3. A guide to listing on the
London Stock Exchange
Contents
3 Foreword
London Stock Exchange
5 The Main Market – the standard for excellence
London Stock Exchange
13 The role of the UKLA
The United Kingdom Listing Authority
19 Preparing for an IPO
UBS Investment Bank
31 The legal framework for an IPO
Freshfields Bruckhaus Deringer LLP
43 Accounting requirements and advice
through the IPO process
Ernst & Young LLP
57 Generating and capturing investor
demand during an IPO
UBS Investment Bank
69 Managing the company’s profile
Fishburn Hedges
81 The role of the registrar in an IPO
Capita Registrars
87 London: a unique investment opportunity
FTSE Group
91 Preparing to list depositary receipts
Cleary Gottlieb Steen & Hamilton LLP
105 Establishing a depositary receipt programme
J.P. Morgan
116 Useful contacts
4. A guide to listing on the London Stock Exchange
Foreword
By Tracey Pierce, Director of Equity Primary Markets, London Stock Exchange
With roots stretching back to the coffee houses of 17th century London, the London Stock Exchange is
built on a long history of integrity, expertise and market knowledge.
It has become one of the world’s largest and most international stock exchanges, playing a pivotal role in
the development of global capital markets. We offer the widest choice of routes to market, which are
available to both UK and international companies, and today we have close to 3,000 companies from
over 70 countries listed and trading on our markets.
In challenging market conditions, the London markets have proved their value by providing companies
with access to capital when other funding channels have not been available. At the Exchange, we strive
to build on this success by working with market regulators and the wider financial community to ensure
that our markets are well-regulated, transparent, liquid and neutral. This success is underpinned by the
dedicated community of advisers and investors that continues to support the companies on our markets.
We understand that joining a public market is one of the most significant decisions a business will ever
take; the sheer range of topics that need to be considered building up to IPO can seem like a daunting
task. With this in mind, this guide has been developed with input from some of the key advisers
experienced in bringing companies to our Main Market and our Professional Securities Market, providing
you with a practical outline of the listing process, as well as an insight into life as a public company.
I hope you find this publication useful and wish you every success, both in bringing your company to
market and as a publicly-traded company.
A guide to listing on the London Stock Exchange Page 3
5. The Main Market –
the standard for excellence
London Stock Exchange
6. QUOTED
Whatever your company’s size or sector, we can put you at the heart
of one of the world’s most sophisticated financial communities.
The Main Market is home to approximately 1,400 companies from
over 60 countries, including some of the world’s most successful and
dynamic organisations. So far this year £20.8 billion has been raised
on the London Stock Exchange, of which £17.9 billion has been
raised on the Main Market.
Here at the London Stock Exchange we help companies to access the
deepest pool of international capital. Premium Listed companies on the
Main Market meet the highest listing standards helping to raise their
corporate profile and increase their exposure to investors.
Learn more about the Main Market and why leading
companies choose to list on the London Stock Exchange –
www.londonstockexchange.com/mainmarket
Copyright November 2010 London Stock Exchange plc
London Stock Exchange, the coat of arms device and AIM are registered trademarks of the London Stock Exchange plc.
London Stock Exchange statistics as at end September 2010
7. The Main Market – the
standard for excellence
Established in 1698, the London Stock Exchange’s Why join a public market…?
(the ‘Exchange’) Main Market has long been home Joining a public market – the Main Market or AIM
to some of the UK’s, and indeed the world’s, (our market for smaller, growing companies) – is a
largest and best-known companies. There are over way to grow and enhance your business. When
1,400 companies on the Main Market with a considering the available financing options, the
combined market capitalisation of £3.7 trillion. following factors are frequently cited as the key
Companies of all types, nationalities and sizes benefits of admission to a public market:
together represent some 40 sectors.
l providing access to capital for growth,
As well as sectoral and geographical diversity, the enabling companies to raise finance for
Main Market accommodates the admission to further development, both at the time of
trading of companies with a Premium Listing or a admission and through further capital
Standard Listing. The FSA’s listing categories are raisings
described in detail in the chapter ‘The role of the l creating a market for the company’s shares,
UK Listing Authority’ on page 13. broadening the shareholder base
l placing an objective market value on the
A listing on the Main Market demonstrates a company’s business
commitment to high standards and provides l encouraging employees’ commitment and
companies with the means to access capital from incentivising their long-term motivation and
the widest set of investors. Over the last 10 years, performance, by making share schemes
£366 billion has been raised through new and more attractive
further issues by Main Market companies – capital l increasing the company’s ability to make
that has seen companies through the good times acquisitions, using quoted shares as
and the bad. currency
Joining the Main Market
Responsibility for the approval of prospectuses and admission of companies to the Official List lies
with the UK Listing Authority (UKLA). The Exchange is responsible for the admission to trading of
companies to the Main Market. Joining the Main Market consequently involves two applications: one
to the UKLA and one to the Exchange.
UKLA admits securities to London Stock Exchange
the Official List admits securities to trading
on the Main Market
Official List notice issued Admission to trading notice
to the market issued to the market
The Main Market – the standard for excellence Page 7
8. l creating a heightened public profile – A respected and balanced regulatory
stemming from increased press coverage and environment
analysts’ reports – helping to maintain The UKLA’s listing framework underpins London’s
liquidity in the company’s shares reputation for balanced and globally-respected
l enhancing the company’s status with standards of regulation and corporate governance.
customers and suppliers. Regulatory requirements in London are principles-
based and provide an appropriate balance of
Companies that choose to seek admission to a investor protection, practitioner certainty and
public market in London have a range of options flexibility. The Exchange aims to be involved in all
depending on their size, stage of development and relevant processes where amendments or
capital-raising requirements. The options open to additions to the regulatory framework are
companies should be discussed in detail with their considered. This is to ensure that London’s
team of advisers. competitive advantage remains undiminished; that
listings and subsequent capital raisings are cost-
Companies which are successful on AIM and reach effective and efficient for our companies; and that
a certain size and stage of development, may seek investors have the appropriate amount of
to transfer their securities from AIM to the Main information to make informed investment
Market, provided that they meet the eligibility decisions.
criteria. While a move to the Main Market may
subject the company to increased regulatory Choice
requirements, it can bring benefits in terms of a Companies with either a Premium or a Standard
heightened profile and attracting different Listing can choose to admit to trading on the Main
investors. Market.
…and why the Main Market? A Premium Listing means that a company must
meet standards that are over and above (often
The success of the Main Market is built on a wide described as ‘super-equivalent’) those set forth in
range of factors: the EU legislation, including the UK’s corporate
governance code. Investors trust the super-
l a respected and balanced regulatory equivalent standards as they provide them with
environment additional protections. By virtue of these higher
l choice standards, companies may have access to a
l access to capital from a broad and broader range of investors and may enjoy a lower
knowledgeable investor base cost of capital owing to heightened shareholder
l expert advisory community confidence. A Premium Listing is only available to
l enhanced profile and status. equity shares issued by commercial trading
companies.
The Main Market has attracted companies of all
sizes and from all sectors over many years. With a Standard Listing, a company has to meet
Irrespective of their sector, origin or strategic the requirements laid down by EU legislation. This
direction, they have all sought to take advantage means that their overall compliance burden will be
of the range of benefits a listing on the Main lighter, both in terms of preparing for listing and
Market affords. Those benefits include: on an ongoing basis. Standard Listings cover the
issuance of shares and Depositary Receipts
Page 8 The Main Market – the standard for excellence
9. (‘DRs’) as well as a range of other securities, Underpinning the Main Market is a network of
including fixed-income. Large companies from experienced advisers who will guide you on the
emerging markets may wish to list their DRs, thus journey to an initial public offering (‘IPO’) and
attracting investment from the significant provide ongoing advice once your company is
international pool of capital available in London. listed.
(A table showing the key differences between a
Premium Listing and a Standard Listing can be Selecting the right advisers for you and your
found in the chapter ‘The role of the UK Listing company is vital. Getting it right early on will help
Authority’ on page 18). ensure that disruptions to the process are
minimised and you are able to get on with the task
In this guide, the chapters ‘Preparing to list at hand. Factors to consider when appointing
depositary receipts’ and ‘Establishing a depositary advisers include the firm’s relevant and recent
receipt programme’ are dedicated to the listing experience in relation to your business and the
and admission to trading of DRs on both the Main sector you operate in, as well as the personal
Market and the Professional Securities Market rapport you develop with the individuals with whom
(‘PSM’). The PSM provides an alternative route to you will be working.
a listing on the Exchange for issuers of DRs.
The diagram on page 10 below shows the different
Access to capital advisers typically involved in a flotation on the
We provide access to the largest pool of Main Market and briefly highlights their varying
international equity assets in the world. This roles and responsibilities.
culture is embedded in London’s investment
management community, which understands Profile
companies from home and abroad and wants to Floating a company on the Main Market raises
invest in the global economy. your company’s profile and helps you to meet your
strategic objectives. You will have the opportunity
Once they are listed and admitted to trading on to project your company onto a global stage with
the Main Market, companies should not increased media coverage, investor interest and
underestimate the value of being able to return to broad analyst coverage.
the market to raise funds through further issues.
Even during the recent difficult market conditions, With a Premium Listing comes the potential for
the Exchange successfully facilitated significant inclusion in the FTSE UK series of indices which
levels of capital raising. Further issues by Main includes the FTSE 100, FTSE 250 and FTSE
Market companies provided capital injections that Small Cap indices. Access to these indices is
were used to pay off debt, rebuild balance sheets often seen as one of the key benefits of achieving
and fund further growth. a Premium Listing since so many investment
mandates – particularly in respect of the vast
Expert advisory community amount of capital represented by tracker funds –
The decision to join the Main Market is a pivotal are driven by FTSE indexation. For more
one. To achieve a successful listing and admission information see chapter ‘London: a unique
to trading, companies must deliberate over many investment opportunity’ on page 87.
considerations.
Our commitment to the primary markets
There is a continuous stream of proposed regulatory
The Main Market – the standard for excellence Page 9
10. Advisers’ roles and responsibilities
Sponsor Bookrunner
• Overall co-ordination and project • Prepare company for roadshow
management of IPO process • Facilitate research
• Co-ordination of due diligence and prospectus • Build the book pre-float
• Ensure compliance with applicable rules • Marketing and distribution
• Develop investment case, valuation and • Pricing and allocation
offer structure
• Manage communication with LSE and UKLA
• Act as adviser to the company’s board
• Ongoing support/advice after flotation
Lawyers
• Legal due diligence
Other advisers
• Registrars THE COMPANY • Draft and verification of prospectus
• Corporate restructuring
• Financial printers • Provide legal opinions
• Remuneration consultants
Financial PR Reporting accountant
• Develop communication strategy • Review financials – assess company’s
to support pre-IPO process readiness for IPO
• Enhance market perceptions to • Tax structuring
develop liquidity and support • Financial due diligence - long form,
share price short form and working capital reports
• Pre- and post-IPO press releases
changes affecting companies on our markets, with Once you are listed on the market, we are
legislation stemming from changes here in the UK committed to helping you raise your profile and
and in Brussels. With companies’ best interests keeping you abreast of market developments. We
front of mind, we continue to lobby on their behalf help to do this through the provision of brand marks
to ensure our markets are fit for purpose. It is (see page 11); a dedicated page on our website
crucial that through our lobbying we continue to specific to your company (including latest news and
promote a regulatory regime based on principles, pricing information on the trading of your
seeking to limit disproportionate legislation securities); educational initiatives, such as seminars
applicable to issuers that are admitted to trading on and practical guides; and investor-focused events
our markets, while ensuring sufficient investor such as capital markets days that bring companies
protection. and investors together.
Page 10 The Main Market – the standard for excellence
11. Main Market brand marks
LISTED LISTED LISTED
STANDARD PREMIUM STANDARD
SHARES DEPOSITARY RECEIPTS
These brand marks are provided exclusively to companies listed on the Main Market. Companies may
use the brand mark across corporate and investor relations materials to showcase their association
with the London Stock Exchange and provide information as to their listing status.
More information is available on the Exchange’s website:
www.londonstockexchange.com/brandmarks
And finally…
Listing and admission to trading on the Main
Market is an efficient way for companies to access
capital to fund their growth, while simultaneously
benefiting from enhanced profile and liquidity
within a well-governed and regulated market
structure.
As an ambitious company with plans to take your
business to the next level, joining the Main Market
is an ideal way to assist you in realising your global
aspirations.
The Main Market – the standard for excellence Page 11
13. The role of the UK Listing Authority
The UK Listing Authority (‘UKLA’) is the name As a consequence, when a company wishes to
used by the Financial Services Authority (‘FSA’) make an initial public offering (‘IPO’) of its
when it acts as competent authority for listing, as securities onto a regulated market such as the
competent authority for the purposes of the Main Market of the London Stock Exchange, the
European Prospectus and Transparency Directives, UKLA has two principal roles to perform: to review
and as competent authority for certain aspects of and approve the issuer’s prospectus, and to admit
the Market Abuse Directive. These roles have a those securities to listing once it is happy that the
statutory basis in Part VI of the Financial Services issuer complies with all relevant eligibility criteria.
and Markets Act 2000 (‘FSMA’). Three
sourcebooks in the FSA Handbook implement the Listing categories
relevant rules. These are: The term ‘listed’ is used in a number of different
contexts, but in the UK this technically means
l Listing Rules – these rules include the admitted to the Official List of the UKLA. The
eligibility requirements for admission to the UKLA has created a number of different listing
Official List (or ‘listing’) and the continuing categories which determine the eligibility criteria
obligations that apply thereafter. They come and continuing obligations that apply to the issuer
partly from the European Consolidated and its securities.
Admissions and Reporting Directive, but also
include a significant body of rules that are The UKLA introduced the listing categories to help
‘super-equivalent’ or additional to the clarify that listing refers to admission to the
European minimum requirements. These Official List of the UKLA, and does not relate to
additional requirements include substantive the market to which a security is admitted to
eligibility requirements such as the need for a trading. Listing categories are also intended to
three-year track record, the class test and clarify the regulatory standards that apply to
related party regimes, and the requirement different types of listing. A Standard Listing
for a sponsor in relation to a Premium Listing. requires compliance only with EU minimum
l Prospectus Rules – these rules stem standards, whilst a Premium Listing also requires
primarily from the enactment of the European compliance with the more stringent super-
Prospectus Directive and detail the equivalent standards. Note that only equity shares
circumstances when a prospectus is required may be admitted to a Premium Listing; issuers of
and the disclosures a prospectus should other securities may only seek a Standard Listing
include. for their securities. A table showing the key
l Disclosure and Transparency Rules (‘DTRs’) differences between Premium and Standard
– these rules govern the periodic and ad hoc Listings can be found on page 18.
disclosure of information by listed companies.
Periodic information includes interim and Eligibility
annual accounts, and ad hoc disclosures, An issuer will generally select its preferred market
including major shareholding notifications and and listing category in consultation with its
details of significant developments that might advisers prior to engagement with the UKLA. For
affect the price of the securities. These rules issuers requesting a Premium Listing of their
originate from the Transparency Directive and equity shares, contact with the UKLA will be
part of the Market Abuse Directive, and also undertaken by the issuer’s appointed sponsor firm.
from the 4th/7th Company Law Directives. The role of a sponsor is to guide the issuer on the
application of the Listing Rules and the Prospectus
Page 14 The role of the UKLA
14. Listing
segment Premium Standard
Listing Equity Equity Equity Shares GDRs Debt & Securitised Misc.
category shares shares shares debt-like derivatives securities
Debt
Commercial Closed- Open- Equity Options
Examples of companies ended ended shares*
securities
types of investment investment Asset-backed Subscription
funds companies Non-equity securities warrants
companies/ shares
Convertible
securities securities
- Preference
shares
(specialist
securities)
Listing
Rule LR6 LR15 LR16 LR14 LR18 LR17 LR19 LR20
chapter
* an investment entity will only be able to benefit from this Standard Listing category for a further class of equity shares if it
already has (and only for so long as it maintains) a Premium Listing of a class of its equity shares
Rules. This includes liaison with the UKLA on requirements. The UKLA suggests that such
behalf of the issuer, and to provide certain letters are sent in as early as possible in the IPO
declarations to the UKLA that provide comfort process and that they are as detailed as possible,
that the relevant rules have been complied with including relevant background information on the
and the issuer has established appropriate nature of the issuer’s business. This is because
procedures. unnecessary delay can be caused to the timetable
where significant eligibility concerns arise late in
The UKLA maintains a list of approved sponsors the IPO process.
and conducts supervisory activities in order to
ensure that the list of sponsors contains only those Issuers seeking a Premium Listing of equity shares
firms that meet the eligibility criteria for a sponsor. will be required to comply with the more
For issuers that are seeking a Standard Listing, the substantive eligibility requirements that are
UKLA has no preference as to whom the main imposed by the super-equivalent parts of the
point of contact should be, although it should be Listing Rules, in addition to those requirements in
someone that is reasonably knowledgeable about the Listing Rules based entirely on EU law. For
the UKLA and its processes. commercial companies, these additional
requirements include the requirement for a clean
To start the eligibility process, the UKLA generally three-year track record of operations, and the
expects that a letter is submitted detailing the requirement for a clean working capital statement
issuer’s compliance with the applicable eligibility for at least the next 12 months. For investment
The role of the UKLA Page 15
15. entities, these requirements include an additional The prospectus can be published once it has been
degree of regulation in relation to the corporate formally approved by the UKLA. The actual timing
governance of the issuer. Overseas issuers wishing of that approval will depend on the issuer’s choice
to comply only with the minimum standards applied of issuance method – for example, if the issuance
by the EU Directives can apply for a Standard involves a retail offering then approval and
Listing of either equity shares or GDRs. The UKLA publication must occur sufficiently in advance of
has recently also extended the Standard Listing the beginning of the offer. A prospectus relating
category to UK issuers of equity shares which only to an introduction where no offer to the public
could previously only have had a Premium is made may be approved as little as 48 hours prior
(formerly ‘Primary’) Listing. to admission to listing.
Prospectus review and approval Listing Particulars
An admission of securities onto the Official List Although no prospectus is required for the
and the Main Market of the London Stock admission of securities to unregulated markets
Exchange requires the production of an approved such as the Professional Securities Market (the
prospectus. As the UKLA is the UK’s competent ‘PSM’), the UKLA does require Listing Particulars
authority for the purposes of the Prospectus for the admission of those securities to listing on
Directive, it typically approves prospectuses the Official List. In these cases, the process for
produced during an IPO. reviewing the document, and the content
requirements, are very similar to the requirements
Although final confirmation of an issuer’s eligibility for a prospectus. The principal difference is that
can only be given once its prospectus has been the financial information in a prospectus must be
approved, the UKLA will generally try to resolve prepared in accordance with IFRS or an
any major eligibility issues prior to starting its equivalent GAAP. In the case of Listing
review of an issuer’s prospectus. This review Particulars where securities are to be admitted to
involves an iterative process of reviewing and the PSM, the financial information can be
commenting on drafts of the prospectus until the prepared in accordance with local standards.
UKLA is satisfied that all applicable rules have
been complied with. The number of drafts Passporting
necessary to reach this point will depend on the An overseas issuer may also seek to passport onto
complexity of the issues and the quality of the a UK-regulated market, using a prospectus that
submissions. By way of example, many large IPOs has been approved by another competent
can involve the review of five or more substantive authority. Although in these circumstances the
drafts for one reason or another. UKLA will rely upon the passport to satisfy the
requirement for an approved prospectus, it will still
The UKLA seeks to comply with its published separately assess the issuer against the relevant
service standards for the document review and eligibility requirements. As part of this process, the
approval process, and aims to provide comments UKLA reviews the issuer’s proposed prospectus to
on an initial draft of a new applicant prospectus help in its assessment of eligibility, so again the
within 10 working days, and comments on each UKLA recommends that an issuer makes contact
subsequent draft within five working days. On sufficiently early in the process, and certainly
average, the review and approval of a prospectus before the prospectus has been approved by the
takes around 6-8 weeks for an IPO. home competent authority.
Page 16 The role of the UKLA
16. Post-IPO interaction with the UKLA l Timetables – the UKLA staff (or ‘readers’)
l DTRs – a listed issuer must comply with the allocated to a particular case will typically be
DTRs on an ongoing basis, as failure to working on a large number of transactions at
comply with these rules may result in the any one time. Whilst the UKLA makes every
suspension of the listing of its securities. The effort to accommodate tight timetables it
UKLA has a team dedicated to monitoring cannot deal with every issue immediately or
issuers’ compliance with the DTRs, and to meet unrealistic timetables. Complex issues
providing guidance on these rules on a real- will need time for proper consideration prior
time basis. to resolution and therefore the UKLA always
l Prospectus requirements – if the issuer advises that such issues should be brought to
seeks admission of further securities of the its attention as early as possible.
same class it will be required to produce a l Helpdesks – the UKLA offers several
prospectus, unless an exemption applies. different helpdesks to provide guidance on
Exemptions include, among other things, the the Listing Rules, Prospectus Rules, and the
issue of shares under employee share DTRs. This enables complex issues to be
schemes and bonus issues. The UKLA would discussed and agreed prior to the submission
typically be required to approve any future of documents, or in relation to significant
prospectus. transactions (Tel: +44 (0)20 7066 8333).
l Significant transactions – if the issuer has a
Premium Listing of its equity shares, it will be
required to consider whether any significant
transaction that it undertakes will need
announcement or, if it is of sufficient size,
shareholder approval. Lower size thresholds
are applied if the transaction is being
undertaken with a related party such as a
director or substantial shareholder. The
Listing Rules include rules governing the
disclosure requirements in circulars where
shareholder approval is sought, and also
clarify which circulars require UKLA approval.
The role of the UKLA Page 17
17. A summary of the key differences between Premium and Standard listings
Premium – Standard – Standard –
Key eligibility criteria Equity Shares Shares Depositary Receipts
Free float 25% 25% 25%
Audited historical financial Three years or such Three years or such
Three years
information shorter period shorter period
75 per cent of applicant’s
business supported by revenue-
Required n/a n/a
earning record for the three-year
period
Control over majority of the
Required n/a n/a
assets for the three-year period
Requirement for clean
Required n/a n/a
working capital statement
Sponsor Required n/a n/a
Key continuing obligations
Free float 25% 25% 25%
Annual financial report Required Required Required
Half-yearly financial report Required Required n/a
Interim management statements Required Required n/a
EU-IFRS or equivalent Required Required Required
UK Corporate Governance Code Comply or explain n/a n/a
Model Code Applies n/a n/a
As required by relevant
Pre-emption rights Required n/a
company law
Significant transaction
Rules apply n/a n/a
(‘Class tests’)
Related-party transactions Rules apply n/a n/a
75 per cent
No shareholder No shareholder
Cancellation shareholder approval
approval required approval required
required
This list is not exhaustive and should be read in conjunction with the FSA Handbook (Listing Rules, Prospectus Rules and
Disclosure & Transparency Rules).
Page 18 The role of the UKLA
18. Preparing for an IPO
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20. Preparing for an IPO
Initial public offerings (‘IPOs’) are among the most allowed to list on a market. Unsurprisingly, a
challenging transactions that a business can number of the UKLA’s requirements coincide with
undertake. The decision on whether to list a the attributes which investors are looking for in a
company’s shares on a public market is a company. The precise regulatory requirements are
significant one; obtaining a public quote is a major covered in the chapter ‘The legal framework for an
milestone in any company’s life. The process of IPO’ on page 31. Areas such as a demonstrable
going public is time-consuming, but it is an trading record and appropriately experienced
opportunity for a company to critically examine directors clearly help to satisfy both the regulators
itself. A company, its management and its owners and the potential shareholders. Ultimately, the
are likely to be in the public eye to a much greater ability to meet the market’s commercial
extent than before. expectations is crucial.
A company’s decision to launch an IPO must be For management and owners, an IPO may also
based on a realistic assessment of its business, its crystallise the need to examine their tax planning
management resources, its stage of development and personal wealth management. This should be
and its prospects. Public ownership offers addressed early to avoid distraction during the
significant advantages, such as access to the final, and often hectic, few weeks of the IPO
public equity and debt markets to finance growth process.
and strengthen a company’s financial position, as
well as the creation of an open market for a Pre-IPO preparation
company’s shares. However, a company will face Businesses often begin their preparations for
heightened scrutiny and greater demands on its becoming public companies well before they launch
management. the IPO process. Typically, pre-IPO preparations
take four to six months, but they can take
Planning is a key element in any IPO. In order to considerably longer. Advance preparation is a key
avoid unnecessary delays and distraction, which success factor that allows for a smooth and
could be costly, management should evaluate in efficient execution process and the ability to take
detail how it will commit adequate resources to advantage of market windows.
meet the pressing deadlines of an IPO process.
Management team
The run-up to a company seeking a listing on the A company’s management team will need to
Main Market can be broadly divided into two explain the business, its strategy and prospects to
phases – pre-IPO preparation and the IPO process investors, and demonstrate knowledge of the
itself. Pre-IPO preparation includes the critical sector, as well as its challenges, in order to gain
review of a company’s business plan and growth the support and confidence of the market. The
prospects, assessing the management team, directors of a company will be accountable to its
appointing an appropriate board, tightening new and existing shareholders for the performance
internal controls, improving operational efficiency of the business when it is a public company.
and resolving issues that may adversely affect the Therefore, as a company prepares for its IPO it
listing early on. may need to ensure that its management has
sufficient depth and breadth.
The United Kingdom Listing Authority’s (‘UKLA’)
Listing Rules set the specific regulatory Business plan
requirements that a company has to meet to be For the purposes of an IPO, a company needs a
Preparing for an IPO Page 21
21. comprehensive business plan that sets out its existing shareholders (a primary offering)
products, markets, competitive environment, l existing shareholders selling their shares to
strategy, capabilities and growth objectives. new or other existing shareholders, ie no
Companies engaging in successful IPOs tend to additional capital is raised for the business (a
have a clearly defined vision for the future secondary offering); or
performance of the business that can be l a combination of both.
articulated credibly, clearly and quantifiably.
If existing shareholders intend to sell in the IPO, it
Companies that are in mature or shrinking is helpful to know the likely quantum early so that
industries, operate within small markets, or the IPO can be planned accordingly.
provide a narrow range of products to a small and
highly specialised customer base may be Use of proceeds
unsuitable for an IPO. If a company is raising new capital, the use of
proceeds should be clearly articulated and in line
Financial performance with its strategy. In many cases, the proceeds will
A company should expect to show investors a be used to either pay down debt, fund capital
consistent pattern of top- and bottom-line growth investment or to provide working capital for
and a sound balance sheet post-IPO. For a company expansion.
seeking a Premium Listing, its financial statements
need to adhere to International Financial Reporting In determining the quantum of new capital, a
Standards (‘IFRS’). Further technical requirements company needs to consider its future capital
of the financial information required to be included structure and its ability to pay dividends at an
in a prospectus are covered in the chapter appropriate level.
‘Accounting requirements and advice through the
IPO process’ on page 43. Financial controls
The market expects companies to have proper
Growth prospects financial controls in place. In addition, the UKLA
Before investing in a company, most investors requires the sponsor to provide written
want to feel confident about its future growth confirmation of the adequacy of a company’s
prospects. A company should develop a financial financial controls. Companies contemplating a
model that quantifies its business plan and listing will therefore need to ensure that they have
expected growth. The sponsor (see page 26) may systems in place to ensure a flow of accurate,
work closely with management and external timely information.
consultants/experts to develop this model and will
conduct due diligence on the assumptions behind Board
the model and stress-test the projections. A public company needs to satisfy corporate
governance requirements. The principles are set
Raising funds? out in the UK Corporate Governance Code (the
The majority of listings take place with a ’Code’) and a company is required to comply with
simultaneous share offering to investors. This can the Code, or explain why it has not, in its
take the form of: prospectus. It is typically necessary to appoint new
members to the board who are independent and to
l raising additional capital for the business by form new committees (eg audit and remuneration).
issuing new shares in a company to new and Identifying suitable candidates can take a
Page 22 Preparing for an IPO
22. significant amount of time. Potential directors an IPO is an opportunity to realise or transfer part
often want to be involved in the IPO process at an of their wealth. Early planning of their personal tax
early stage. The sponsor frequently assists in the and financial affairs is advisable to avoid delay or
recruitment and assessment of potential board difficulty in the final stages of an IPO.
members for a company seeking a listing.
Controlling shareholders
Group reorganisation Potential investors may be influenced, negatively
The reorganisation steps undertaken in preparation or positively, by the presence of a controlling
for an IPO will vary, depending on the existing and shareholder. A company should assess what will
intended group structure. One of the key steps is happen with such shareholders post an IPO, ie
determining the jurisdiction of incorporation of the whether they will sell down some or all of their
listing entity. At IPO it is essential to ensure that holdings, continue to have board representation or
the group holds all assets, intellectual property and maintain veto rights on certain company decisions.
contractual rights necessary to carry on its In most situations, any special rights will be
business operations. Part of the group unwound and, where appropriate, a relationship
reorganisation may involve their transfer where agreement may be entered into as part of the IPO
they are currently held by related parties outside process to avoid potential future conflicts of
of the group. interest.
Change may be necessary to optimise a group’s Related-party transactions
tax position, or to remove businesses or assets Any internal transactions, compensation
that are not part of the group to be floated. For arrangements and relationships involving
example, company-owned horses, boats and so on management or the board that might be
are unlikely to be appropriate for a quoted appropriate for a private company but improper for
company. a public company must be eliminated. A company
should therefore consider whether any outside
Determine employee and management affiliations will be negatively perceived by the
compensation and incentive plans market.
As part of the IPO process, many companies
review the amount of equity owned by their top Investor relations (‘IR’)
executives and employees. Additional equity IR is the term used to describe the ongoing activity
options or other incentives at the IPO may be of companies communicating with the investment
granted to increase management and employee community. While the communication that public
ownership and to align incentives from the IPO companies undertake is a mix of regulatory and
with a company’s new investors. Remuneration voluntary activities, IR is essentially the part of
consultants can advise on the structure of any public life that sees companies interacting with
schemes, as well as trends in the appropriate existing shareholders, potential investors, research
industry. The recommendations should be analysts and journalists. Larger companies
reviewed by the sponsor and bookrunner(s) to frequently create a separate IR function to meet
ensure that the awards are in line with market the demands for information and to assist in all
expectations. communications with the market. Please refer to
the chapter ‘Managing the company’s profile’ on
Wealth management and financial planning page 69 for more detail on this topic.
For many managers and owners of a business,
Preparing for an IPO Page 23
23. IPO timetable
Private execution phase
Week 1 2 3 4 5 6 7
Process
Execution kick-off meeting ⧫
Weekly meeting/conference calls ⧫ ⧫ ⧫ ⧫ ⧫ ⧫
Due diligence
Long form report
Preparation of audited numbers
Valuation and capital structure
Forecasts finalised ⧫
Working capital report
Valuation discussion
Capital structure discussions
Agree offer size
Documentation
Draft prospectus
Prospectus filed with UKLA ⧫
UKLA review prospectus
Publish pathfinder prospectus
Publish final prospectus
Preparation of placing agreement
Auditors’ comfort letters
Marketing and roadshows
PR process
Analysts pres’n prepared and delivered
Research prepared and reviewed
Prepare and rehearse roadshow
Announce intention to float
Publish research
Pre-marketing
Price range set
Roadshow
Bookbuilding
Pricing/allocation
Settlement and closing
Stabilisation
Week 1 2 3 4 5 6 7
Active IPO execution
Page 24 Preparing for an IPO
25. IPO process
Private phase Public phase
Preparation Preliminary Analyst Investor Bookbuilding Aftermarket
of the IPO valuation presentation education
• Appoint all • Set initial • Preparations at • Announcement • Management • Admission
advisers valuation range advanced stage of intention to roadshow
float (’AITF’) • Stabilisation
• Kick-off meeting/ • Existing • Due diligence • One-on-one
weekly meetings shareholder views substantially • Publication of meetings • Research
on price, complete research
• Due diligence size, structure • Analyse demand • Investor relations
• Analyst briefing • Target
• Prepare key investors • Continuing
prospectus and obligations
other legal • Monitor market
documents
• Analyse feedback
• Develop
investment case • Refine size,
valuation
• Corporate
housekeeping
Ensure basic Decide to proceed Decide to proceed Decide to launch Price, sign placing
preparedness of with analyst with pre-marketing (size, price range agreement and Life as a Plc
company for the IPO presentation decision) allocate
Key objectives
High-quality Stable, rising Liquid trading
IPO price maximised
shareholder base aftermarket and quality
research coverage
The IPO Process extended period. Since acting as a sponsor requires
The IPO process involves both a private and public a high degree of commitment, the appointment
phase (see ‘IPO Process’ chart above). process is often ‘two-way’. Hence, the sponsor will
also want fully to understand a company’s business
Private phase before agreeing to take on the listing.
Select the sponsor The sponsor has responsibilities both to the
A company seeking a listing is required to appoint a company and to the UKLA. For example, the
sponsor. The sponsor leads a company’s team of sponsor is required to submit an eligibility letter to
professional advisers and coordinates their roles to the UKLA setting out how the company satisfies a
ensure a company successfully completes the listing number of the Listing Rules. The sponsor is also
process. A full list of approved sponsors and their obliged to consider whether “the admission of the
contact details is available on the Financial Services equity shares would be detrimental to investors’
Authority (‘FSA’) website: www.fsa.gov.uk interests”.
Often, companies approach the appointment of Appointment of other professional advisers
advisers by holding ‘beauty parades’ with a series In addition to the sponsor, a company needs to
of sponsors, asking each about their expertise, assemble a number of other advisers to guide it
experience and fees, and getting a feeling for what through the process. This includes the
it would be like to work closely with them over an bookrunner(s), lawyers (one firm advising the
Page 26 Preparing for an IPO
26. company and another firm to advise the sessions will take place on various sections of the
sponsor/bookrunner(s)), accountants, financial document. From a marketing perspective, the
public relations advisers, remuneration prospectus outlines a company’s strengths,
consultants, registrars and financial printers. strategy and market opportunity. The precise areas
Experts in valuations or sector consultants may that must be covered in a prospectus, such as the
also be appointed. inclusion of risks relating to a company, are
covered in the chapter ‘The legal framework for an
IPO timetable IPO’ on page 31.
See ‘IPO timetable’ chart on pages 24 and 25.
The sponsor is responsible for submitting drafts of
An IPO can generally be completed within 15 to 20 the prospectus to the UKLA. The UKLA is allowed
weeks. The exact timetable will vary depending on 10 business days after the first submission to
market conditions, the scope and complexity of the respond to the sponsor with a comment sheet. The
deal and a range of other factors. company and its advisers will then revise the
prospectus so that the sponsor can submit an
Kick-off meeting updated draft with the UKLA for a further review.
A kick-off meeting is usually held in person and For the second and subsequent drafts, the UKLA
involves discussions to make sure that the working responds via its comment sheet within five business
group fully understands the structure of the days. As every transaction is unique, it is impossible
transaction, the process, timetable and all other to predict exactly how long this process will take.
relevant issues. The sponsor will usually provide a However, as a rule, the timeframe is approximately
detailed organisation book that goes through all six to eight weeks from initial submission of the
these issues in detail. prospectus to the UKLA (approximately three to
four submissions) to preliminary approval ahead of
Weekly meetings launching the transaction, often with a Pathfinder
In order to ensure that the process remains on prospectus (see page 29).
track, the sponsor is likely to organise weekly
meetings/conference calls. These meetings give Due diligence
an opportunity for all parties to be kept fully up to The overall purpose of due diligence is to ensure
date on the process and for any key issues to be the accuracy, truthfulness and completeness of a
raised. company’s prospectus, and to understand any
issues associated with the company. While each
Prospectus – UKLA process professional adviser performs a different role in
Before a company can be listed, the sponsor must this process, the sponsor/bookrunner(s) will focus
get a company’s prospectus approved by the on the diligence of a company’s operations,
UKLA. Although the prospectus is a legal management, financial prospects, historical
document, it is also a marketing tool to help to sell performance, competitive position and business
shares to potential investors. A company’s lawyers strategy. The advisers will also look closely at
usually take the primary responsibility for drafting factors such as a company’s suppliers, customers,
the prospectus although the creditors and anything else that might have a
sponsor/bookrunner(s) assist a company in bearing on the offering or viability of a company as
crafting the appropriate marketing story. The a public company and on the accuracy and
drafting of the prospectus takes several weeks and completeness of the prospectus.
will involve all advisers. A number of drafting
Preparing for an IPO Page 27
27. Due diligence comprises many interrelated l litigation
processes. Business due diligence is conducted l compliance with laws and regulations
mainly by the sponsor and bookrunner(s) and is l title to principal assets
designed to verify a company’s business strategy l corporate structure
and potential for future growth. As part of the l debt covenants
information and fact-gathering process, the l environmental issues
sponsor/bookrunner(s) may conduct onsite l intellectual property.
inspections, particularly for manufacturing and
property-intensive businesses. They may also Legal restructuring, documentation and
interview company officials, suppliers and agreements
customers to understand fully every aspect of a During this stage, a company’s management,
company’s business and its financial statements. sponsor and lawyers work together to draft the
The knowledge obtained will later help the necessary legal documentation and implement any
sponsor/bookrunner(s) and management to craft a required corporate restructuring. The collective
strong, consistent message that can be used purpose of these documents is to assure investors
during the marketing process. and regulators that the IPO has been objectively
vetted for gaps, irregularities, misleading
Financial due diligence is geared toward confirming statements and other potential problems. The
a company’s historical financial results and documents include:
understanding its operational and financial
prospects. Key areas of focus include: l the placing agreement (if funds are being
raised)
l audited and interim financial statements l comfort letters
l capital structure l legal opinions
l breakdown of historical financials by business l lock-up agreements.
l detailed review of budgets
l meetings with auditors Continue to prepare a company to become a
l budget versus actual financial statements public company
l accounting policies and auditor management The sponsor/bookrunner(s) will assist a company
letters on a number of matters critical to its
l use of proceeds transformation into a public entity. These include:
l financial control systems
l working capital requirements l discussion of valuation
l debt covenants. l development of investment case
l the composition of the board and its
The financial due diligence workstreams are committees
covered in more detail in the chapter: ‘Accounting l internal controls
requirements and advice through the IPO process’ l prevailing market conditions.
on page 43.
Marketing strategy
Legal due diligence is conducted by the solicitors The bookrunner(s) and sponsor will set up a
and is the process of verifying a company’s legal comprehensive marketing plan to target specific
records, material contracts and litigation. Key investors.
areas of focus include:
Page 28 Preparing for an IPO
28. Analyst presentation
It is common practice for senior management to Considerations for overseas companies
meet with the research analysts employed by the For inclusion in the FTSE UK Index Series, it is
bookrunner(s) before the IPO and for such important for overseas companies to note that:
analysts to publish pre-deal research on a
company before the start of the roadshow. To l a company not incorporated in the UK will be
prepare fully for the presentation, several required to publicly acknowledge adherence
meetings and rehearsals with senior management to the principles of the UK Corporate
are usually required. Material information must be Governance Code, pre-emption rights and the
included in the prospectus, but considerable UK Takeover Code, as far as is practical; and
additional information will be provided to the l a company not incorporated in the UK must
analysts to ensure a full understanding of a have a free float of not less than 50 per cent.
company’s business and sector.
Details in relation to the FTSE UK Index Series
Public phase are covered in the chapter: ’London: a unique
The main components of the marketing process investment opportunity’ on page 87.
are outlined below and explained at greater length
in the chapter: ‘Generating and capturing investor investors using the research they have written.
demand during an IPO’ on page 57. This takes place on larger IPOs and is in advance
of the management roadshow.
Announcement of Intention to Float (‘AITF’)
The first time that a company provides specific Management roadshow presentation
confirmation of its IPO plans is in a public The management roadshow is a series of
announcement known as the AITF. At this stage meetings with potential investors. It typically
the marketing process begins in earnest, often includes a formal presentation by the CEO and
with publication of research by analysts connected CFO outlining the company’s business
to the bookrunner(s). Larger companies are likely operations, financial results, performance,
to have a carefully developed media PR campaign markets, products and services. As with the
to promote knowledge of the business and analyst presentation, the role of the
management to the media. sponsor/bookrunner(s) in this workstream
includes assisting a company in the preparation
Pathfinder prospectus of the presentation and organising rehearsals.
At this stage in the process, a draft prospectus
(also referred to as a Pathfinder prospectus) is Completion and pricing meeting
often made available to prospective investors. This Following the management roadshow and the
document is an almost final version of the pricing of the IPO, a completion meeting takes
prospectus. Apart from details of the precise size place where all relevant documents and paperwork
of the IPO and the subscription price of the new are reviewed in their final form by both the
shares to be offered (which are unlikely to be directors and their advisers. The exchange of new
finalised at this stage), it should include all other shares for funds typically occurs three business
relevant details. days after pricing. During this three-day period,
the shares may trade on a ‘when issued’ basis,
Investor education meaning that the bargains are not settled until the
Investor education is the process whereby the listing becomes effective.
analyst(s) referred to above market the story to
Preparing for an IPO Page 29
29. Impact Day companies and certain financial companies. In
This is typically the day after the completion some cases, expert reports will be required (eg to
meeting and is the day on which the availability of report on oil and gas reserves).
the prospectus is advertised and the listing is
officially announced to the market. Occasionally, companies may be able to IPO
when they do not meet the three-year rule on
UKLA final approval financial statements, such as when they are
The prospectus must be submitted in final form, seeking a Standard Listing. The requirements for
which will include the relevant pricing and size listing should be discussed in advance with both
information, to the UKLA for final approval. the sponsor and the London Stock Exchange or
the UKLA.
The UKLA also requires any supporting
documents, including directors’ service contracts, Summary
audited accounts and all reports referred to in the When contemplating an IPO, a company’s
prospectus, to be delivered on the date of management and its owners should not
approval. The UKLA only approves the prospectus underestimate the significant time, resources and
on the day it is dated and published. planning required in listing a company on the Main
Market.
Applications for listing and trading
At least 48 hours before admission, the formal There are two distinct stages: pre-IPO preparation
application for a listing is submitted to the UKLA. and the IPO process itself. It is imperative for the
At the same time, a formal application for success of an IPO that a company undertakes
admission to trading is submitted to the Exchange. sufficient pre-IPO preparation to ensure it is
suitable to become a public company.
Admission
This is the point at which a company’s shares are To assist in the planning process, a sponsor, which
‘admitted’ to listing and the shares are traded is usually an investment bank, should be
publicly on the Main Market. The listing is officially appointed. A sponsor is able to advise a company
granted by the UKLA in conjunction with through its pre-IPO preparation and will, during
admission to trading being granted by the London the IPO process, lead a company’s team of
Stock Exchange. professional advisers and coordinate their roles to
ensure a smooth listing process.
Specialist companies
Specific rules apply to a variety of businesses
including investment companies and resource
Page 30 Preparing for an IPO
30. The legal framework for antitle
Section IPO
Simon Witty and David Cotton
Freshfields Bruckhaus Deringer LLP
31. An IPO is just the beginning.
In 2009, we helped our clients complete 14 initial public offerings
(IPOs) globally, raising in excess of $15bn. We also completed
58 further issues, raising in excess of $62bn.
We’re proud of those statistics, but they’re only a part of the story.
We cover every kind of mandate and, because we work
hard to maintain long-standing client relationships, we get to
work with clients through the good times and the challenging.
Freshfields Bruckhaus Deringer currently acts for over a third of the
FTSE 100 and those clients know that, when the going gets really
tough, we are the law firm they can turn to for business-focused
advice on the most complex challenges.
With over 2,500 lawyers in 27 offices, we are able to offer our clients
the best legal advice for their business – wherever they need it,
whatever the jurisdiction and through every stage of development.
If you would like more information please contact any of
sarah.murphy@freshfields.com, stephen.revell@freshfields.com or
simon.witty@freshfields.com.
www.freshfields.com
Freshfields Bruckhaus Deringer LLP is proud to be the official legal services
provider to the London 2012 Olympic and Paralympic Games.
32. The legal framework for an IPO
This chapter provides an insight into the following (the ‘Official List’), and then for the Exchange to
areas: admit those shares to trading on the Main Market.
l regulations governing the Main Market and In order to obtain admission to the Official List, a
an overview of the relevant rulebooks company must meet the requirements of the
l eligibility criteria for companies seeking Listing Rules and have published, or passported
Premium and Standard Listings into the UK, an approved prospectus. The
l contents requirements for the prospectus requirements of the Listing Rules will vary
l considerations for companies located outside according to the type of listing being sought – a
the UK Premium Listing or a Standard Listing. In order to
l continuing obligations. be admitted to trading on the Main Market, in
addition to obtaining admission to the Official List,
The legal and regulatory basis of a company must comply with the Exchange’s own
the Main Market regulations as laid out in its Admission and
The Main Market of the London Stock Exchange Disclosure Standards (‘A&DS’).
(the ‘Exchange’) is governed by EU law, UK Acts
of Parliament, regulations drawn up by the Eligibility for joining the
Financial Services Authority (‘FSA’) and the Official List/Main Market
Exchange’s rules. For shares to be admitted to the Official List and
to trading on the Main Market, a company and the
EU law, through various directives and regulations, shares it issues must satisfy the relevant Official
provides the minimum standards (applicable EU- List and the Exchange’s eligibility requirements. A
wide) that apply to the Main Market. The UK has, company also needs to bear in mind, and ensure
where necessary, implemented these directives that it is able to comply with, the continuing
and regulations through the Financial Services and obligations to which it will be subject following
Markets Act 2000 (‘FSMA’) and through the listing and admission. These are described on
Listing Rules, the Prospectus Rules and the page 39 and following.
Disclosure and Transparency Rules. Among other
things, FSMA gives statutory powers in relation to UKLA eligibility requirements
listings and listed companies to the FSA, which The UKLA eligibility requirements are found in the
also acts as the UK Listing Authority (‘UKLA’). Listing Rules. There are requirements that apply to
The UKLA is also the UK’s ‘competent authority’ all listings, as well as additional requirements that
for the purposes of EU legislation. Also relevant to apply only to Premium Listings. One such
interpreting and applying the relevant EU and UK requirement that applies to companies seeking a
legislation are guidance published by the Premium Listing is that they must appoint a
Committee of European Securities Regulators ‘sponsor’, which will generally be an investment
(‘CESR’), materials published by the FSA/UKLA bank, to advise them on the Listing Rules and
(eg LIST!) and the UK Corporate Governance Prospectus Rules and to give confirmations as to
Code (formerly the ‘Combined Code’), which is their compliance with those rules and certain other
published by the Financial Reporting Council. matters to the UKLA. Although a sponsor is
required to provide advice to the company, its
Access to the Main Market is a two-stage process: primary responsibilities and obligations are owed
first it is necessary for the UKLA to admit a to the UKLA. The Listing Rules contain provisions
company’s shares to the official list of the FSA as to the independence of the sponsor and
The legal framework for an IPO Page 33
33. identifying and managing conflicts of interest ‘Free-float’ requirement
between its relationship with the company and its In order to obtain a Premium or Standard Listing,
role as sponsor (it is, for example, customary for a at least 25 per cent of the entire class of shares
sponsor also to be a bookrunner or underwriter in must, by the time of their admission to listing, be
an offering). See the chapter ‘Preparing for an held by ‘the public’ in one or more EEA states. The
IPO’ on page 19 for more detail on the role of the amount of share capital held by the public is also
sponsor and the chapter ‘Generating and capturing known as the ‘free-float’. Generally speaking,
investor demand during an IPO’on page 57 for shares are deemed held by the public unless they
more information on the role of the bookrunner(s). are held by one or more of the following:
(i) directors of the company or group members;
Eligibility requirements that apply to both (ii) persons connected with directors of the
Standard and Premium Listings company or group members; (iii) trustees of any
group employee share scheme or pension fund; (iv)
Chapter 2 Listing Rules requirements a person who has the right to nominate a director;
Chapter 2 of the Listing Rules contains basic and/or (v) persons who individually or acting in
requirements that, subject to some modifications, concert have a 5 per cent or greater interest in the
apply to listings of all types of securities. share capital.
The first set of requirements relates to legal matters This rule is to ensure that there are sufficient
and these require that the company is duly smaller and non company-related shareholders for
incorporated, validly existing and operating in the market in the shares to operate properly – that
conformity with its constitution and that its shares is, for there to be sufficient liquidity in the shares.
comply with the laws of the company’s place of Given this, the UKLA does sometimes allow a
incorporation, are duly authorised and have all smaller free-float than 25 per cent – for instance,
necessary statutory and other consents. The shares where there are shares held outside the EEA that
must also be admitted to trading on a recognised would be capable of being traded, or where the
investment exchange, such as the London Stock company’s market capitalisation is so large that a
Exchange (in practice, the listing and admission to smaller percentage might still allow for a
trading will take place simultaneously), be freely sufficiently liquid market in the stock.
transferable, fully paid and free from any liens or
restrictions on the right of transfer (save for failure This rule is of particular interest in an IPO where
to comply with a statutory notice requiring the existing owners intend to maintain a
information about interests in shares). Neither usual substantial majority stake following the listing, as
selling restrictions imposed as part of an offering it will limit the number of shares they can retain
nor a contractual lock-up arrangement would be post-IPO, especially if there is also a ‘strategic’
considered a bar on transferability for these investor with more than 5 per cent.
purposes. In addition, all the shares of the same
class as the listed shares must be listed and the Eligibility requirements for a Premium Listing
shares must have a minimum market capitalisation The eligibility requirements for a Premium Listing
of £700,000. Finally, a prospectus relating to the are found in Chapter 6 of the Listing Rules (‘LR6’).
shares must be approved by the FSA (or by another As indicated above, these go beyond the basic
EEA state competent authority and passported into requirements of the EU legislation.
the UK) and published.
Page 34 The legal framework for an IPO
34. Audited historical financial information after IPO, it is customary to put in place a
A company seeking a Premium Listing must relationship agreement between those
generally have published or filed accounts for at shareholders and the company to assist in
least the last three financial years, audited without demonstrating its operational independence.
modification (which will generally mean without
qualification), and the most recent must be for a The requirements relating to the nature and
period ended not more than six months prior to the duration of the company’s business activities are
date of the prospectus. This requirement will often intended to enable investors to make a reasonable
drive the IPO timetable and will necessitate the assessment of the future prospects of the
preparation of interim audited accounts where the company’s business. Accordingly, an issuer may
existing annual accounts are not sufficiently recent. not satisfy these provisions if its strategy, business
or financial performance in the future is expected
In addition to the above requirements, the auditors to be significantly different from that in its three-
must be independent of the company and the year track record.
company must obtain written confirmation from
them that they comply with the relevant Working capital
accounting and auditing independence guidelines. A company seeking a Premium Listing is required to
satisfy the FSA that it has sufficient working capital
75 per cent of the business being supported by for at least the next 12 months. On a practical level,
revenue-earning record, control of assets and this is generally satisfied by the working capital
independence statement to this effect included in the prospectus
At least 75 per cent of the business of a company and the sponsor’s declaration to the FSA. By
seeking a Premium Listing must generally be contrast, an issuer seeking a Standard Listing need
supported by a revenue-earning record covering the not have sufficient working capital for the next 12
period for which accounts are required under LR6 months, although if not it would need to explain in
– namely, at least three years. In practical terms, its prospectus how it intends to procure such
this means that a company that has made major capital. To support the working capital statement
acquisitions (amounting to 25 per cent or more of and, where applicable, the related declaration, the
its business) over the financial track record period company and its accountants will prepare a working
must include financial information for these capital report. The sponsor will review this report
businesses both before and after their acquisition. and conduct other related due diligence.
The form this information will take will be Warrants or options to subscribe
determined in accordance with the rules relating to The total of all issued warrants and options to
‘complex financial histories’ (rules contained, subscribe for equity share capital of the company
amongst other places, in Regulation 211/2007, must not exceed 20 per cent of its issued share
which amended the Prospectus Regulation capital.
809/2004 EC (the ‘EU PD Regulation’)).
Mineral companies and scientific
A company must also have controlled the majority research companies
of its assets for at least the three-year period for Mineral companies and scientific research
which accounts are required and be carrying on an companies are subject to additional eligibility
independent business as its main activity. Where requirements, although they are not required to have
shareholders continue to own a substantial stake a three-year, revenue-earning, audited track record.
The legal framework for an IPO Page 35
