AJ Bell and Hargreaves Lansdown to bring IPOs to retail investors

Rick Steves

“Some 87% of all London listed companies which have raised money over the last 25 years have excluded ordinary investors despite the significant growth in retail investing in recent years.”

In a nod to the UK government and its intention to further the rights of retail investors, AJ Bell and Hargreaves Lansdown have launched a new retail share offer service to improve access to IPOs and ABB secondary fundraisings.

The new service was launched to help companies open up to retail investors, both at IPO and for follow-on capital raisings, and is designed as a compelling and accessible proposition that UK-based publicly listed companies will find increasingly difficult to justify ignoring.

Most UK PLCs exclude ordinary investors from fundraisers

While there has been significant growth in the numbers of retail investors in the market in recent times, the majority of London-listed companies raising money exclude ordinary investors.

The new retail offer service through REX changes that by enabling existing retail shareholders to participate in ABBs through their brokers in their dealing account (general investment account, ISA, SIPP, etc).

The service will also open up wider participation for retail investors in IPOs, who have accessed just 21 of the 182 IPOs between October 2020 and now.

Andy Bell, chief executive at AJ Bell: “The growing number of engaged retail investors in the UK should be viewed as an attractive source of capital for any company considering an IPO. The majority of them will be long-term shareholders investing via their pension or ISA and this can help create a healthy and diverse shareholder base. Many of them will also be customers of the listing company which can help generate further brand loyalty and deepen the customer relationship.

One of the problems is that companies are dissuaded from including a retail element in their IPO by their financial advisers because it is easier and quicker for them to place shares with the institutions that they know. This ignores the benefits of shareholder diversification, brand awareness and customer loyalty that can be gained by including retail investors in an IPO.”

Chris Hill, Chief Executive Officer at Hargreaves Lansdown: “Some 87% of all London listed companies which have raised money over the last 25 years have excluded ordinary investors despite the significant growth in retail investing in recent years. Existing investors miss the opportunity to buy additional shares at a discounted price and free from stamp duty and the transaction results in their existing shareholdings being diluted, a loss of value through no fault of their own. This has to change.

There has been some progress from the Government to support the retail investors. However, we are not there yet, and we are acutely aware that it is UK plc that still holds many of the cards around retail access to IPOs, company fundraisings, and the preservation of pre-emption rights.”

The announcement outlined how an accelerated book build (ABB) or retail offer works in five bullet points:

• If a London listed company chooses to conduct an ABB or IPO Retail Offer through this service, clients will be notified by their broker
• For ABBs, time is short and notification is usually the same day that instructions need to be placed
• Clients will be notified of the offer so they can then login to their online account to place an instruction
• Applications for ABBs will typically open after the market closes and close later that evening.
• Brokers will only allow existing shareholders to use this service to avoid more speculative trading

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