AJ Bell and Hargreaves Lansdown have launched a new retail share service to help retail investors in the UK get access to IPOs and ABB (accelerated book build) secondary fund raisings. The hope is that as more companies seek to open up to retail investors, both at IPO and for follow-on capital raisings, this new service will be a compelling and accessible proposition that UK plc will find increasingly difficult to justify ignoring.
REX is a technology platform for companies to access retail investors connecting issuers and investment banks to retail investors and their clients through the broker’s website or app. It is owned and operated by brokerage Peel Hunt. The collaboration of market participants using this service is being hailed as an important step towards the more equitable inclusion of retail investors in UK capital markets.
Retail investors and secondary fundraising
There has been significant growth in the numbers of retail investors in the market in recent times. However, the majority of London listed companies raising money exclude ordinary investors. Not only do existing investors miss the opportunity to purchase additional shares at a discounted price and free from stamp duty, but the fundraising transaction results in their shareholding being diluted.
The new retail offer service through the new platform changes that by enabling existing retail shareholders to participate in ABBs through their brokers in their dealing account (general investment account, ISA, SIPP, etc).
Increased access to IPOs
This service will also open up wider participation for retail investors in IPOs, as it will make it much easier for companies to connect with the retail investor. Currently, retail investors are almost completely ignored when it comes to the vast majority of IPOs, with access to just 21 of the 182 IPOs between Oct 2020 and now.
“The growing number of engaged retail investors in the UK should be viewed as an attractive source of capital for any company considering an IPO. The majority of them will be long-term shareholders investing via their pension or ISA and this can help create a healthy and diverse shareholder base. Many of them will also be customers of the listing company which can help generate further brand loyalty and deepen the customer relationship.”
Andy Bell, CEO, AJ Bell
UK plc should support the retail investor
Boards have an obligation to treat all shareholders fairly and to respect soft pre-emption rights so as to allow all shareholders (including existing retail shareholders) to participate in equity fund raises – this service now facilitates that inclusion.
The brokers said that boards of companies considering an IPO should look into the benefits of attracting a wider investor base. Retail investor participation in an IPO will give companies access to an additional source of capital and can generate increased demand for the IPO. It also presents them with the opportunity to raise the profile of the business and deepen relationships with loyal customers by treating them equally with institutional investors.
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Other advantages include a healthier shareholder base – most retail investors are long-term holders via pensions and ISAs and supportive of management, creating shareholder diversification and pricing stability.
One of the problems is that companies are dissuaded from including a retail element in their IPO by their financial advisers because it is easier and quicker for them to place shares with the institutions that they know. This ignores the benefits of shareholder diversification, brand awareness and customer loyalty that can be gained by including retail investors in an IPO.
“Some 87% of all London listed companies which have raised money over the last 25 years have excluded ordinary investors despite the significant growth in retail investing in recent years. Existing investors miss the opportunity to buy additional shares at a discounted price and free from stamp duty and the transaction results in their existing shareholdings being diluted, a loss of value through no fault of their own. This has to change. There has been some progress from the Government to support the retail investors. However, we are not there yet, and we are acutely aware that it is UK plc that still holds many of the cards around retail access to IPOs, company fundraisings, and the preservation of pre-emption rights.”
Chris Hill, CEO, Hargreaves Lansdown
How an Accelerated Book Build (ABB) or Retail Offer works
- If a London listed company chooses to conduct an ABB or IPO Retail Offer through this service, clients will be notified by their broker
- For ABBs, time is short and notification is usually the same day that instructions need to be placed
- Clients will be notified of the offer so they can then login to their online account to place an instruction
- Applications for ABBs will typically open after the market closes and close later that evening.
- Brokers will only allow existing shareholders to use this service to avoid more speculative trading