market capitalisation has departed London, contrasted with a meagre £6bn arriving. This imbalance stems from 154 bids for UK companies with a market value exceeding £100m, accounting for £165bn in outflows. An additional £120bn has vanished as seven large companies moved their primary listings, predominantly to the US. In stark opposition, only 11 new listings of companies worth over £100m have materialised, contributing a mere £6bn.

Despite the gravity of this trend, the response from politicians, regulators, and the stock exchange itself has largely been ineffectual. Numerous “earnest consultations,” “worthy taskforces,” and “worried reports” have led to some policy changes, such as revised UK listing rules allowing founders to retain “outsized voting power.” However, these have proven to be “minor fiddles and warm political vibes” that have “made no difference” to the underlying problem.

The consequence is a UK market described as “wide open to bidders” and “underpriced via international yardsticks.” Boards face sustained pressure to sell, and the global dominance of the US market, which commands approximately 70% of the world’s stock market value, means that liquidity inevitably “gravitates towards New York,” particularly for firms in the sub-£10bn bracket, which constitute the majority. This confluence of factors creates an environment ripe for opportunistic acquisitions, further exacerbating the hollowing-out.

This trend is not a benign market adjustment; it profoundly matters. A stock market is fundamentally designed to be a “critical way in which capital reaches wealth-creating assets.” While Rachel Reeves’s “Mansion House compacts and accords” aimed to boost capital flows, their definition of “productive assets” was “heavily skewed towards infrastructure and privately owned assets.” Public markets received little attention, beyond “an ineffectual cap on allocations to cash Isas and a stamp duty holiday for new listings.” This approach appears “doubly odd” given the Treasury’s ambition to boost “scale-ups,” which often rely on robust public market access for growth capital.

The “current hollowing-out” of London’s public markets is, by all accounts, “not healthy.” It signals a deep-seated structural issue in capital allocation, where the very mechanisms meant to channel investment into growth and innovation are failing. The long-term implications for the UK economy, particularly its ability to nurture and scale indigenous businesses, warrant a more fundamental and effective intervention than the current series of incremental, ineffective adjustments.