AO World has finalized an agreement to purchase musicMagpie, a gadget resale company, for £10 million, amidst ongoing challenges in the London stock market following the 2021 IPO wave.

The deal means AO World will acquire musicMagpie at a price of 9.07p per share, significantly lower than its initial public offering (IPO) price of 193p just three years ago. musicMagpie, founded in 2007 by Steve Oliver and Walter Gleeson, initially aimed to capitalize on the growing demand for second-hand CDs, DVDs, games, and books in both the UK and US, focusing on sustainable consumption.

On Wednesday, musicMagpie indicated that it has encountered a “challenging” economic landscape since its debut in April 2021, exacerbated by increasing energy prices and rising interest rates, which have constrained consumer spending. Although the company has grown its rental service subscriber base from 4,400 to 32,700, management believes merging with AO World will bolster its financial stability.

The initial public offering market experienced a surge post-pandemic, with over 100 companies going public; however, many of these listings have since suffered significant value declines, impacting market reputation. Financial experts report that institutional investors are now more selective, preferring high-quality assets for their portfolios. This skepticism has been influenced by notable declines of companies like Dr Martens, Made.com, InTheStyle, Revolution Beauty, and Deliveroo, with some market participants noting that these events have created a cautious sentiment in London’s investment community.

AO World’s acquisition offer represents a 58 percent premium over musicMagpie’s recent share price, leading to a payout of approximately £1.1 million for Oliver, who owns 11.19 percent of the company, in addition to the £12.3 million he made from the initial share sales during the IPO. Financial advisors Peel Hunt, Shore Capital, and Deloitte played key roles in musicMagpie’s market entrance, collectively earning £11.2 million in advisory fees.

AO World CEO John Roberts emphasized the importance of enhancing consumer technology offerings, stating, “To achieve our strategic ambition of becoming the destination for electricals, it is crucial for AO World to enhance its consumer tech offering. I am excited to welcome Steve and the musicMagpie team into the AO family and to realize the potential that our combined efforts can unlock.”

The acquisition has garnered support from directors and investors who collectively hold 54 percent of musicMagpie’s issued share capital.

Oliver praised AO World’s reputation, stating, “AO is a highly trusted consumer brand that shares our commitment to providing a first-rate service for customers. I am very proud of the musicMagpie business and the trusted brand that we have created, providing consumers with a smart, sustainable and trusted way to buy, rent, and sell refurbished consumer technology and physical media products.”

According to recent statistics from Dealogic, the UK market has experienced only eight IPOs this year, in stark contrast to the 18 listings during the first three quarters of 2022.

Samuel Kerr, global head of ECM at ION Analytics, noted, “After two strong quarters in global equity capital markets, activity slowed in the third quarter, with fewer IPOs compared to the same periods in previous years. The decrease in deal activity coincided with increased market volatility and uncertainty surrounding European and US elections. As global interest rates decline, this could stimulate equity transactions, although both dealmakers and investors are remaining cautious ahead of upcoming electoral events.”