Biffa's cut price flotation: Here's why it's bad news for the economy

Biffed. That’s probably how the owners of waste management group Biffa feel right now.

The newly minted public company got its flotation away, but the Brexit battered price was well below what its private equity backers had been hoping for.

When the flotation on the London Stock Exchange was first mooted last month the company was reportedly seeking a valuation of £1bn. That had fallen to a maximum of £675m when the price range of 220p to 270p was set.

The actual market value the company realised at the shares’ debut price of 180p was £450m.

Kudos to Biffa for actually getting the flotation away. That’s more than budget gym operator Pure Gym managed. That’s more than energy provider First Utility or TI Fluid Systems, which makes car parts, managed. Krispy Kreme UK, meanwhile, sold itself to its American parent at a bargain basement price.

So what’s going on? Brexiteers have often pointed to the rise in the stockmarket as an indication of the UK’s economic strength and resilience in the wake of the EU referendum result.

The market’s treatment of companies seeking to join it, however, tells you it’s not that simple.

Let me explain. First of all, you can forget about the FTSE 100. It has been pulled higher by currency effects. Its constituents make their money overseas. The pound’s fall has made it more costly to buy into earnings streams denominated in dollars or euros. Sterling denominated share prices rise as a result.

That isn’t true of the UK focussed FTSE 250, which has also risen since the referendum. Most of its companies earnings are denominated in Sterling, apparently making the Brexiteers’ case for them.

However, while investors are reasonably happy to hold the shares in established UK businesses they have much less appetite for taking punts on buying new ones which lack trading histories as public companies.

These inevitably pose more of a risk to their portfolios. With 37 per cent of the UK electorate having taken a huge leap into the dark on behalf of everyone else, investors have decided that's more than enough risk for them and as a result they're sitting on their hands and playing it safe.

It is possible to get floats away, as Biffa has proved. The City of London is still open for business, but only if the sellers are willing to accept greatly reduced prices for their wares. Institutional investors are willing to back bargains, because, well, why wouldn't you? Companies that are absolutely determined to join the market are having to wake up to that uncomfortable reality.

The economy, and those in charge of stewarding it, are having to wake up to a still more uncomfortable reality. Economies rely heavily on people being willing to take risks for their dynamism.

They need people who will put their money into backing new companies and new ideas, who will take gambles on backing the next big thing at several stages, from start up to eventual flotation.

The reason America has been so strong for so long is because it has a sizeable corps of investors who are willing to do that. You'll find them all over Silicon Valley, for example, hunting for the next Google or the next Facebook or the next Apple. They fail more often than they succeed but it’s worth their while because their payoff when they do succeed is huge.

British investors have long proved less willing to do that, even at the best of times. This is anything but the best of times and they are retrenching, putting on their tin hats, scaling back their appetites for risk, concentrating on the familiar, and the safe and the predictable.

This isn’t solely as a result of Brexit. There are many other economic risks out there. You can start with Nigel Farage’s former BFF Donald Trump and the danger that he might get elected, although that is diminishing. But Brexit is still playing a very big role.

Long term the UK economy will suffer as a result and so will the people who are reliant upon it.