Malin Corporation, a biotechnology investment firm co-founded by Ex-Elan CEO Kelly Martin following the sale of the pharmaceutical company to US-based Perrigo for €8 billion ($8.6 billion) in 2013, joined the Irish stock market with high expectations nine years ago. The initial plan was straightforward: to fund a handful of potential firms, keep operational expenses low, and anticipate profitable returns.
After its initial public offering, the firm’s share value increased by 50% in the first 15 months. However, concerns started to arise regarding the diverse range of investments in biotech start-ups and Malin’s extensive administrative expenses. Martin was subsequently sacked in late 2017, and a strategic reassessment in 2018 – following major managerial and board reorganisation – narrowed down the priority investments to just a few.
Since the end of 2021, Malin has reimbursed shareholders with €236 million in profit from sold investments, including stakes in cancer research company Immunocore and eczema-focused Kymab. The remaining portfolio is valued at €124 million.
Currently, with a market capitalisation of just €113 million, Malin is the smallest component of the Iseq 20, an index set up 19 years ago this week to trace the largest companies listed in Dublin. As it continues to seek profitable exits for its remaining investments and to return more cash to shareholders, its tenure on the index seems limited.
Yet, this is only a part of a wider issue for Iseq 20. The index’s total market capitalisation is no more than just over €100 billion, a staggering reduction in the past six months due to the departures of the market’s two leading firms – CRH and Flutter Entertainment. The combined market capitalisation of CRH and Flutter amounts to approximately €85 billion, which has grown since they began trading on Wall Street, where shares typically draw a premium compared to European stocks in relation to earnings.
Shares listed in the US trade at an average of 21 times a company’s earnings, whereas European and UK shares trade at multiples of 14 and 12 times respectively.
The fact that North America contributes three-fourths of CRH’s profits, coupled with the surging growth of FanDuel, Flutter’s US-based fantasy sports site, is gradually shifting the business focus of these firms across the Atlantic. The Iseq 20 is set to witness more changes this summer when Smurfit Kappa, holding a market value close to €11 billion, plans to discard its Irish listing amidst a proposed merger with its American counterpart in the cardboard box-making industry, WestRock.
Shared views from Noel O’Halloran, KBI Global Investors’ chief investment officer, officially in Dublin, reveal that the US currently dominates over 70 per cent of the MSCI World Index, thus operating like the centre of attraction to companies hoping for financial rewards from listing on Wall Street. The reality of these expectations, however, is still up for debate.
Barry Glavin, Dublin’s equity investments lead at Amundi, revealed that the key motivation behind recent significant exits is largely influenced by the scale of existing US activities and the opportunities for future growth in this market. These companies also believe that a US listing could greatly enhance their chances of capitalising on these opportunities.
Over the previous decade, London’s number of listed companies has witnessed a decrease of over 25 per cent. This trend has largely been instigated by private equity-driven acquisitions of public firms coupled with the growing allure of the US and other markets, especially after Brexit.
The ‘alternative’ ISEQ 20 or ‘real’ ISEQ 20 is now led by CRH, Flutter, Ryanair, and the clinical trials group Icon, which exchanged its Irish listing in 2012 for a fully committed Nasdaq listing. Included in this group are also London-listed conglomerate DCC and Woodie’s and Chadwicks’ parent company Grafton Group. Currently, the official Iseq 20 market cap is less than half the combined value of the 20 biggest public Irish companies listed on exchanges on both sides of the Atlantic, which is €220 billion.
Dole plc, which was established in 2021 following the merger of Total Produce, a Fyffes spin-off, and Dole Foods, would feature on the list. It is currently trading on the New York stock exchange. The list also encompasses Zurich-traded Aryzta, a bakery conglomerate, and Ardagh Metal Packaging, a drink cans manufacturer that trades in New York. These companies are incorporated in Switzerland and Luxembourg, yet they have Irish lineages and continue to perform crucial operations in Dublin.
Nevertheless, the list dismisses businesses that relocated their head offices to the Republic due to tax incentives in the past several decades. This includes businesses that arose from tax inversion transactions, which were a trend during the early part of the 2010s. Instances encompass Perrigo’s takeover of Elan and Medtronic, the world’s biggest medical devices company, which became a Dublin-incorporated business following its acquisition of Covidien in 2015.
Present constituents of Iseq 20, namely Uniphar, Glenveagh Properties, Ires Reit, FBD, FD Technologies, Kenmare Resources, Origin Enterprises, and Malin, wouldn’t qualify for the list.
The last ten years have seen a series of Irish companies, including DCC, sandwich producer Greencore, and construction company Grafton Group, switch from their local listings to London. This pursuit of London’s allure has been followed by a decrease in the Irish sector, which more accurately reflects the current crisis at the London Stock Exchange.
The number of businesses listed in London has diminished by over a quarter in the past decade, as indicated by research from trading platform XTB. This can be attributed to the growing popularity of other markets, particularly in light of Brexit, and buyouts of public companies sparked by private equity.
Reflecting on the past decade, O’Halloran commented that the relocation of several Irish businesses to London has not been beneficial for them. He claimed that these companies would be in the same financial state today, irrespective of whether they retained their main listings in Dublin.
He added that the Brexit fallout, which has significantly affected the UK’s economy and capital market, has led to a drop in the value of the UK market. Ferguson, a plumbing supplies distributor, exited the FTSE 100 in 2022 for a primary listing in New York. Likewise, Arm, a UK-based computer chip designer, rejected London last year to conduct an initial public offering on the Nasdaq.
Speculation had been rife that Klarna, the Swedish “buy now, pay later” company, was moving towards a London Initial Public Offering (IPO). However, its CEO Sebastian Siemiatkowski hinted at a possible US float. YouGov, the UK pollster, is also considering swapping its London listing for New York.
CRH, among other companies, transitioned its primary quotation from London to New York, as part of a listing overhaul. The move resulted in the company’s departure from the FTSE 100, gearing instead towards the globally-recognised S&P 500 index following shareholder approval in May. This shift aims to increase access to deeper capital markets and increase overall liquidity in shares, according to a notice from Flutter.
Meanwhile, the daily average value of shares traded on Euronext, the operator of the Irish stock market, fell by 30% for the year up until February. This decline follows the exits of both CRH and Flutter in September and January, respectively.
The withdrawals led to Ireland’s top two securities companies, Davy and Goodbody Stockbrokers, to cut jobs in their capital businesses within the last half a year. Firms in Dublin and London are not alone in their struggles; Finnish sports brand Amer Sports and German sandal manufacturer Birkenstock also recently listed in New York.
Dublin is experiencing a sparse period for IPOs. Over the last five years, merely three companies have floated on the Irish exchange: Uniphar (a healthcare group), Corre Energy (renewable energy storage solutions developer), and HealthBeacon (medtech company). The latter was taken over by US domestic appliance group Hamilton Beach after falling into examinership in October.
The lack of large institutional investors in the Republic stagnates IPO prospects and anchor share sales.
In the 80s and 90s, significant investments in Initial Public Offerings (IPOs) were often made by a cadre of Irish pension and investment firms, such as Hibernian Investment Managers, AIB Investment Managers, Ulster Bank Investment Managers, and Irish Life Investment Managers. They often played crucial roles as “cornerstone investors” acquiring substantial quantities of the newly available shares.
However, since then, a series of influential developments has virtually eliminated this once crucial investment route. The factors involved include advisory firms’ pressure on Irish pension funds to reduce their exposure to Irish equities, foreign acquisitions of primary local entities, and the industry’s general transition away from active stock selection towards passive investing where funds correspond to stock market indices.
In 2022, companies listed on the Irish exchange provided a contribution of €12.4 billion to the nation’s economy and either directly employed or supported approximately 90,000 jobs throughout Ireland according to a report by Grant Thornton.
As of late, Euronext Dublin officers and others involved in the broader Irish capital markets landscape have been crafting a robust proposal to encourage the Government to revive the IPO market. This inside information was revealed last month by individuals in the know about this initiative. The visionary plan being worked on presently is the continuation of last year’s suggestions which met with opposition within the Finance Department as they were deemed to be insufficiently developed.
The Grant Thornton report underscored the critical role a domestic exchange plays in fostering local enterprise. It stated that businesses listed on the Irish exchange not only contributed €12.4 billion to the domestic economy in 2022 but also underpinned or generated nearly 90,000 jobs nationwide.
Joe Gill, the director of origination and corporate broking at Goodbody Stockbrokers, said that Enterprise Ireland has financially supported roughly 6,000 companies over the last decade, as part of government efforts to nurture and expand homegrown Irish businesses. He went on to add that having a viable stock exchange is a sensible addition to this strategy, with the intention of securing additional growth capital for those companies that opt to maintain their independence and establish their business presence in Ireland.
Significant international influences have contributed to the reduction in the number of investible public companies on western markets, such as the US, due to the allure of private equity funding and trade sales during a period of extremely low-interest rates that lasted until recently. For instance, according to a report by the Financial Times quoting Wilshire, the investment services firm, the count of listed companies in the US has decreased from over 7,000 to under 4,000 since 2000. Europe and Britain have experienced a similar pattern.
This phenomenon, known as de-equitisation, is further amplified when firms utilise excess funds and loans to repurchase sizeable portions of their own shares. JP Morgan, the American investment banking behemoth, estimates that around $1.2 trillion will be utilised by global companies this year to buy back shares, maintaining the trend set in the last three years.
Companies from Iseq 20, including AIB and Origin, have taken part in this activity as well. This month, the Iseq All-Share index, which represents all Dublin-listed companies, surpassed the 10,000-point mark for the first time since early 2007 when the previously thriving bank stocks commenced their downturn at the end of the Celtic Tiger.
This resurgence has trailed behind other western markets’ recovery from the substantial financial crisis by over ten years. Late 2013 saw both London’s FTSE 100 and Wall Street’s S&P 500 surpass their pre-crash levels, and the pan-European Stoxx 600 index followed in 2015.
“While the Iseq composition now greatly varies from 2007, breaking the 10,000 [level] after such an extended period is quite a considerable achievement,” stated Damian Roddy, Head of Capital Markets at the stockbrokers Davy.
Benefitting from global markets’ broader progression, the Iseq All-Share has increased its value by 16 per cent this year and even peaked at nearly 10,191 on Wednesday. Though it momentarily spiralled above 10,000 in the course of trading on February 20th, 2007, it didn’t once again close above that point until last Wednesday.
Despite this, the quantity of businesses listed on the Iseq has seen over a 50% reduction in span, dwindling to a mere 26 in the present day. Among those who have departed the trading realm for some time now include homebuilder Abbey, Aer Lingus, AGI Therapeutics, which were the initial three in alphabetical ranking in 2007, and the concluding trio, UTV, Veris, and Waterford Wedgwood.
The departure of previous market giants such as CRH and Flutter this year has affected the market valuations for both the Iseq All-Share and Iseq 20, although it doesn’t influence the actual index computations as adjustments are applied to the alleged index divisors.