The Float Guide How to float a company on the London Stock Exchange

Transcription

1 The Float Guide How to float a company on the London Stock Exchange Contact: Alan Kartashkin Moscow akartashkin@debevoise.com James C Scoville London jcscoville@debevoise.com

2 INTRODUCTION This guide gives an overview of what is involved in listing a company on the London Stock Exchange. It is a practical manual covering all aspects of a float from prerequisites through to life after the float.

3 Contents Executive summary 3 Prerequisite to floating. 6 Float team 8 Preparing the company The prospectus 14 Dealing with regulators Due diligence and verification Marketing the float. 24 Pricing Life after the float Float timetable 30

4 EXECUTIVE SUMMARY Legal framework In order to float a company on the main securities market in the United Kingdom, it is necessary for the company to apply to have its securities: (1) admitted to listing on the Official List; and (2) admitted to trading on the Main Market of the London Stock Exchange. The UK Listing Authority (UKLA), a division of the UK Financial Services Authority, regulates the Official List (and oversees the Prospectus Rules, Listing Rules and Disclosure Rules and Transparency Rules, which govern admission criteria and continuing obligations) and the London Stock Exchange regulates the Main Market (and oversees the Admission and Disclosure Standards). As a result, companies must deal with both, although the UKLA will exercise the more substantive degree of oversight over the application process. Why float? The following are the most common reasons for floating a company: access to capital both at the time of the initial listing and in the future through further capital raisings; opportunity for existing shareholders to realise the value of their investment, in whole or in part, in the company; creation of a market for the company s shares, with improved valuation that a London listing generally brings; and ability to make acquisitions by offering listed securities rather than, or in addition to, cash as consideration. Does my company qualify? There are a number of eligibility requirements which any company seeking to be admitted to listing on the Official List must satisfy, including: the expected aggregate market value of the securities to be listed must be at least 700,000 in the case of shares and depositary receipts; the securities must be freely transferable, and in the case of shares, fully paid; the securities must be admitted to trading on the Main Market of the London Stock Exchange; and the company must publish a prospectus approved by the UKLA. If the company is seeking to list shares, it may apply for either a Premium Listing or a Standard Listing. A Premium Listing imposes stricter eligibility criteria and more extensive post-listing obligations. Other securities, such as depositary receipts, may only be listed on the Standard Listing segment.

5 What will it cost? At present there is an application fee payable to the UKLA of 225 plus an additional 100 per each additional issue of securities with its own International Securities Identification Number. In addition, there is a vetting fee payable to the UKLA, which for a prospectus is currently 6,270, along with a new applicant fee of 1,430. For particularly large or complex offerings, an additional vetting fee may become payable. An admission fee is also payable to the London Stock Exchange, which is calculated by reference to the market capitalisation of the Company. The maximum fee payable in 2011 is 388,173. In addition, fees will be payable to the various members of the float team (see below). How long will it take? The entire process from initiating the IPO process through to trading on the LSE commencing is approximately four to six months. However, it may well be the case that the company will need to implement necessary corporate restructurings or enhance its board and corporate governance prior to listing, which may add to the timetable. Who is on the float team? The float team is made up of a sponsor, underwriters, accountants, lawyers and others, such as PR consultants, printers, a share registrar and various experts who have been engaged to produce any necessary reports in connection with the prospectus. Is my company ready? Assuming that the company satisfies the eligibility requirements, it will need to review its corporate structure (including the composition of its board, its articles of association and capital structure), corporate governance procedures and any other issues which could affect the UKLA s eligibility criteria, the valuation of the company in the IPO or its ability to meet the continuing obligations imposed on it once listed. What goes in the prospectus? A company must publish a prospectus which has been approved by the UKLA whenever a company either offers transferable securities to the public in the UK or requests the admission of transferable securities to trading on a regulated market (for example, the Main Market of the London Stock Exchange), subject to certain limited exemptions. Under the UK Prospectus Rules which implement the requirements of the EU Prospectus Directive applicable across the EU a prospectus must contain all information necessary to enable investors to make an informed assessment of: the assets and liabilities, financial position, profits and losses, and prospects of the issuer of the company s securities and of any guarantor; and the rights attaching to such securities. The Prospectus Rules also contain specific requirements that depend on the type of securities being listed. In practice, the prospectus must include extensive information on, among other things, the company (including its business, board of directors and management, principal shareholders and capital structure); an operating and financial review of its financial performance; financial statements (for the last three financial years and, if the

6 Prospectus is dated more than nine months after the end of the financial year, an interim period) prepared in accordance with International Financial Accounting Standards or another permitted standard; the industry in which the company operates; the offer itself and associated risk factors. The prospectus must be submitted for review and approval by the UKLA. They will typically have extensive comments, leading to revision of the document. Usually, several drafts must be submitted before the UKLA approves ( stamps ) the prospectus. What is due diligence? When a prospectus is required it is advisable for the company s advisers to carry out a comprehensive due diligence exercise in order to ensure that the prospectus complies with the relevant legal requirements and to protect the persons responsible (including the company and, in the case of share prospectuses, its directors) from any liability arising from a failure to satisfy such legal requirements. The due diligence exercise is usually carried out by the company s internal personnel, investment banks, accountants and lawyers, although the final responsibility for the content of the prospectus is the company s and (in the case of share prospectuses) its directors. How will the float be marketed? Typically, marketing of an IPO is carried out through an extensive process that includes a premarketing period targeting potential institutional investors and more formal management roadshows following the publication of a preliminary prospectus. Publicity regarding the marketing will be allowed, so long as it meets restrictions under applicable securities laws. What else is involved? The company s applications will be reviewed by the UKLA and the London Stock Exchange. Once approved, the company s securities will be admitted to listing and trading following announcements via a regulated information service. A listed company must comply with extensive continuing obligations. The Alternative Investment Market (AIM) As an alternative to applying for admission to the main market of the London Stock Exchange, a company may instead elect to list on the Alternative Investment Market of the London Stock Exchange (AIM). Since AIM does not prescribe a minimum trading record or market capitalisation, it may be suitable for companies with lower capitalisations or start-up entities. Admissions to AIM are subject to the AIM Admissions Standards of the London Stock Exchange rather than requirements of the EU Prospectus Directive and do not involve an application to the Official List.

7 PREREQUISITES TO FLOATING Companies may choose between a Premium Listing or Standard Listing on the Main Market of the London Stock Exchange, or listing on the Alternative Investment Market, with different requirements for listing and continuing obligations imposed depending on which type of listing is selected. Companies seeking to have their securities listed on the Official List of the UKLA and admitted to trading on the Main Market of the London Stock Exchange have two options: a Premium Listing and a Standard Listing. CHOOSING BETWEEN A PREMIUM LISTING OR STANDARD LISTING There are a number of similarities and differences between a Premium Listing and a Standard Listing. In general terms, a Standard Listing is more straightforward to apply for and once achieved, a company with a Standard Listing will have to adhere to fewer continuing obligations (see this guide s chapter on Life after the float ). Moreover, a company with a Standard Listing is subject to much less extensive mandatory corporate governance standards. In order to be eligible to apply for a Standard Listing, a company must satisfy the following requirements: the expected aggregate market value of the securities to be listed must be at least 700,000 in the case of shares and depositary receipts; the securities must be admitted to trading on the Main Market of the London Stock Exchange; at least 25 per cent of the shares or depositary receipts must be held in public hands in the European Economic Area (EEA) at the time of admission; and the company must publish ap approved by the UKLA (unless an exemption applies). In order to be eligible to apply for a Premium Listing, a company must meet the Standard Listing criteria and, in addition: appoint a sponsor; prepare audited consolidated accounts for the last three years ending not more than six months before the date of the prospectus; demonstrate that it has a track record of at least three years of trading covering 75 per cent of the business of the company (subject to exemptions for certain specialised issuers such as mineral companies) and that it controls the majority of the company s assets for such period; have sufficient working capital available for the next 12 months from the date of publication of its prospectus; comply with the Listing Principles (six fundamental principles that are designed to ensure market confidence and fair and orderly markets); and establish and maintain adequate financial reporting procedures.

8 A company with a Premium Listing must meet these and other super-equivalent rules, which are higher than the EU minimum standard. As such, Premium Listings may be considered to be more difficult to achieve owing to more stringent transparency rules and higher regulation but the benefit is that a Premium Listing engenders greater investor confidence. In addition, it is generally a condition to inclusion in the most prominent indices that the shares be admitted with a Premium Listing. Only equity shares may be admitted with a Premium Listing. Other securities, including depositary receipts representing shares, may only be admitted with a Standard Listing. ALTERNATIVE INVESTMENT MARKET In addition to its Main Market, the London Stock Exchange also operates the Alternative Investment Market (AIM) which, since it does not prescribe a minimum trading record or market capitalisation, may be suitable for companies with lower capitalisations or start-up entities. Admissions to AIM are subject to the AIM Admissions Standards of the London Stock Exchange rather than requirements of the EU Prospectus Directive. SHARES OR DEPOSITARY RECEIPTS One question to be considered by a non-uk company is whether to offer and list its shares directly or instead use a Depositary Receipt (DR) structure. A DR is a negotiable receipt issued by a depositary bank, which represents a specified number of underlying shares which have been deposited with a custodian. Under the deposit agreement for a DR facility sponsored by the company, the depositary accepts deposited shares, issues DRs evidencing such shares, registers transfers of DRs, converts dividends into the nominal currency of the DRs and distributes them to DR holders, and mails to DR holders annual reports and proxy materials which the company furnishes to its shareholders. DRs have been developed primarily to provide a more efficient settlement and clearance process than would otherwise be available for the underlying securities. As DRs may only be admitted with a Standard Listing, the regulatory regime for DRs listed on the London Stock Exchange is less extensive than compared with a Premium Listing of shares or even a Standard Listing of shares.

9 FLOAT TEAM In order to run the listing process efficiently, a company applying for listing should appoint a float team of experienced professional advisers and service providers. SPONSOR The Listing Rules provide that a company applying for a Premium Listing of its shares must appoint a sponsor. A sponsor is usually an investment bank, and is typically one of the lead underwriters. The entity acting as sponsor must be approved by the Financial Services Authority. The sponsor s main responsibilities are: to assess the suitability of the company for listing, including whether the company has satisfied, and is capable of satisfying on an ongoing basis, the relevant requirements of the Listing Rules, Prospectus Rules and Disclosure Rules and Transparency Rules; to provide guidance and advice to the company in connection with its application for listing; and to act as the main point of contact with the UKLA in the listing process. The sponsor owes to both the company and the UKLA various duties, such as the duty to act with due care and skill in relation to any act connected with the listing application and the duty to deal with the UKLA in an open and cooperative way. A full list of sponsors which have been approved by the UKLA and their contact details is available on the Financial Services Authority s website: A sponsor is not required for a Standard Listing. UNDERWRITER The underwriter agrees to subscribe for any securities which are not taken up by investors in return for a fee, which is typically up to five per cent of the amount underwritten. This in effect guarantees the number of securities to be issued and the amount of money to be raised thereby, the underwriter having assumed the risk of the offer being undersubscribed. The underwriter may allocate some or all of this risk to sub-underwriters, although the company is not a party to such arrangements. However, where an offer is made on a book-built basis (see Pricing ), the underwriter does not assume the risk until all of the bids have been received. THE NOMINATED ADVISER (NOMAD) (FOR AN AIM LISTING ONLY) For AIM listings, the NOMAD is responsible for guiding the company through the listing process, conducting due diligence on the company and ensuring that it is suitable for admission to AIM. The NOMAD may be one of the underwriting banks. If listing on AIM, the company is required to maintain a NOMAD for so long as its securities remain listed on AIM. LAWYERS The company s lawyers will:

10 prepare the company for listing, including assisting with the implementation of the necessary procedures to enable the company to comply with the continuing obligations; advise the company on all legal matters relating to the application for listing; carry out the legal due diligence and the verification of the Prospectus (see Due diligence and verification below); and be principally responsible, with the company and the other advisors, for drafting of the prospectus. The lawyers will also be involved in the negotiation and drafting of all other documents required in connection with the application for listing (for example, the underwriting agreement and service contracts of any new directors). AUDITORS The company s auditors work closely with the company s management in auditing the financial statements to be included in the prospectus, as well as preparing other financial disclosure in the prospectus. In addition, the auditors deliver to the underwriters and the company s board of directors a comfort letter confirming the accuracy of financial information in the prospectus that ties to the accounting records of the company. If the company is listing shares and seeks a Premium Listing, or in connection with an AIM listing, the company s auditor will also typically provide the sponsors/underwriters with a memorandum describing the company s internal control systems and a working capital statement supporting related disclosures in the prospectus. PUBLIC RELATIONS CONSULTANTS Floats are significant events in a company s history and often lead to substantial amounts of publicity about the company. PR consultants can help manage this publicity and the company s outreach to the press during this period. Given the legal restrictions on communications with the market by the company under many securities laws, the company s lawyers should carefully review all such communications. REGISTRAR When offering shares, the company should appoint a share registrar to: handle the receipt of all applications (many of which are now electronic); send out share certificates once the shares have been allocated and issued, manage the company s share register on an ongoing basis; and liaise with CREST regarding settlement (see Electronic Settlement via CREST ).

11 DEPOSITARY If the company is listing depositary receipts rather than shares, it will need to select a Depositary that will issue the DRs representing shares in the company to investors in the IPO. After the IPO, the depositary facilitates payment of dividends in US dollars or, in some cases, Euros (v the home-country currency of the company) and coordinates delivery of documentation (eg, annual reports, shareholder proxies) to depositary receipt holders. OTHER EXPERTS The company may also need to engage accountants, printers and potentially mineral experts or other such experts depending on the company s business. In particular, if the company is a mineral company, the company will need to prepare a mineral expert s report attesting to the company s reserves, which will be included in the Prospectus. The expert s report must satisfy specific requirements set out by the European Securities and Markets Authority (ESMA), the European Supervisory Authority. Property companies must likewise include valuation reports meeting ESMA standards.

12 PREPARING THE COMPANY Before applying for listing on the Official List and admission to trading on the Main Market of the London Stock Exchange, the company and its advisers will need to ensure that the company complies with the eligibility requirements of the Listing Rules and Admission and Disclosure Standards and is suitable for a listing, as well being an attractive investment opportunity for potential investors. ELIGIBILITY REQUIREMENTS THE LISTING RULES The Listing Rules require the company to meet various eligibility requirements. The main requirements are set out below: The company must be duly incorporated and operate in conformity with its constitution. The securities must be duly issued in accordance with the relevant national law and the company s constitution. The securities must be admitted to trading on a regulated market (for example, the Main Market of the London Stock Exchange). The securities must be freely transferable, and in the case of shares, fully paid. The expected aggregate market value of the securities must be at least 700,000 in the case of shares and depositary receipts. Following the admission to listing, at least 25 per cent of the securities must be in public hands in the EEA. A prospectus must be approved by the UKLA. In addition, a company seeking a Premium Listing must also: appoint a sponsor; prepare independently audited consolidated accounts, prepared in accordance with IFRS or an equivalent standard, for the last three years ending not more than six months before the date of the Prospectus; demonstrate that at least 75 per cent of the company s business is supported by a three-year trading record; it controls the majority of its assets and has done so for the previous three years; and it will carry on an independent business as its main activity; satisfy the UKLA that it and its subsidiaries (if any) have sufficient working capital available for at least the next 12 months from the date of publication of its prospectus; comply with the Listing Principles;

13 procure that the total number of all issued warrants and options to subscribe for shares of the company does not exceed 20 per cent of the issued share capital as at the time the warrants and options were issue; and ensure that the shares are eligible for electronic settlement. The UKLA may, in its sole discretion, waive certain requirements. It is usually advisable to contact the UKLA in advance of the formal listing process to discuss any issues that are likely to arise in connection with the company s eligibility for listing and, if necessary, seek any derogation from the listing requirements. The company should submit an eligibility letter to the Financial Services Authority before submitting the prospectus, which should list any potential eligibility issues and provide a detailed explanation of the company s business model, corporate structure and corporate history. Where the company applying for listing is incorporated in a non-eea State it may find it more difficult to comply with these requirements. For example, if the company s accounts have not been prepared to IFRS or an accepted equivalent standard (such as US GAAP) the company will have to prepare additional financial statements in accordance with such a standard. ELECTRONIC SETTLEMENT VIA CREST In the case of the Main Market of the London Stock Exchange, the requirement for electronic settlement means that the shares must be capable of being admitted to the CREST System, an electronic share settlement system operated by Euroclear UK and Ireland Limited on which securities admitted to trading on the Main Market of the London Stock Exchange are traded. Only shares of a UK, Irish or Channel Islands company can be admitted to the CREST System. Therefore any other company must issue depositary certificates representing the underlying shares and admit these to the CREST System, although the shares themselves are listed on the Official List. THE ADMISSION AND DISCLOSURE STANDARDS The Admission and Disclosure Standards contain the eligibility requirements for an application for admission to trading on the Main Market of the London Stock Exchange. The Admission and Disclosure Standards require compliance with the Listing Rules, and also, among other things, that the securities are capable of being traded in a fair, orderly and efficient manner. CORPORATE STRUCTURE The company should carry out a preliminary due diligence exercise in order to determine whether any changes to the corporate structure of the company and its group are necessary. In particular, the company may need to appoint additional independent non-executive directors to its board of directors or amend the provisions of its constitutional documents relating to shareholder rights and the ability to transfer shares. It will also want to ensure that the corporate structure is efficient from a tax standpoint, and consider disposing of any noncore assets or take other decisions so that the company is an attractive investment at the time of float. CORPORATE GOVERNANCE Once a company s securities are listed, the company may need to comply with the UK Corporate Governance Code, particularly if it is offering shares (see Life after the float ). In

14 preparation for this, the company should put in place, or at least plan to put in place depending on the transaction involved, appropriate corporate governance procedures.

15 THE PROSPECTUS A company applying for listing will be subject to the EU Prospectus Directive as implemented in the UK, and as a result will need to publish a prospectus which will enable investors to make an informed assessment of the financial position and prospects of the company and the rights attaching to such securities. WHY PUBLISH A PROSPECTUS? In common with other European countries following implementation of the EU Prospectus Directive in 2005, the UK Financial Services and Markets Act 2000 requires a company to prepare a prospectus which has been approved by the UKLA when such company (1) offers transferable securities 1 to the public or (2) requests the admission of transferable securities to trading on a regulated market situated or operating in the UK (such as the Main Market of the London Stock Exchange), subject to certain limited exemptions. Failure to do so constitutes a criminal offence. The definition of offer to the public is broad, and includes any communication presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to the securities. A key exception is where offers are made solely to qualified investors (as defined in the EU Prospectus Directive as implemented in the UK); thus, if securities are only to be offered to qualified investors and the securities will not be listed in the Main Market of the London Stock Exchange or another regulated exchange (for instance, they will be listed on AIM instead), then no prospectus is necessary. For this reason AIM listing offering documents are not typically required to be reviewed and approved by the UKLA. For a Premium or Standard Listing, the prospectus must be reviewed and approved by the UKLA if the UK is the home-member State with respect to the company generally, if the company is located in the European Union, the country in which the issuer has its registered office or, for non-eu issuers, the country where the securities are first offered to the public. The determination of a company s home Member State can be complex and should be reviewed in advance of the listing process. A supplementary prospectus may also be required if, between the date on which the original prospectus is made available and the date that the offer closes or trading in the securities on a regulated market begins, a significant new factor, a material mistake or inaccuracy relating to the information included in the original Prospectus arises or is noted. Supplementary Prospectuses also must be reviewed and approved by the UKLA, and should therefore be promptly prepared for publication in a timely manner. PROSPECTUS CONTENTS General contents requirement The content requirements for a prospectus are set out in the Prospectus Rules, which implemented the EU Prospectus Directive in the UK. Under the Prospectus Rules, a prospectus must contain the information necessary to enable investors to make an informed assessment of: the assets and liabilities, financial position, profits and losses, and prospects of the issuer of the company s securities and of any guarantor; and the rights attaching to such securities.

16 In addition, this information must be presented in a form which is comprehensible and easy to analyse and prepared having regard to the particular nature of the company s securities and the company itself. Specific contents requirements The Prospectus Rules, together with guidelines and recommendations published by ESMA, provide more specific and detailed content requirements. The specific requirements vary depending on the type of security offered but generally include information on the company (including its business, board of directors and management, principal shareholders and capital structure); an operating and financial review of its financial performance; financial statements (for the last three financial years and, if the prospectus is dated more than nine months after the end of the financial year, an interim period) prepared in accordance with International Financial Accounting Standards or another permitted standard; the industry in which the company operates; the offer itself and associated risk factors. As the Prospectus Rules implement the EU Prospectus Directive, the content requirements are generally the same for prospectuses used in UK listings as they are for listings in other EU Member States. Omission of information The UKLA has the discretion to authorise the omission of required information in certain very limited circumstances (for example, where its disclosure would be contrary to the public interest). The possible need for such derogation should be brought to the UKLA s attention at the time of discussion of the Eligibility Letter or early in the prospectus review process. FORMAT A prospectus may consist of separate documents (a summary, a registration document containing prescribed information concerning the company and a securities note containing prescribed information concerning the securities) or only one document; the latter being common in the case of an initial public offering. Where the company prepares a single document, the document must include the following parts in the following order: a clear and detailed table of contents; a summary; a description of the risk factors linked to the company and the type of security to be listed; and all other information required by applicable rules (including all information which would otherwise have been contained in the registration note and the securities note). The summary should convey, briefly and in non-technical language, the essential characteristics of, and any risks associated with, the company and the company s securities. It should not exceed 2,500 words and must contain a warning that, among other things, the summary should be read as an introduction to the prospectus and any decision to invest in the securities should be based on consideration of the prospectus as a whole by the investor. INCORPORATION BY REFERENCE It is possible for a company to incorporate certain information by reference into a prospectus provided that such information has previously been approved by, filed with or notified to the

17 UKLA and is the latest available to the company. This option will therefore generally be available only to companies that are already listed in the UK. If any information is incorporated by reference, the prospectus must contain a cross-referenced list. This saves the company the additional cost of reproducing and printing such information, for example, its audited accounts and memorandum and articles of association that has previously been filed with the UKLA).

18 TYPICAL CONTENTS OF A PROSPECTUS A typical prospectus for an initial public offering will typically contain, among others, the sections set out on this page. 1 Summary 2 Risk factors 3 Details of the offer 4 Information on the company 5 Industry background 6 Company historical financial information 7 Operating and financial review 8 Regulation 9 Description of share capital 10 Plan of distribution 11 Taxation 12 Additional information 13 Financial statements

19 RESPONSIBILITY AND LIABILITY Persons responsible for the prospectus Under the UK Prospectus Rules, the following persons are responsible for the prospectus in respect of shares: the company; the directors of the company; any person who has agreed to be named, and is named, in the prospectus as a director or as having agreed to become a director of the company either immediately or at a future time; and any person who accepts, and is stated in the prospectus as accepting, responsibility for the prospectus; In the case of a company offering DRs, only the company and any other person who accepts responsibility for the prospectus (but not the company s directors) are responsible for the prospectus. A prospectus must contain a statement from each of the persons responsible to the effect that, having taken all reasonable care to ensure that such is the case, the information contained in the prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. Liability Persons responsible for the prospectus risk both civil and criminal liability if the contents of the prospectus are in any way inaccurate or misleading. For this reason, it is crucial that the company and its advisers carry out adequate due diligence and verify the prospectus (see Due diligence and verification ). The prospectus is typically the result of weeks of collaboration between representatives of the company, its investment bank (and sponsor), its lawyers and accountants. Although the directors of the company will be unlikely to attend the various drafting sessions, they should be encouraged to review advanced copies of the document to ensure it is complete and accurate since they will ultimately be responsible for it. APPROVAL PROCESS The UKLA is responsible for vetting and approving a prospectus. The approval process can be quite lengthy and so an adequate time period for this to be accomplished should be factored into the transaction timetable (see Float timetable ). In general, the UKLA commits to providing comments on the first submission of a draft prospectus within ten working days, and within five working days on subsequent submissions. The company should submit drafts of the prospectus and any accompanying documents (such as documents incorporated by reference) to the UKLA using the ELS system, an electronic submission system. Drafts must be annotated in the margins to indicate compliance with the applicable rules. Once the prospectus is in final form, the following documents should be submitted to the UKLA together with the relevant fee:

20 a completed Form A; the final form prospectus; a checklist stating on which page each of the applicable rules has been complied with; any document incorporated by reference; the contact details of the company; and a completed Document Publication Form. FILING AND PUBLICATION As soon as a prospectus has been approved by the UKLA, it must be filed with the Financial Services Authority via the National Storage Mechanism, an online facility for the storage of regulated information in the UK which can be accessed at: It must also be made available to the public as soon as practicable after such date and, in the case of an initial public offer, at least six working days before the end of the offer. This is generally achieved by making it available at the offices of the company and its financial advisors, or by publishing it in electronic form on the company s website, although particular care should be taken to shield the prospectus from those in restricted jurisdictions being able to access it. This is usually done by placing the prospectus (and any other marketing materials) behind a click-through screen where viewers must certify that they are not located in a jurisdiction that prohibits distribution of the prospectus. Securities laws of other jurisdictions The company and its advisors will need to make sure that the offering and the prospectus satisfy any applicable securities laws requirements in jurisdictions outside of the UK where the offering is being made. In particular, most offerings typically include a tranche sold to qualified institutional buyers (QIBs) in a private placement in the United States. Accordingly, the publicity and other restrictions applicable to US private placements will need to be closely followed, and offering participants will be subject to potential liability under the US securities laws, in particular Rule 10b-5 under the US Securities Exchange Act of In order to avoid any potential liability under those laws, the company and its advisors will want to carry out an adequate due diligence process to ensure that the prospectus does not include a misstatement or omission which is material to investors (see Due diligence and verification ).

21 DEALING WITH THE REGULATORS A company seeking admission to the Official List and the Main Market of the London Stock Exchange will need to liaise with the UKLA and the London Stock Exchange during the application process and beyond. As discussed above, a company seeking to be listed on AIM is not required to have its listing approved by the UKLA, and thus will primarily be engaged with the Nomad which will ensure that it has complied with the AIM Rules prior to applying to the LSE. APPLICATION FOR ADMISSION TO LISTING The UKLA The Financial Services Authority was nominated by the Financial Services and Markets Act 2000 as the competent authority for the purposes of the EU Prospectus and Transparency Directives. This gives it the authority to, among other things, maintain the Official List and regulate companies seeking to apply for admission to listing and their compliance with their continuing obligations under the Listing Rules, Prospectus Rules and Disclosure Rules and Transparency Rules (see Life after the float ). The division of the Financial Services Authority which undertakes these responsibilities is the UKLA. The application As described above, the company s first contact with the UKLA is typically to confirm that it will be eligible for listing and, then, in having its prospectus submitted and reviewed for approval. In order to obtain a listing, the company must also formally apply for a listing and arrange a listing hearing at which the UKLA will review its application and supporting documents. This will need to be scheduled to occur following marketing of the offering and pricing, so that the securities are admitted immediately following settlement of the offer. The following must be submitted to the UKLA no later than 12pm at least two business days prior to the listing hearing: a completed Application for Admission of Securities to the Official List Form; the prospectus as approved by the UKLA; any circular that has been published in connection with the application (if applicable); any approved supplementary prospectus or approved supplementary listing particulars (if applicable); written confirmation of the number of securities to be allotted pursuant to a resolution of the company s board of directors; and the relevant listing fee (which, at the date of publication of this guide, is 225 plus 100 for each additional issue of securities with its own ISIN). 2 In addition, by no later than one business day prior to the requested date of admission, the company must submit a completed shareholder statement to the UKLA, certifying that the company meets the requirement that at least 25 per cent of the securities are in public hands at the time of listing.

22 Admission to the Official List takes effect immediately following an announcement of the UKLA s intention to list the company s securities via a regulated information service. APPLICATION FOR ADMISSION TO TRADING The application The company should inform the London Stock Exchange of its intention to apply for admission to trading to the London Stock Exchange at the same time as it first informs the UKLA. When the company is ready to apply for admission to trading, it should (a) make a provisional application (including a Form 1 and a draft copy of the prospectus) to the London Stock Exchange by no later than 12 pm at least ten business days prior to the date on which the company requests the London Stock Exchange to consider its application for admission to trading; and (b) submit the following documents to the London Stock Exchange by no later than 12pm at least two business days prior to such date: a completed Form 1; an electronic copy of the prospectus; an electronic copy any circular, announcement or other document relating to the issue of shares; an electronic copy of any notice of meeting referred to in any of the documents listed above; written confirmation of the number of securities to be allotted pursuant to a resolution of the company s board of directors; and a copy of the regulatory information service announcement relating to the admission to trading. Admission to trading on the Main Market of the London Stock Exchange becomes effective when the London Stock Exchange s decision to admit the company s securities to trading has been announced via a regulated information service. Admission fees are invoiced by the LSE following admission.

23 DUE DILIGENCE AND VERIFICATION Due diligence and verification must be undertaken to ensure that the prospectus is accurate and not misleading to investors and to protect those who are responsible and have liability for the contents of the prospectus. DUE DILIGENCE Due diligence involves a comprehensive investigation of all information relating to the company. It is intended to ensure the accuracy, truthfulness and completeness of a company s prospectus, and to ensure that such company has complied with the relevant requirements of the Prospectus Rules and the Financial Services and Markets Act 2000, as well as the anti-fraud requirements of Rule 10b-5 of the US Securities Exchange Act and the securities laws of other jurisdictions. Why is due diligence necessary? The due diligence exercise is necessary in order to protect the persons who are responsible for the prospectus (including, among others, the company, its directors and the underwriters) from the risk of incurring civil and/or criminal liability in the event that the prospectus is inaccurate or incomplete. Additional reasons for carrying out due diligence are that it: enables the company s advisers to accurately value the company; helps to establish what needs to be done in order to ready the company for listing; and allows the company s lawyers to satisfy themselves that the prospectus complies with the requirements of the Prospectus Rules. The due diligence process The due diligence exercise is normally broken down into business (ie, business strategy and potential for future growth), financial and accounting (ie, historical financial results and operational and financial operations, including adequacy of internal controls) and legal (ie, legal records, material contracts and litigation) due diligence. Each of these is carried out by different advisers of the company. For instance, the accountants will typically participate in a due diligence session with the underwriters and lawyers, in which they respond to questions on the company s accounting controls and systems. They will also provide a comfort letter confirming the accuracy of financial information in the prospectus that ties to the accounting records of the company and, in a Premium Listing or AIM listing, provide the sponsors/underwriters with a memorandum describing the company s internal control systems and a working capital statement supporting related disclosures in the prospectus. The lawyers will be principally responsible for the legal review of material documents and records at the company, and will also prepare and distribute a questionnaire to directors and senior management asking them to confirm information relevant to the preparation of the prospectus. Finally, the underwriters and lawyers will participate in due diligence sessions with senior management in which they question management on matters relating to the company. It is, therefore, important that this process is adequately coordinated and that there are clear lines of communication between each of the different advisers and the company.

24 VERIFICATION Verification is the process of checking that all statements in the prospectus are accurate, true and complete. As with due diligence, the primary purpose of this exercise is to protect the company s directors and other offering participants from liability. The process usually involves the company s lawyers seeking confirmation from the company or from external documents on key items of disclosure in the prospectus.

25 MARKETING THE FLOAT Marketing is crucial to ensure the success of the initial public offerings, including premarketing meetings with investors; the preparation and dissemination of analyst research reports; and management road-shows in the book-building process. GENERAL PRE-IPO PUBLICITY It is advisable for the company s lawyers to put in place approval procedures for any information to be made public in the period prior to listing. In particular, the restrictions should ensure that there is no heightened level of publicity during this period that may violate the private placement requirements in the US and in other jurisdictions where a private placement is being contemplated. PRE-MARKETING In advance of the publication of the preliminary prospectus and the formal management roadshows, the lead investment banks will contact a limited number of institutional investors in order to familiarise them with the company, generate investor interest and identify any concerns which should be addressed by the company s management on the road-show. This is called pre-marketing. Once contact has been made and interest garnered, the investment banks will organise preliminary meetings with the company s senior management at which they will be given information on the company and the proposed offering. Any information provided to such investors during the pre-marketing must be accurate, consistent with the prospectus and not misleading, and include appropriate legends. RESEARCH REPORTS It is common for analysts connected to the underwriter to prepare an independent and objective research report (or a series of such reports) based on publicly available information and information provided by the company. This report is then made available to the analyst s institutional clients. Preparation Any such report must be prepared in accordance with the Financial Services Authority s Conduct of Business Sourcebook. This requires, among other things, that where a report constitutes non-independent research (as it will in most cases), the report must (i) be clearly identified as a marketing communication; and (ii) contain a clear and prominent statement that it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Distribution Any such research report will constitute a financial promotion under the Financial Services and Markets Act The making of all such financial promotions is prohibited subject to certain limited exceptions. In order to qualify for an exception, either (i) the report must be have been distributed by someone who is authorised by the Financial Services Authority; (ii) the content of the report must be approved by such a person; or (iii) the report should only be distributed to a very limited range of recipients (for example, investment professionals,

26 sophisticated investors, high-net-worth companies and overseas recipients) and contain appropriate legends. Liability In order to protect the company and its directors from liability in connection with analyst research reports, it is advisable that the following precautions be taken: analysts should only be provided with information that is expected to be in the prospectus and is verifiable; a prominent disclaimer should be included stating that any investment decision is based solely on the contents of the prospectus and not the research report and the research is the author s work and has not been authorised or approved by the company; a blackout should be imposed ahead of publication of the preliminary (sometimes called pathfinder ) prospectus (if applicable) and beyond during which period the research report should not be distributed; the author(s) of the report should comply with the Financial Services Authority s Conduct of Business Sourcebook; and distribution of the report should be restricted to institutional investors and other such market professionals. ANNOUNCEMENT OF INTENTION TO FLOAT Once the prospectus is essentially completed, the company will typically issue a press announcement of its intention to float. This is the first opportunity that the company has to announce publicly its upcoming float. Typically after the ITF announcement is issued a premarketing exercise is carried out, where selected investors are approached to discuss their appetite to participate in the offering. MANAGEMENT ROAD-SHOWS This is the final stage of the marketing exercise. These presentations allow the company s management to market the company s securities directly to select institutional investors. As well as benefiting the company, road-shows also offer the investors an opportunity to meet with the company s management face-to-face and ask them any questions they may have. The company may simultaneously also organise various one-on-ones with key investors. Typically, a preliminary prospectus, containing the same information as will be in the final prospectus except for pricing terms, will be provided to investors at the outset of the roadshows. In order to be sure that the prospectus is complete, subject to pricing terms, the UKLA review process should be substantially complete by this time. The aim of these meetings is to generate top quality investor demand and to help the company to determine at what price the offer should be made.

27 PRICING There are various pricing methods which a company can employ when offering securities to be listed on the Official List and admitted to trading on the Main Market of the London Stock Exchange. The two most common methods are the fixed price offer and the book-build. Fixed price offer Under this method, the price of the securities is fixed in the prospectus. Such offers are typically fully underwritten. In the UK, it is more common for offers to be made on a book-built basis. Book-build Book-building is a process whereby potential institutional investors are invited to bid for the securities before the price and size of the offer have been determined. Although the price has yet to be determined at this stage of the offer, a price range is typically included in the preliminary prospectus issued to potential investors at the commencement of the management road shows. Careful consideration should be given to this price range. The traditional approach is to set the bottom of the range where there is significant investor buyin (based on prior investor feedback), thereby enabling sufficient demand for the securities to be generated as quickly as possible and so competition between the bidders. Each bidder specifies a price, or a range of prices, and the number of securities it would be willing to buy. The bids are non-binding. Once all such bids have been received, the company and its advisers can assess the level of demand for the securities (and the quality of demand) and with this information set an appropriate price and allocate the securities.