Last week WE Soda — an industrial company and the world’s largest producer of natural soda ash — cancelled its plans for a London listing.
After a number of tech floats had previously chosen the US over London, a good deal of hype had been generated around this potential IPO, so many in the City were left disappointed when it fell through.
Like using tea leaves to divine the future, many then began to make claims about the wider significance of the news for London.
Over the weekend, WE Soda’s boss redoubled his criticism of London as a listing destination, along with the rest of Europe. “You get local support for domestic floats in the Middle East and they get done,” Alasdair Warren said. “In the US, you can always find a clearing level [to get a good deal] but here in London and Europe the institutions do not have the commitment to step up and take ownership.”
We ought to take care in how we react to stories like this though.
The reality of the corporate world is so often very different from how it might seem at first glance, and so far away from what we might like it to be.
Here, for example, many commentators were quick to say that this was a “huge blow to London” and it was being framed as something of a disaster for the City, and a sign that the UK is becoming a less favourable destination for listings as time goes on.
But, when you peer behind the curtain, the picture of exactly what went on becomes a little less clear.
We heard from one source, for example, that senior executives had “mishandled discussions with investors” and that there had been an imperfect roadshow.
Now that the dust is settling a little, we have heard yet more reports that while WE Soda is a strong and reputable company, investor confidence collapsed when agreements couldn’t be reached on price.
There was also speculation about investors not liking the monies being raised simply to pay down existing debt.
As to what the truth really was, we cannot say. We weren’t there, and neither were many of the other commentators taking a strong view.
But what exactly happened is somewhat beside the point.
The important lesson to take away is that any IPO is a confidential and complex corporate piece of work. We actually just don’t know what exactly went on behind the scenes.
The market loves to jump up and down in response to stories like this, but in reality, there are all sorts of reasons why a float like this might get pulled.
Many of those reasons are intrinsically linked to the companies and investors involved, and specific to their individual situations.
Failed IPOs can simply be the result of problems with a business or the timing of a flotation, and of course a business getting cold feet and worrying it would struggle to raise the necessary funds (which again could be for any number of reasons).
Another interesting point to consider, which we have seen no commentator address yet, is that listings can sometimes fail for “positive” reasons — like receipt of an offer to buy the business. We simply don’t know the context here.
And so we would urge caution to those rushing to write London off. The City has shown great strength and resilience in the past, and in our view will continue to do so.
Now, business-to-business cross-border payments group CAB Payments is in the spotlight, after doubling down on its plans to launch on the London Stock Exchange later this year. The company seemed unfazed by the WE Soda news, and in fact the chief executive Bhairav Trivedi said in a public statement that while the UK does need to increase its competitiveness to encourage companies to list, “some of it is a product of depressed public markets” and that “things are starting to look up”.
Its IPO is going full steam ahead and, if successful, that valuation could lead to close to £1 billion.
So we would like to propose an idea — instead of rushing to claim it’s all over for London, why don’t we all look at some of the good news, and encouraging signs, like the statement made here by Trivedi?
There is just as much proof to be read in those tea leaves as what transpired with WE Soda.
