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Why London’s listing regime is not to blame for THG’s troubles

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On Monday the US reopened its borders to welcome Brits once more, and THG founder Matt Moulding has heard the message loud and clear.

“I should have IPO’d in America,” the boss of the Mancunian group told GQ last week in an extraordinary interview.

Instead Moulding chose London for The Hut Group’s 2020 float, where, since he announced the market’s largest listing in five years, his company has “been in the press a lot”. There “hasn’t been a positive day since IPO” for the business, he said, “it’s just sucked from start to finish”, and the lesson he takes from it all is “don’t IPO in the UK”.

To listen to Moulding, the venue on which his beauty and brawn-supplements online retailer traded is what would have made all the difference to THG’s performance as a public company (its market capitalisation has fallen from £5.4bn to £2.5bn, even after raising $1bn in extra equity in May).

Not doubts over the valuation of a tech platform division called Ingenuity Commerce, which generated £11.7m in revenues in the latest quarter but which previously underpinned the investment case for the entire group. Nor uncertainty over whether SoftBank will exercise an option to buy a 19.9 per cent stake in Ingenuity when it could buy 45 per cent of the whole company for the same price. And not slowing organic growth in THG’s core businesses.

Moulding is right that listing in the US might have had its benefits. He suggested he would have had “no profile” there and no one writing about him. That is probably true. If Cazoo, the UK-based online car reseller that went public in New York this year, had listed in London, it would no doubt receive far greater coverage. In London, it would be big enough to make it into the FTSE 100. Instead, Cazoo found itself a blank cheque vehicle, a $7bn valuation and a quieter time in the UK press.

But anonymity is not usually the aim of companies coming to market. Attracting investors is.

The traditional lure of New York’s capital markets over London is that they are deeper and support richer valuations. Investors there are meant to understand high-growth tech businesses better, tolerate founder-led businesses with unusual governance arrangements, and in Moulding’s telling show more support for conglomerates too.

Now, perhaps THG could have convinced fund managers to cough up more cash in New York. However, it hardly had difficulty doing so in London. Four cornerstone investors backed the company’s IPO. They included BlackRock, the Qatar Investment Authority and Janus Henderson; sophisticated investors able to write sizeable cheques. Before THG’s shares started their decline in September, Ingenuity was being valued at a premium to US-listed ecommerce companies Shopify and BigCommerce, calculations by Numis showed.

And while New York clearly does accommodate more readily founders who wish to retain control of their companies, THG was an example of how London can live with such arrangements when investors believe the price is right. True, THG was excluded from the FTSE 100 because of Moulding’s golden share, which gave him the power to block takeovers. Investors bought the issue anyway. Governance was not a problem so long as the going was good.

The trouble for THG is that the tech tinge that enabled its shares to trade where they did has faded. Unless SoftBank steps in to save the day, it will take considerable proof of the earnings potential of THG’s ecommerce platform to restore the group’s valuation.

If Moulding has suffered from the experience of listing in London, the London market may yet suffer too. That is unfortunate.

The London Stock Exchange needs more tech listings if it is to avoid becoming a collection of old economy assets. Wise and Darktrace are good examples, as is genomics group Oxford Nanopore. It is unhelpful to treat online retailers such as Moonpig Group or Made.com as if they were tech groups rather than ecommerce companies. THG may yet show itself to be a true tech platform. It has yet to do so satisfactorily.

There are plenty of reasons to reform the UK’s IPO process, as the LSE and government are looking to do. But poor price performance from THG isn’t the argument for doing it.

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