Small and mid-cap listed company numbers drop as economic turbulence and ‘over-burdensome’ regulation take toll

The number of small and mid-cap firms listed in the UK has fallen in recent years as economic turbulence and ‘unfavorable and over-burdensome regulation for listed companies’ bite.

A new report from the Quoted Companies Alliance (QCA) and investment research firm Hardman & Co that looks at the state of the small and mid-cap market in the UK – as well as the wider contribution these firms make – finds there were 1,080 small and mid-cap companies listed on AIM and the London Stock Exchange’s (LSE) main market on the last trading day in May 2022. This is a drop from the approximately 1,249 small and mid-sized quoted companies counted in May 2019.

After filtering out investment companies and international firms with a secondary London listing, researchers counted a total of 1,180 public companies – 476 of which are on the LSE’s main market and 704 on AIM.

More than nine in 10 (91 percent) of those companies fall into the small and mid-cap category, according to the report. It adds that the largest 100 companies account for 85 percent of the market’s total capitalization, while the remaining 1,080 small and mid-caps account for 15 percent of market capitalization.

The UK’s small and mid-caps collectively have a market capitalization of £376 bn ($460 bn) by value, according to the QCA and Hardman & Co.

The research, which looks at the employment and tax contributions of smaller firms, notes the need to address the decline in listed companies.

Speaking to IR Magazine, Tim Ward, CEO of the QCA, says the body ‘would like to see a demand-side solution as well as a supply-side solution [to the problem of declining numbers of small and mid-cap firms], looking at ways to increase the supply of capital with different time horizons into the small and mid-cap ecosystem.

‘The increased supply of capital would complement the positive measures that are being delivered following the Hill Review,’ he continues, but adds that such measures alone ‘will not solve the problem’.

Among the benefits to a listing, the QCA points to ‘the impact of increased transparency required of public companies’, something it says ‘fosters more trust with both external and internal stakeholders’ as well as allowing employees the opportunity to join in share schemes. This allows employees ‘to share in the success of the business,’ adds the body, which represents UK small and mid-cap listed firms.

‘Small and mid-sized quoted companies continue to be a driving force in the UK’s economy,’ says Ward in a statement announcing the publication of the report, titled ‘Punching above their weight?’

Describing the UK’s smaller firms as ‘long-term over-performers in terms of productivity, employment, growth and tax contributions’, Ward warns that these strengths should not be taken for granted.

‘The public markets have seen a trend of decline for nearly two decades,’ he points out. ‘We cannot expect the economic contribution of these companies to continue in an environment that does not make their existence attractive. For that reason, we are continuing to campaign for fit-for-purpose capital markets and proportionate regulation to make the UK the most attractive place to list and invest.’

The LSE recently launched a dedicated taskforce to take a broad look at how the UK can improve the competitiveness of its capital markets – and serve their ‘ultimate purpose’ of ‘direct[ing] capital into the real economy to create the jobs and innovation that have an impact on all our lives, and to help savers, pensioners and policyholders find assets to invest in for life events and their retirement.’

‘As home to the world’s most successful growth market, we recognize the importance of supporting small and mid-cap listed businesses,’ says an LSE spokesperson in a statement to IR Magazine. ‘Companies of all sizes list on the LSE to gain access to one of the deepest pools of capital available globally and it is important to build on the current momentum of the UK market reviews and reforms. We are committed to ensuring the UK capital markets continue to provide efficient access to capital to enable those businesses to start, grow and scale.’