Reasons for UK Companies to Delist from the UK Stock Market and Relist on the US Stock Market

In recent years, a notable trend has emerged of UK companies delisting from the London Stock Exchange (LSE) and relisting on US stock markets such as the New York Stock Exchange (NYSE) or NASDAQ. This trend has sparked significant debate among investors, regulators, and market analysts. The motivations behind these decisions are multifaceted, reflecting both global economic dynamics and specific challenges within the UK market. This strategic shift is driven by a combination of regulatory, financial, and market factors that make US markets more attractive to certain firms. This article delves into the primary reasons behind this trend and explores the benefits companies seek in transitioning to US stock markets.

There are several reasons for delisting from LSE, to stick to the main ones, there are 3 fundamental issues that have arisen in recent years.

Market Valuation Concerns

UK companies have also expressed concerns about their market valuations on the LSE. Persistent undervaluation by the market can be frustrating for management and shareholders, particularly when the intrinsic value of a company is not reflected in its share price. Delisting can be an attractive option for companies seeking to avoid the volatility and perceived mispricing that can occur in public markets. By going private, firms can focus on long-term strategies without the pressure of short-term market expectations.

Brexit and Economic Uncertainty

The uncertainty surrounding Brexit has had profound implications for the UK economy, affecting investor confidence and market stability. Companies are wary of the potential economic disruptions and regulatory changes stemming from the UK's departure from the European Union. This uncertainty has made the prospect of remaining listed in the UK less attractive for some firms, prompting them to seek more stable environments for their operations and capital needs.

Changing Investor Sentiments

Investor preferences have also shifted, with a growing focus on sectors like technology and healthcare, which are often perceived as offering higher growth prospects. Traditional industries that have historically been well-represented on the LSE, such as financial services and energy, may struggle to attract the same level of investor interest. This shift in sentiment can lead companies in less favoured sectors to consider delisting as they seek more supportive funding environments.

On the flip side of the pond, to (re)list on the US Stock Exchange, the land of milk and honey is viewed attractive for several reasons, as follows.

Access to a Larger and More Diverse Investor Base

The global financial landscape offers numerous alternative listing venues that may present more favourable conditions for companies. US stock markets offer access to a significantly larger and more diverse pool of investors. The sheer size of the US financial market means that companies can attract a broader range of institutional and retail investors. This increased investor base can lead to higher trading volumes and better liquidity, which can enhance the overall marketability of a company’s shares. Additionally, the regulatory environments in some foreign markets can be perceived as more business-friendly, with fewer burdensome requirements compared to the UK.

Higher Valuations

Historically, US markets have tended to offer higher valuations for companies, especially in high-growth sectors like technology and biotechnology. The US investor community is often more receptive to innovative business models and long-term growth prospects, potentially leading to a higher market capitalization. For companies feeling undervalued on the LSE, relisting in the US can provide a significant boost to their market value.

Stronger Analyst Coverage

US stock markets benefit from extensive analyst coverage, particularly for technology, healthcare, and other high-growth industries. This increased coverage can lead to better market visibility and more informed investor decisions. Companies relisting on US markets can benefit from the attention of more analysts, which can improve the accuracy of market valuations and investor perceptions.

Favourable Regulatory Environment

While both the UK and the US have stringent regulatory requirements, some companies find the US regulatory environment more conducive to business growth and innovation. The US Securities and Exchange Commission (SEC) offers a well-established framework for public companies, and certain regulatory aspects, such as the Jumpstart Our Business Startups (JOBS) Act, provide accommodations for emerging growth companies. This can reduce the regulatory burden and facilitate a smoother path to public listing.

Greater Capital Raising Opportunities

The US markets are known for their robust capital raising capabilities. Initial Public Offerings (IPOs) and secondary offerings typically attract significant investor interest in the US, providing companies with substantial capital to fuel growth, expansion and innovation. Additionally, the presence of a vibrant venture capital ecosystem in the US can further support companies post-listing.

Market Prestige and Global Reach

Listing on a major US exchange such as NYSE or NASDAQ carries a certain level of prestige and can enhance a company’s global profile. The visibility and credibility associated with being listed on a prominent US exchange can help companies in attracting international partnerships, customers and top talent.

Sector-Specific Advantages

Certain sectors, notably technology and healthcare, have a strong presence and investor following in the US markets. For companies operating in these sectors, the US offers a more supportive environment with better access to sector-specific investors, analysts and industry events. This can lead to more accurate valuations and stronger investor support.

Strategic Considerations and Mergers & Acquisitions (M&A)

For UK companies with significant operations or ambitions in the US, listing on a US exchange can be a strategic move to align with their operational base and customer market. Additionally, being listed in the US can make it easier to engage in M&A activities, whether as an acquirer or a target, given the larger pool of potential partners and the relative ease of executing cross-border transactions within the US financial framework.

Conclusion

The recent trend of UK companies delisting from the LSE is driven by a complex interplay of regulatory, financial and market dynamics. For the UK financial market, this trend underscores the need for ongoing regulatory and structural reforms that ensures stability and to maintain its attractiveness as a global financial centre.

The decision to delist from the LSE and relist on US stock markets is driven by a combination of factors aimed at maximizing growth, valuation, and strategic opportunities. Access to a larger and more diverse investor base, potential for higher valuations, stronger analyst coverage, a favourable regulatory environment and greater capital-raising opportunities are key benefits that attract companies to the US markets.

While this move can offer significant advantages, it also comes with challenges²: navigating a new regulatory landscape and adapting to the expectations of US investors. Moving from IFRS reporting to US GAAP. Moreover, depending on size of the company¹, the deadlines for 10Q and 10K for a large group can be very tight and perpetually missing deadlines, will have the SEC breathing down both the CXO necks and comes with a big ding and a declaration why the company was late in delivering it results. Also, let’s not forget Sarbanes Oxley Act¹ that will require compliance, if the UK company’s escaped UK SoX which is coming to town in 2026.

Nonetheless, for many UK companies, the potential rewards of relisting in the US outweigh the challenges, making it a compelling strategic choice in the quest for growth and global prominence. Balancing investor protection with a supportive business environment will be crucial in retaining and attracting companies to the UK stock market in the future.

Dee Singh Kothari is a senior partner in Kothari Partners

¹ Emerging Growth Company: (revenues less than $1,2bil and not a large accelerated filer (i.e. public float of less than $700milion).

SOX 404 (a): Management to assess and report on the effectiveness of the company's internal controls over financial reporting.

SOX 404 (b): External auditors to attest to, and report on, the assessment made by management under Section 404(a).

Jobs Act 5 yr Exemption: It would generally exempt a new public company from compliance with section 404(b) for the first 5 years it is a public company as long as it does not exceed certain market capitalisation or revenue thresholds.

Transition exemption Yr1: The final rules provide all newly public companies with a transition period that prevents them from having to comply with the Section 404 requirements in the first annual report that they file after becoming an Exchange Act reporting company. 

² Contact Kothari Partners for a free confidential discussion on how we can help with your challenges.

At Kothari Partners, our approach is to help our clients understand their current situation, identify the value and decide on the scope, vision and set of strategies for what they could achieve for their business. We help plan their implementation and support them and deliver the solution/ change needed, so it is properly and permanently embedded in their organisation.

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