Why Better Communications Could Improve UK Market Valuations

UK companies often receive lower valuations because of weaker investor confidence, cautious capital markets and fewer IPOs. While policy reforms are helping, better strategic communications and stronger equity stories can also improve investor sentiment and support higher valuations.

Recently I posted on the differences between US and European capital markets and the impact this is having on where businesses chose to list (spoiler alert: it’s generally not in Europe). In the days that have passed since then, the topic has once again come into focus. 

Why aren’t businesses listing on the London Stock Exchange?

According to a report in the FT, the UK government recently called in private equity firms to ask them why they are failing to list their British portfolio companies on the London Stock Exchange (LSE). 

As the FT points out, just seven companies this year have listed in London despite measures to boost home-grown listings such as stamp duty holidays, stock options for directors and lower free-float requirements.

The IPO drought is only part of the problem. The UK is also losing out as local firms are snapped up by overseas businesses. It’s estimated that since the start of 2023, 156 UK-listed companies with a combined market value of £169 billion have been acquired.

All this adds up to a significant loss of economic control for the UK, reduced tax revenues, and a brain drain as talented workers move overseas. Unless action is taken soon, the UK risks becoming an economic backwater, hemorrhaging influence and value to bolder markets overseas.

Part of the problem is that UK companies have become consistently under-valued relative to their international peers. British investors are risk averse. Whereas elsewhere startups and scaleups are seen as great ways to grow an investment, UK investors prefer proven long-term performance. At a retail level, UK citizens are cautious to a fault, often preferring cash ISAs to stocks and shares equivalents.

Can comms help turn the tide?

Changing investor sentiment won’t happen overnight. The UK needs a stronger narrative, one that gives investors confidence in the long-term growth potential of British businesses rather than focusing solely on downside risk. Better strategic communications can help reshape perceptions and support stronger market valuations. Rather than focusing always on what could go wrong, the debate needs to shift to the potential opportunities on offer.

Startups and scaleups themselves can play an important role in this shift. By being a little less British and being more confident in their future success, businesses can bit by bit eat away at investor reticence. In part, this means developing an “equity story” that clearly articulates the value proposition, highlights strong margins, and adds transparency to how the company uses capital to drive growth.

If the government is to achieve its growth ambitions, it needs to reinvigorate the London Stock Exchange. It is already putting in place a number of measures to do just that. However, the reboot of the LSE will only succeed if investors have the confidence to invest, and markets are able to set bold valuations. To drive that change we need a new and much more assertive narrative around the strength and potential of our enterprises.