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HOW TO MAKE THE IPO PROCESS WORK
Adam Fenner, Partner
www.olswang.com2
OLSWANG
• Leading business law firm, headquartered in London
• 4 European offices
• 25 affiliate offices in USA
• More than 50 LSE / AIM quoted clients
• 2006 / 2007: 120 deals
> $30 billion
• Dedicated Israel team: technology, media, telecoms, healthcare, real estate
www.olswang.com3
Agenda
1 Timetable
2 10 key IPO challenge areas
3 Opportunities in challenging markets
www.olswang.com4
IPO Process and Timetable
Stage 1 Negotiation of agreements for the engagement of the nominated adviser and broker, reporting accountant and registrars
Stage 2 Review corporate structure with key advisers
Stage 3 Legal accounting and due diligence
Stage 4 Preparation of the admission document
Stage 5 Senior executive and employment arrangements and terms of appointment for non-executive directors
Stage 6 Negotiation of placing agreement
Stage 7 Verification
Stage 8 Advising on directors' responsibilities and potential liabilities, corporate governance and continuing obligations
Stage 9 Pathfinder board meeting
Stage 10 Marketing roadshow
Stage 11 Impact board meeting
Stage 12 Admission
Proposed impact date
Flo
tation
pro
ces
s an
d tim
es
cales
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10 Key IPO Challenge Areas
• “Quoted Companies Alliance” Corporate Governance Guidelines: “London IPOs – A Practical Guide for International Companies”
• International Working Group
• Market professionals
• Non-executive directors
• Exchange representatives
• Best practice: IPO process and post IPO
: 30 guidance principles
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10 Key IPO Challenge Areas
LENGTHEN
CANCEL
UNDERMINE
X
X
X
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ASSIST
PROTECT
ENHANCE
10 Key IPO Challenge Areas
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10 Key IPO Challenge Areas
IPO Process
• Timing
• Resource, due diligence and documentation *
• Marketing the IPO *
• Dialogue with advisers *
• Board structure *
• Capital structure *
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Resource, Due Diligence and Documentation
Management Resource:
• Decision taking
• Valuation
• Reorganisation
• Negotiations
• Documentation
• High quality team
• Quality documents
• Advance Preparation/ Homework
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Dialogue with Advisers
• Open, co-operative, responsive
• Consensus
• Anticipate
• Material contracts
• Debt arrangements
• Negotiations
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Capital Structure
• Keep it simple
• One class
• Anti-dilution protection
• 10% limit on options
• No option discounts on IPO
• Special/veto rights = red flag to new investors
• Takeover tag along
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Board Structure
• Effective, committed, experienced management team with CEO and CFO
• Combined Code on Corporate Governance/QCA corporate governance guidelines
• Two independent non-executive directors
• Early appointment
• Terms for executives’ employment contracts
• notice periods
• options
“Without an effective board, the best business will remain unfunded by sophisticated investors”
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10 Key IPO Challenge Areas
Post IPO
• Corporate governance and the role of and relationship with non-executive directors *
• Continuing obligations and dialogue with advisers *
• Managing market expectations/communicating with the market *
• Role of CFO *
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Corporate Governance and Non-Executive Directors
• Good corporate governance practices are key
• Combined Code/QCA guidance
• Not merely box ticking
• Independent non-executive directors
• Audit, nomination and remuneration committees
• Attend all board meetings
• Access to board papers
• Annual refresh session
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Continuing Obligations and Dialogue with Advisers
• Notify market of price sensitive information:
• Financial condition
• Sphere of activity
• Business expectation of its performance
• Don’t sit on bad (or good!) news
• Primary point of contact with advisers to discuss all proposals and developments
• Other continuing obligations including dealing restrictions and substantial transactions
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Managing Market Expectations
• Prospectus
• Research note – discuss post IPO coverage with broker
• “Under promise, over deliver”
• Commit to strategy
• Develop annual programme of market contact - six monthly reporting calendar and AGM
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Role of CFO
• Long form/short form reports
• Financial model
• Project manager in the company
• Detailed knowledge of income streams
• Test projections and assumptions from a business perspective
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Opportunities in Challenging Markets
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Opportunities in Challenging Markets
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Opportunities in Challenging Markets
• Low valuations = opportunities for cash buyers and strategic acquisitions
• M&A roll ups
• Takeovers / Take-Privates
• Reverse Mergers
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Opportunities in Challenging Markets• M&A
• no shareholder consent on AIM
• no new prospectus
• paper acquisitions
• Takeovers / Take-Privates
• City Code on Takeovers and Mergers
• 6 General Principles
• 38 Rules
• 29.9% maximum control stake otherwise mandatory offer (Rule 9)
• Regulated offer timetable: 65 to 120 days
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Opportunities in Challenging Markets• Takeovers / Take-Privates (cont.)
General Principles
• Equivalent treatment for target shareholders
• Shareholders must have sufficient time to consider bid
• Target directors must act fairly
• False markets / artificial distortion
• Only announce when financing is in place
• Target must not be distracted beyond prescribed timetable
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Opportunities in Challenging Markets• Reverse Mergers
• Acquiring control of a publicly traded company
• City Code on Takeovers and Mergers – exemption from Rule 9
• New prospectus / admission document required
• Access to existing shareholder base
• Access to cash resources with no fundraising
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Wrap Up
1 Timetable
2 10 key IPO challenges areas
3 Opportunities in tricky markets
Thank you for your attention
For more informationplease contact:
Adam Fenner+44 (0)20 7067 3352
[2908623]
