The U.S. is pulling in more companies from Europe looking to sell their shares.
The latest company to jump the Atlantic was the U.K.’s
Flutter Entertainment,
the parent of sports betting company FanDuel, among others. Flutter made its debut as a secondary listing in New York on Jan. 29 and immediately said it wanted to make that its primary listing.
Finnish sports-brand firm
Amer Sports,
the owner of Wilson tennis rackets and Salomon skis, listed in New York on Jan. 31. German sandal maker
Birkenstock
and British chip designer
Arm Holdings
listed in the U.S. last year. The percentage of foreign-domiciled companies on the New York Stock Exchange rose to 25% last year from 18% in 2020.
Bigger capital markets, a strong culture of retail investing, and an extensive record of investment performance are all part of the allure of the U.S. The
S&P 500
has outperformed the MSCI World Index over the past five years, gaining 78% compared with the MSCI’s 57% in the period. And the gap between the S&P and the U.K.’s
FTSE 100
or the
Euro Stoxx index
is even more pronounced.
Recent history shines a positive light on U.S. listings. Arm shares have surged to around $110 from $63 at its initial public offering in September, a 75% gain. Birkenstock, which initially fell from its $46 debut in October, is now trading at around $50. Flutter and Amer Sports shares have risen in their short time on the market.
Should more companies make the leap? Oil giants
BP
and
Shell
are trading at a substantial discount to U.S. peers
Exxon Mobil
and
Chevron
on a price/earnings basis, for example.
Not so fast, warns Kat Kravtsov, director of capital markets at consultant PwC in London. Metrics such as cash flow and return on assets remain the most important factors. “Investors are global, they can invest in any listing location they want,” he says. “More than ever, it’s the fundamentals that drive valuations. After that, companies can ask themselves, ‘which market understands my sector and my story better?’”
On that analysis, Shell or BP would be unlikely to gain a higher valuation simply by delisting from London and listing in New York. Their stories and metrics are well known, and U.S. investors already have the opportunity to hold their American depositary receipts.
Of course, not all European companies trade at a discount. The U.S.-listed pharmaceutical company
Pfizer
trades at 12 times forward earnings, and U.K.-based
AstraZeneca
trades at 15 times.
Michael Harris, global head of capital markets at the New York Stock Exchange, agrees that a U.S. listing isn’t for everyone. “It’s going to be a company-by-company analysis,” he says. “It’s not a light decision to decide where to list.”
While the U.K. is working on changing its rules for listings to make it easier for companies to sell shares, Brexit has taken some of the shine off London as the go-to place to raise money in Europe. The split between the U.K. and the European Union may also have hurt other financial centers on the continent such as Amsterdam or Paris, simply by creating two regulatory regimes that companies have to navigate.
European companies are drawn to the U.S. to access the greater liquidity in the market. The U.S. also tends to have more sophisticated investors, or highly specialized funds that are happy to pay a premium for shares in companies they see as promising. In particular, technology and life sciences firms might benefit from raising money in the U.S.
Arm is a case in point. It supplies
Apple.
It was taken off the London exchange in 2016, when Japanese investment firm
SoftBank
bought it. Aided by enthusiasm for artificial intelligence, the stock has seen a stellar performance since relisting in the States, popping after earnings in February and almost doubling since Jan. 1.
It helps to have a strong presence in the U.S. Birkenstock may be proud of its German heritage, but it was generating more than half its global sales in the U.S. before it decided to list in New York.
Financial trading platform
Plus500
has said it thinks it can get a higher valuation with a U.S. listing. In December, the largest educational company in the world,
Pearson,
said it should move to the U.S. from London to the U.S., where its biggest customers are and where it makes two-thirds of its sales. It doesn’t help that its U.K. stock price was basically flat all of last year.
That said, when asked for comment, a Pearson spokesperson says, “We are proud of our London listing and the access that it provides for investors around the world. We also have an ADR listing in the United States.”
A U.S. listing can give companies a bigger institutional following, the NYSE’s Harris says. And the large pool of U.S. retail investors is a bonus for companies that move. It’s a hard thing to beat. “The U.S. being much larger makes it more attractive to companies,” Harris says. “Momentum is likely going to continue to favor us.”
Write to Brian Swint at brian.swint@barrons.com
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