Public company and initial public offers
- Equity markets in the United Kingdom
Today there is a three-tier equity capital market structure in the United Kingdom. In order of priority, by way of market capitalisation and liquidity, these markets are as follows:
- The Official List
- AIM
- OFEX
In terms of liquidity, research by Taylor Wessing shows that AIM is as liquid as the Official List when comparing companies with a market capitalisation of £300mil or less. For these purposes, liquidity has been judged by reference to the number of completed share deals per year.
- IPO process
At the outset, it is necessary for the issuer to appoint an advisory team to include solicitors, reporting accountants, sponsor or nominated adviser or corporate adviser (depending on the relevant market), stockbroker, PR agent, share registrar and printers.
The sponsor will be responsible for preparing the timetable and document list which will be used to guide the transaction. Solicitors acting for the issuer will produce a structure note outlining the various steps to be taken to ensure a successful outcome.
Following the appointment of the advisory team, due diligence commences, which will include the preparation of an accounting long-form report and a legal due diligence report. Other expert reports can be requested as necessary.
Marketing documents are also prepared which, if money is being raised by the issuer from the public, will include the preparation of a prospectus. To ensure that the prospectus is produced to the highest standards, each factual statement has to be checked. This process is called "verification".
A marketing presentation is prepared which is used in conjunction with the final draft of the prospectus. This final draft is referred to as a "pathfinder".
Depending on the market to which the securities are to be admitted, various documents will need to be filed with the relevant market regulators at various times before admission.
- Key documentation
The key document in connection with the marketing of securities is the prospectus. If, for instance, securities are being admitted to the Official List maintained by the UK Listing Authority (UKLA), this document will comprise listing particulars drawn-up in accordance with its listing rules.
Alternatively, if the securities are being admitted either to AIM or OFEX, a prospectus will need to be prepared complying with the requirements of the Prospectus Directive.
Responsibility for such documents will need to be assumed by the directors of the issuer and any proposed directors. In addition, the document will need to contain a working capital statement concerning the availability of funds to the issuer for the twelve months following admission.
- Key issues
In preparing a company for an IPO, consideration will need to be given to corporate governance matters and, in particular, the composition of the board. This includes establishing the balance between executive and non-executive directors and the creation of audit, remuneration and other committees as appropriate.
Issuers should also be mindful of the guidelines of the Association of British Insurers (ABI), especially concerning pre-emption rights on issues of new securities and similar guidelines for share incentive schemes.
- Further information
Taylor Wessing has published a brochure entitled, "Initial Public Offers - A Taylor Wessing Guide" which is available on the Publications page of our site. This guide sets out in general terms issues arising in connection with an initial public offer for securities in the United Kingdom.