Once you have decided to seek a listing of your company’s shares by way of an initial public offering (“IPO”), perhaps to raise additional capital for growth or to reduce debt, you will want to ensure the process goes as quickly and as smoothly as possible.
This article sets out some steps you can take at any early stage to help prepare your company for an IPO.
- Which Market? Which is the most appropriate market (and market segment) on which to launch the IPO? You should discuss the merits, suitability and relevant regulatory requirements of the alternative markets with your advisers and the impact a listing on each will have on the company. You should also consider the likelihood of success of an IPO of your company on that market, and the likely fee exposure.
- Advisors: You will need to appoint appropriate advisors early on and enter into engagement letters with them. Your team is likely to include lawyers, accountants, an investment bank and PR consultants. You may also need a sponsor, broker and nominated advisor depending on the type of listing sought and the extent of the role played by the investment bank. Your regular advisors are a good place to start as they will be able to refer you to a suitable firm if they do not possess the expertise and resources to advise on an IPO.
- Managing the process: The IPO process can be very time consuming and onerous. The core team would normally include a senior director (with authority to make decisions on behalf of the board); an in-house financial officer who can co-ordinate the financial work, an in-house lawyer to co-ordinate the legal work and a well-regarded non-executive director with applicable experience. To gain the confidence of potential investors the team will need to explain the business of the company, its strategy and prospects and demonstrate knowledge of the sector. In addition you will need to dedicate a significant amount of management time to the due diligence and verification exercises that are an essential part of the IPO process. A number of important board briefings, investor presentations and meetings will be required to approve the IPO and raise funds.
- Corporate structure: Preliminary advice will indicate whether any changes will be needed to the company’s corporate structure to make it transparent and a suitable vehicle for listing. Any company reorganisation and changes to the company’s constitution; share capital and shareholder arrangements required for an IPO should be considered at an early stage.
- Other corporate matters: You should consider the impact of an IPO on the company’s share schemes and pension schemes. Major contracts should be reviewed to see if they contain change of control clauses which may be triggered on an IPO. Key intellectual property rights should be checked to verify ownership and both these and insurances should be reviewed to ensure the level of protection offered to the company is adequate following the IPO. Consider whether there are appropriate financial controls to ensure a flow of accurate and timely information going forward. Are any new employment incentive plans to be put in place, having regard to best practice for a listed company? What arrangements with controlling shareholders and related parties are required? Shareholder tax planning should also be considered.
- Corporate Governance: Most stock exchanges demand very high standards of corporate governance and you will undoubtedly need to take steps to ensure the company has, post IPO, an effective and appropriate level of corporate governance. You may need to expand your board of directors to include independent and non-executive directors as well as establishing various committees reporting to the board e.g. risk committee; remuneration committee; audit committee and nomination committee, as well as various formal corporate policies.
- Financial information: Depending on the listing chosen, your company may need to submit three years worth of audited IFRS financial statements. You should discuss this with your financial advisors early on because if these records are not currently available it will be a serious task to undertake at substantial cost. Even if this information is available, significant changes may be required to the way in which your financial statements are prepared going forward.
- Business Plan: A business plan with a realistic assessment of the business, strategy, stage of development, markets and competitors will be required. This will be used to help market the company. A valuation of the business will also normally be needed.