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Jul 06, 2013 04:49 PM IST | Source: ft.com

UK tech darlings shun London for New York

It heads a list of UK tech success stories that are turning their backs on a London flotation, and instead crossing the Atlantic in search of a billion-dollar valuation.

UK tech darlings shun London for New York

When six entrepreneurs tried to raise money for an online games business in London a decade ago, many investors simply put the phone down. Now it's the entrepreneurs' turn to hang up.


Their company, known as King and the owner of Candy Crush Saga, the most popular game on Facebook, is planning an initial public offering in New York, according to people familiar with the situation.


It heads a list of UK tech success stories that are turning their backs on a London flotation, and instead crossing the Atlantic in search of a billion-dollar valuation.


"The IPO market here is virtually non-existent [for tech companies]," says Bernard Liautaud, a partner at Balderton Capital, which has invested in companies including Wonga. "There are very few exit opportunities in Europe."


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King, which has moved from skill-based betting games to gentler puzzles, is understood to have appointed JPMorgan Chase, Credit Suisse and Bank of America to run its offering, expected as soon as this year.


Also looking to float in the US is Markit, a London-based data provider whose economic surveys are keenly watched by traders. The company was valued at USD 5 billion at its last round of investment in May.


King and Markit declined to comment.


The departure of high-growth British companies - dubbed the "tech-odus" - is not a new phenomenon.


But the latest wave is embarrassing, as it comes just months after the London Stock Exchange changed its rules specifically to attract technology start-ups.


High-growth companies are now able to sell initial stakes of 10 per cent, compared to the usual requirement of 25 per cent, leading the chancellor George Osborne to say the UK was "rolling out the red carpet to the world's fastest growing companies".


While the listing changes have been broadly welcomed, entrepreneurs says that London still lacks the tech-savvy investors to attract the next Facebook or Workday.


"There's an aspect an IPO as perhaps the most important marketing event in a company's life," says John Newton, founder of Alfresco, a software company based in Maidenhead, which is planning to list on Nasdaq or the New York Stock Exchange in the coming years.


"I know where the investors are. The investors are in the US. The analysts are in the US. The market makers are in the US. It's a no-brainer."


The number of tech analysts in London has shrunk in recent years, following the decline or acquisition of European companies such as Nokia and Autonomy.


"Companies like to list where they think investors have the best grasp of what their business is and they feel the US tech investor base is specialised whereas UK investors are more generalist," says one New York banker familiar with the deals.


The result can be a snowball effect.


"There's a higher probability that we would list in the US, because so many of the companies that look like are us are listed there," said Kris Hagerman, chief executive of Sophos, the IT security company, which is based in Oxfordshire.


Sophos tried to list in London in 2007 and 2009, and is now building up to a third attempt, although it says it hasn't decided on timing or location.


The US has seen a recovery in investment banking this year, while European markets remained weak.


The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused. Defenders of London's stock exchange argue that King, Markit and Sophos are global businesses, which now only get a slice of their revenues from the UK.


They also say that the impact of the change in the listing rules will have a gradual impact.


"We're not expecting that one lever is pulled and a flood of companies will come through the door," says Marcus Stuttard, head of London's Alternative Investment Market, which has had small technology companies such as Sheffield's WANdisco float successfully in recent months.


Both London's critics and supporters agree that once a company lists in the US its headquarters are likely to switch across the Atlantic too. "It's very hard to be quoted in the US without the management going there," said Mr Liautaud.


Index Ventures, an early-stage fund that is one of the biggest proponents of London technology listings, says it has 37 European companies in its portfolio that have combined revenues of USD 3 billion and are "IPO-capable".


Others that are candidates for a London listing include clothes company The Hut, delivery service Just-Eat, and games company Mind Candy.


However, several venture capitalists said they were cautious about the prospect of any major tech IPO in London this year.


"It's like a chicken and egg situation," says Robin Klein, a partner at Index. "We need to find one or two that are ready to jump."

London's search for a billion-dollar technology IPO continues.

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