THE UK’S biggest peer-to-peer lenders are thought to be gearing up for stock market flotations – a landmark moment in the history of the sector.
Funding Circle is reportedly seeking an initial public offering (IPO) this year, while RateSetter is thought to be in fundraising talks ahead of a flotation, although this is unlikely to happen before 2019.
“At the moment the appetite for IPOs is quite high, the market is having a very strong 2018 so far,” said Neil Glover, business development director for IPOs at EY.
“We’re likely to see that continue throughout the rest of the calendar year.
“Financial services has had a buoyant year and tech has had a fantastic year, if you add them together than it looks like fintech is going to be a very strong sector.”
The market has already seen a number of fintech IPOs recently and is awaiting more firms from the sector reaching maturity, according to James Clark, head of tech and life sciences at London Stock Exchange.
“The market has been there, it is just the businesses have taken time to get to the point of being ready to list,” said Clark.
“It takes time for B2B businesses to get sizeable enough to make a strong business case for an IPO.
“There are the reporting requirements, all the things a listed business has to go through, the audited finances, getting the company structure in place, getting the right kind of board in place.”
Funding Circle appears to be much further along the process than RateSetter, but as the first two UK P2P lenders likely to go public, how do they compare?
Analysts have suggested Funding Circle would be valued at over £1bn while RateSetter is expected to reach a market capitalisation of £280m after its latest fundraising round.
These would both meet the LSE main market’s required minimum market capitalisation of £700,000 although RateSetter may debut on the Alternative Investment Market.
Funding Circle is likely to join the FTSE 250’s financial services sector, which is home to challenger bank Metro Bank, sub-prime lender Provident Financial, and mortgage and business finance provider Paragon Banking Group.
Both P2P firms have been bolstering their expertise of the public markets at board level.
Funding Circle is chaired by ex-Goldman Sachs managing director Andrew Learoyd and former Lloyds Bank boss Eric Daniels sits on the board. The business lender boosted IPO rumours further in May when it appointed its first female non-executive director, former 02 customer director and Tesco Mobile chair Cath Keers.
Publicly-listed companies are expected to have at least one in three female directors on their board by 2020.
Meanwhile, RateSetter is chaired by City veteran Paul Manduca, who is also chairman of listed life insurer Prudential. He has also served as chief executive of both Rothschild Asset Management and Deutsche Asset Management.
“Those sorts of things [IPOs] can take a number of years to come to fruition,” said Clark.
“You’re looking for a range of skills, some of the management will have less public markets experience, some more.
“You’re trying to find complementary experience that the market is going to understand and recognise.
“Having either in the management or on the board people who have run listed companies, or been involved with listed companies, is extremely important.
“It is a particular type of experience to be doing that kind of work so it is useful to have.”
Funding Circle’s experience in running the Funding Circle SME Income Fund (FCIF), which is a listed trust, may also prove vital in convincing investors they are ready for the main market.
“Running any type of listed vehicle of any description, be it a company or a fund, is essential at the management level of the business,” said Glover.
“There are so many challenges to running a listed company that unless you’re aware of your responsibilities and requirements. Investors are less likely to invest with someone who has zero experience of that.”
Read more: Funding Circle poised for £1bn float