London’s stock market problem is bigger than the IPO drought

The stock is shrinking as well as the pipeline

The usual account of London’s decline begins with a thin calendar of initial public offerings. That is only the visible edge of the problem. A public market has to replace the companies lost through takeovers, mergers, transfers and voluntary cancellations. When exits persistently exceed arrivals, the quoted universe becomes narrower even if one successful flotation briefly improves the annual total.

The Financial Conduct Authority recorded 50 issuers delisting equity securities in 2025, against 26 new commercial companies admitted to the Official List. In 2024 the respective figures were 69 and 15. The categories are not perfectly symmetrical: delistings include shells and some non ordinary equity, while admissions can include administrative changes. The direction is nevertheless clear: attrition is not being replenished.

This is especially damaging below the largest companies. A smaller population means fewer sector comparables, less specialist research and less capacity for diversified portfolios in domestic growth businesses. Weaker coverage can then reduce investor attention and make a quotation less useful to the company that pays to maintain it.

Takeovers turn a discount into an exit

Acquisition activity is central to the contraction. A takeover can be efficient for shareholders and the economy. For the exchange, however, a completed cash acquisition usually removes an issuer, its free float and its future trading. The proceeds returned to shareholders do not automatically recycle into another London listing. If the buyer is private or quoted elsewhere, the market has converted a productive asset into cash without replacing the security available to domestic savers.

This mechanism extends beyond Britain. ESMA finds that acquisitions, mergers and takeovers account for more than half of delisting reasons on average for companies domiciled in the EU and UK. London’s problem is therefore an acute version of a European weakness, rather than an isolated failure of its flotation process.

The missing domestic bid matters

The demand side has changed as pension funds and insurers have reduced their ownership of British quoted equity. According to the Office for National Statistics, overseas beneficiaries owned a record 58.8% of UK quoted shares at the end of 2024. UK pension funds and insurance companies together owned only 2.8%, down from a combined 45.7% in 1997.

Global diversification and mature defined benefit schemes explain part of that shift, so the figures do not imply a return to former allocations. They show that London has lost a large pool of natural, locally informed buyers. A survey from The Pensions Regulator found that master trusts held 3% of their assets in listed UK equities at the end of 2025, compared with 62% in listed equities outside the UK.

With a thinner domestic bid, relative underperformance can reduce index weights and prompt further reallocation by global and passive funds. Lower valuations also make acquisitions easier to finance and encourage companies to consider other venues or private ownership. The discount is therefore both a symptom of weak demand and a mechanism through which the listed market loses assets.

Market quality is more than daily liquidity

London should not be described as mechanically illiquid. An FCA review of 50 accelerated bookbuilds worth about £32 billion found that the market absorbed transactions across a wide range of sizes without material effects on spreads or depth. The vulnerability lies instead in breadth and renewal: fewer quoted companies weaken price discovery across sectors, reduce public access to corporate growth and leave European investors with a less complete opportunity set.

Simpler listing rules can reduce friction, but cannot create sustained demand, prevent sound companies from accepting bids or rebuild the research economics of smaller shares. The healthier test is whether admissions and secondary capital raising outpace exits while ownership broadens and valuation gaps narrow.