Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

New share issues by U.K. companies ought to be one of the biggest casualties of Britain's vote to quit the EU. In fact, they may be getting a Brexit boost thanks to the extraordinary conditions in the European stock market.

Europe's summer is a quiet time for launching and pricing IPOs but the environment right now could scarcely be more benign for selling new stock. The EURO STOXX 50 Volatility Index hit a year low of 18.29 yesterday. Low volatility and IPOs are reasonably well correlated. Markets are rising too. The mid-cap FTSE 250 index is up 1.5 percent this year; the blue-chip FTSE 100 by 10 percent.

British IPO activity slumped ahead of the June referendum, with volumes down 51 percent in the first half. The "no" vote and subsequent market shock risked making that dip permanent. Listings that would have happened in a "Remain" scenario, such as TI Automotive, Bain Capital's car-parts maker, were reportedly put on hold.

The rapid market rebound has changed everything. Deals unheard of pre-Brexit are now active. Vista Equity Partners is preparing a possible $5 billion float of Misys, the British software group taken private in June 2012, Bloomberg News has reported. That bodes well for the resurrection of other deals when investors return from vacation in September. With U.K. monetary policy having only got more repressive, any new issue offering a dividend story will probably attract interest. A big test of the market's health would be an IPO of Telefonica's O2 mobile operator.

For companies already listed, these conditions may nevertheless be poor for opportunistic share placings. Volumes in the FTSE All-Share during morning trading have fallen steadily this month relative to their 20-day average, even as the index has added 2 percent. A big block trade might just fall flat.

Gone To The Beach
Mid-morning trading volumes in U.K. stocks seem to have entered a seasonal lull
Source: Bloomberg

That's a reminder of how delicately balanced the situation is. The U.K. market seems to have got a re-rating for the devaluation of sterling, without showing much concern for its cause: the risk of economic slowdown.

Altantic Crossing
Sterling's devaluation post the EU referendum has supported U.K. stocks' performance in 2016
Source: Bloomberg

August has been a challenging month for equities in recent history. So while conditions look perfect now for an IPO, they have to stay that way until everyone's back from the beach.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net