The true cost of the Sarbanes-Oxley Act for the capital markets in the US has emerged, as Europe raised more new funds from initial public offerings than the US for the first time in four years.

In its latest review of the European IPO market, the capital markets team at PricewaterhouseCoopers found that both the volume and value of European IPOs had grown substantially in 2005 and outstripped the US exchanges.

The number of IPOs in Europe last year grew 39% from 433 to 603 and the sums of new money raised almost doubled from 28bn euros (£19.3bn) to 51bn euros as international companies flooded into the European markets to avoid the onerous regulatory requirements imposed on the US exchanges by Sarbanes-Oxley.

Tom Troubridge, the head of PwC’s London capital markets group, said that it was apparent from the IPO statistics that Sarbanes-Oxley was having an impact on the decisions of international companies planning to list.

‘It is apparent from the performance of the IPO market in 2005 that the Sarbanes-Oxley Act has influenced the decisions of many non-US companies. Companies that seemed reluctant to subject themselves to the increased regulation in the US and opted instead to head to IPO in Europe,’ said Troubridge.

Comparing the performance of flotations the US markets with those in Europe showed that the European exchanges attracted 126 international IPOs raising ¤9.6bn (£6.6bn) in 2005, compared with the 23 international IPOs in the US, which raising just ¤3bn (£2bn).

The strong appetite for flexible regulation was further underscored by the strong performance of the London Stock Exchange’s lightly regulated AIM market.

AIM alone, which admitted 519 new companies last year, accounted for more than half (52%) of the European total IPOs in 2005. Its performance helped London to claim the number one slot for offering value and IPO numbers.

Such was the success of the AIM regulatory model that other major exchanges in Europe, including Euronext and Deutsche Börse, opened up similar junior markets to capitalise on the strong demand for light regulation.

The creation of these new exchanges and the strong performance of the IPO market in 2005 could prove to be equally buoyant for flotations this year, Troubridge said.

‘With the continued need for capital from emerging market economies such as Russia, China and India, Europe should continue to be a popular destination for international IPOs,’ Troubridge said.

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FTSE 100
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FTSE 250
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