Vladimir Lenin is widely credited with the phrase ‘there are decades where nothing happens; and there are weeks where decades happen’.
He could well have been talking about the Irish stock exchange – or Euronext Dublin, as it’s now known – and events on the frontline there of late.
It appears as if there has been a virtual exodus of companies from listing on the exchange or with intentions to do so.
In ways, the index could be categorised as a victim of its own success.
It has played host to companies that have grown into hugely successful, internationally recognised names with impressive revenues and profits.
Now, they are seeking to capitalise on that success by moving closer to the investor action, so to speak.
But why has there been such a rush for the exits of late and what is the future for the Dublin Exchange?
Smurfit and Kingspan
This week could be categorised as one of those monumental weeks for the exchange’s future.
Smurfit Kappa confirmed that talks with US company WestRock had yielded a deal that would see the companies combining to create a $20 billion paper and packaging giant.
The merged entity, Smurfit WestRock, would continue to be headquartered here but it would be listed on the New York Stock Exchange (NYSE) which would see Smurfit Kappa’s shares being delisted from the Dublin market.
Cavan-based Kingspan also confirmed this week that it had held informal talks with US group, Carlisle, about a potential merger, but it resulted in no deal.
In a statement, it said the ‘North American roofing space remained a key area of interest’ for Kingspan, potentially hinting at some further overtures ahead.
While there is no suggestion of Kingspan leaving the Irish stock exchange, a merger with a US company – if it came about – would likely result in at least a primary listing in New York.
Having ditched its London listing earlier this year, Kingspan said at the time that it was committed to its primary listing on the Dublin exchange, which will come as some relief to its operator.
Smurfit Kappa and US company WestRock struck a deal that would see the creation of a $20 billion paper and packaging giant
CRH and Flutter
In isolation, those moves would be bad enough, but they are just the latest in a series of manoeuvres that have raised concerns about the exchange’s future.
CRH confirmed in recent months that it would quit Euronext Dublin in favour of a primary listing on the New York Stock Exchange.
Flutter Entertainment, the owner of Betfair and Paddy Power, may follow after a majority of its investors backed its plan to list in New York as it pursues a wider investor base.
Flutter has not yet committed to the move, but it’s viewed as an inevitability at some point.
The departure of those two companies alone would shrink the Dublin exchange by up to 40% and have implications for government stamp duty receipts.
Investors buying shares on the Dublin market pay a transaction tax of 1%.
What has changed?
There are numerous factors playing into the current events around the exchange.
Ronan Reid of Cantor Fitzgerald – previously himself a board member of the Irish Stock Exchange – points out that the transactional side of the business had never been a major part of the operation.
He said the Dublin exchange makes most of its money from listing funds and debt instruments.
“Any exchanges outside of the biggest ones don’t have huge amounts of trading. London or the US exchanges would have huge equity trading, but Ireland has always had dual-listed companies and now they’re migrating to bigger listings, in the US in particular,” he explained.
Some of that shift was down to Brexit, he added, with London’s FTSE now becoming a less relevant index.
Kathryn Hannon, Head of Private Clients at Gresham House Ireland, said some of the big names that are now moving their listings had simply outgrown the market here.
“They’re constantly trying to raise capital, constantly trying to raise profile,” she explained.
“They need to be on big exchanges where big brokers will follow them. Their investors and boards will be pushing them to be ambitious and that looks like deeper pools of investment and deeper markets. That’s what the US looks like.”
What’s the future for the exchange?
It is important to put recent developments in the context of the wider picture.
European flotations and public offerings of shares have slumped in the current inflationary environment with higher interest rates and better liquidity in US markets.
Nonetheless, concerns have been expressed at an official level for the future of the Dublin exchange.
The Irish Times recently secured documents under Freedom of Information in which Department of Finance officials warned of ‘long term decline’ in the Irish market.
They also cautioned about the future of names such as Glanbia, Kerry and indeed Kingspan, one or all of which could consider taking out US listings.
Companies are moving in greater numbers to the US to be closer to the investor base
And then there is the flow of new names to the exchange, of which there has been a dearth in recent years.
“If you don’t have a healthy pre-IPO growth market, you have to ask how we are going to incubate the next Kerry or Kingspan,” Kathryn Hannon says.
“That’s a concern for the domestic capital markets in Ireland.”
Ronan Reid said there could be an argument for Dublin becoming a niche player for listings in particular sectors, but he said the investor base argument remains.
“We’re good at food, technology and aircraft leasing. But their investors will not be here. If it’s life sciences, they’ll be in Boston, if it’s technology, they’ll be in California.
“We don’t have a huge investor base here and that creates a challenge,” he explained.
Could there be further fallout?
Davy, the biggest stockbroking and wealth management company here, is reported to be seeking up to 18 redundancies in the wake of the downturn in capital markets activity.
Goodbody could follow with consolidation in the capital markets side of its business, according to a recent report in the Business Post.
Most of the stockbrokers are staffed today for a different era. In the middle of the last decade, there was a spate of listings as stock market values continued to recover from the slump in the aftermath of the financial crash.
There was a rush of activity in particular around the REITs – or Real Estate Investment Trusts – which are stock market listed property companies that give investors exposure to the property market without actually buying properties.
However, most of those have since been taken private.
In all, more than 20 names have departed the exchange since 2018 with just five joining in the same period.
However, concerns were expressed for the future of the Irish stock exchange a decade and a half ago as valuations collapsed in the crash and a wave of consolidations took hold.
Many of the arguments that are being made today were made then, with talk of heavy hitters potentially abandoning and leaving just ‘penny stocks’ in their wake.
But it bounced back and evolved into a different kind of exchange.
Could rumours of its demise today be exaggerated? Only time will tell.