The City’s “Sell in May and Go Away” ethic is Old Hat and should be a welcome Covid-19 victim

Pinch, punch it’s the first of the month is already twelve days ago for June and traditionally that signals something of a closed period for equity fund-raising.  The first two quarters however have not been all doom and gloom despite lock-down, with London emerging as the clear European leader for secondary fund-raising, in the three months to 29th May raising $13.25bn, three times more than its nearest rival.  Looking at the sixteen AIM and Main equity capital markets deals of over £75m and raising in May a total of £5,456bn, five AIM IPOs raised £637m, whilst eight on the Main Market raised £3.9bn with three Secondaries accounting for £898m.  A remarkable achievement and full marks to the LSEG and Advisers for getting these 16 concluded during full lock-down. 

The AIM pipeline is empty

Alarmingly, the London Stock Exchange’s New Issues list has a lone AIM entry, Trident Resources Plc, Admitted on 2nd June, so the pipeline is empty.  To get the City of London back on its feet as the leading global financial centre will take far more than simply staggering the rush hour, pivoting our desks and estimating a two metre gap.  A member of the FT City Network noted the need to “… reimagine a route to survival … then move at speed …”  One far-reaching but necessary change is to spread access to the City’s advisory and investment pre-eminence more evenly throughout the year, with immediate effect. 

A welcome victim of the current crisis could be the legacy of “Sell in May and go away …”.  Its origins are bankers and merchants abandoning the City’s summer heat and smells and marking their return by following September’s St Leger meeting.  It has become an investor adage for the statistically poor performance of equites from May to September, as exemplified by the Dow Jones Industrial Average and mirrored in the UK. 

Fund-raising clustering is a fact. 

Abchurch has advised on financial communications for 97 IPOs since 2004, mainly AIM, and our data set is representative.  Companies seeking funding and not subject to second-half seasonal spikes are known to change their year-end to September so that they can be first out of the stalls for a Q1 fund-raising with audited accounts.  Whilst the ‘closed-season’ effect has been diluted over the last few years, fund-raising projects remain clustered in to relatively few months. 

Covid-19 gives momentum to business change 

Could the virus break this hinderance by having forced even the most internet-reticent into presentations and dialogue by video-conference and remote interaction?  The prevalence of mobile devices has led even The Royal Enclosure at Ascot to succumb, and are July and August really out of the question for all fund managers?  Easter, state and private school half-terms running consecutively, along with Bank Holiday weeks, also take their toll.  December is considered a write-off after the second week.  Looking East, factoring in New Years and religious festivals including Ramadan for overseas roadshows narrows the window even further. 

Fewer spikes will identify any other underlying investor issues

Within the growth company arena there are other factors at play including private client risk-aversion, scalability and a lack of liquidity.  However, if investment opportunities are laid out for scrutiny on a less time-critical basis, such concerns could be easier to flush out and address, and if these holiday closed periods are being used as an excuse for not being able to find investors, rather than being the cause, it’s better to know now.  Fewer deal spikes would also improve market efficiency.  The message “… I will have limited internet access …” is accepted code for being on holiday but willing to respond to urgent matters. 

The City needs to be open every month and ideally most days

Our native cunning can get the City back up and running but adaptability and fleet of foot is needed with urgency and the entire City needs to be willing to earn its crust pretty well 24/7/365.  Simply trying to shoe-horn former City habits into tweaked operational practices is unlikely to be a sustainable answer to our country’s greatest challenge in 75 years.  If you are lucky enough to be looking forward to working on the 37th floor of the majestic 100 Bishopsgate but choose not to take the lift, every seven weeks you could have climbed and descended Mount Kilimanjaro and deserve sponsorship! 

Within the tight-knit community of growth-company advisors, deals are steered towards fast responders.  Now everyone in the City needs to saddle-up and be in the international running.  Forget furlough, think furlongs.  We all need to be ready for the numerous hurdles ahead. 

Julian Bosdet

Chief Executive

Abchurch Communications. 

To work with businesses’ new budgetary constraints, Abchurch has launched a radical new public relations charging structure, with a standard underlying retainer fee starting from below £500 pcm for ANY size Company, with advice and execution on-demand with fees based only on the actual time taken across the PR disciplines of Financial PR, Investor Relations, Corporate and Product. 

Detailed fee estimates will be provided from a menu choice of over 50 time-costed potential services and products offered, and will be based on an initial assessment of the client requiring a Light Touch, Heavy Lift, or Mid-Range for each individual item, charged in recorded 1/10th hour time periods.  Deals and IPOs costed similarly.  Literally a pick & mix model with advice dispensed from Director and Partner level only. 

Potential Clients, Advisers and other potential providers of new business should contact the author for a more detailed discussion about the methodology or to request, in confidence, a fee estimate. 

12 June 2020