One key to a successful IPO is having the right teams in place, from your internal team through to your advisers. It can be a long process, but don’t worry, we’ve been through it before and the Travers team can help you through each step. We have set out below a few of the key legal workstreams in a successful IPO.
Main Market listings
AIM listings
Key IPO Workstreams
Due diligence
The due diligence process is a comprehensive investigation of a company’s business, financial position, prospects and the major risks associated with its business. It is largely an exercise in gathering and reviewing all of the information (financial, business and legal) in order to determine the information that will be disclosed in the registration document and prospectus and whether any issues must be addressed prior to the IPO. Unlike in an M&A process, time needs to be allowed to fix such issues before IPO or for any issues to be disclosed in the registration document and prospectus.
Registration document and prospectus drafting
For Main Market IPOs, a registration document is approved by the FCA and published before research is circulated and the contents of the registration document will form a significant part of the subsequently published prospectus, which will be the formal offering and admission document. The due diligence process helps relevant advisers draft a high-quality registration document and prospectus which both complies with the relevant rules and content requirements and frames the company’s business in the appropriate manner for marketing purposes.
Verification
In the UK, there is no formal distinction between due diligence and verification, but verification has evolved over time to describe the process of checking statements in a registration document and prospectus to ensure that the documents are true, accurate and not misleading. Verification on transactions with a significant US-tranche (and 10b-5 letters delivered by legal counsel to the company and banks, as discussed further on page 10) often focuses on identifying supporting information for key points of disclosure only. Other documents, such as the analyst presentation and inventor presentations, are subject to verification as well.
Underwriting agreement
The underwriting agreement is prepared by the banks’ counsel (usually later in the process) and sets out the relationship between the company, the selling shareholder(s) (if any), the directors and the bank(s) including the mechanics of the IPO and warranties and indemnities in favour of the banks. The typical drafting process would usually involve written comments being received from the company and its counsel (and selling shareholders, if any), followed by negotiation and the production of subsequent drafts.
Group reorganisation
Although a pre-IPO reorganisation is not always required, one may be necessary if the structure of the group is not conducive to an IPO, including, for example if the company is not domiciled in the UK, or if the company has a number of different share classes or if it is not possible to re-register the existing holding company as a public limited company or plc.
Analyst research and analyst presentation
A detailed and fairly lengthy analyst presentation is typically prepared by the bank(s) and the company. Analysts from the banks are invited to attend the presentation which is conducted by senior management of the company and normally comprises a presentation of the business followed by an extensive question and answer session. For Main Market IPOs, analysts unconnected with the banks may also be given access to the same content. The analysts use this information to draft an extensive report on the company, its markets and future prospects. An analyst’s report is independent of the company. To help ensure that there is a common base for both the analyst report and the registration document and prospectus, all material information that is included in the analyst presentation must be set out in the registration document and prospectus.
Roadshow
The roadshow consists of a detailed presentation given by senior management of the company to a select audience of institutional investors in multiple 1:1 meetings following the launch of the transaction. All material information that is included in the inventor presentation must be set out in the registration document and prospectus.
Long form, short form and working capital reports
The reporting accountants will produce a long form report that provides a detailed financial and management history of the business as well as commentary on the company’s financial position. The short form report is published in the registration document and prospectus and contains profit and loss account and balance sheet information, cash flow statements and accounting policies covering the latest three financial years (or such shorter period as the company has been in operation) and any interim period and the audit reports in respect of each year and interim period. The reporting accountant will also prepare a report for the sponsor on the company’s projected working capital position over the 12 to 24 months following the IPO and the company’s financial reporting procedures.
Corporate governance
It is likely that the company will need to make significant changes to its governance structure and practices to align with market standards and practices of a listed company. Typically this would include recruiting two or more independent non-executive directors and reducing the total number of executive directors on the board. Companies with a Main Market listing are required to comply with the UK Corporate Governance Code or explain why they do not (otherwise known as “comply or explain”).
