Editors' Pick: Originally published Dec. 30.
Bigger is better these days when it comes to initial public offerings and mergers and acquisitions in the United Kingdom. This year will be remembered for mega-listings and mega-deals, according to Jasper Lawler, market analyst with CMC Markets, who sees more of the same in 2016. Lawler said the IPO market this year was dominated by very strong performance from just a handful of companies.
"One of the interesting characteristics for IPOs in the U.K. for 2015 was that it was very heavily concentrated. The amount of value that was created for investors really was just within the best performing two stocks, which was Auto Trader and World Pay," explained Lawler.
According to data from the London Stock Exchange, as of mid-December, there were 85 IPOs in the UK this year compared with 137 the prior year. Out of the 10 biggest IPOs, Auto Trader and World Pay were the only IPOs to trade significantly above their offering prices.
Lawler said that performance will set the trend for 2016. Because investors have been burnt by some of the smaller listings, "it's going to be very difficult for smaller firms to raise money on the public markets." It's a similar story for the M&A market.
"'Much like in the U.S., it's been the year of the mega deals in 2015," said Lawler. "The environment is very, very ripe for these big companies in a sort of slow-growth environment."
There will be more consolidation in 2016, particularly in the pharmaceutical industry, he said. As for the U.K. stock market overall, continued weakness in commodity prices will likely weigh on stocks again in 2016. He added that other European stock markets are facing headwinds from the European Central Bank, which in December failed to enact more aggressive stimulus measures.