Introduction

Going public may serve several goals: it may help a company to get access to a broader investor base, to raise the capital it needs in order to activate its growth potential and strengthen its market position, and to turn a company's shares into a more liquid and fungible "currency" that may facilitate acquisitions. It may also enable effective employee incentivisation and, last but not least, allow a flexible exit by existing shareholders over time.

Switzerland as a trading venue offers very attractive conditions through a combination of its strong financial centre and the stable and issuer-friendly Swiss legal and regulatory regime. On Switzerland's main and leading stock exchange, SIX Swiss Exchange, around 250 shares across all industries are traded, including some of the largest companies in Switzerland and Europe. It offers a liquid market with state-of-the-art trading conditions. Given its importance, and unless indicated otherwise, references in this contribution to listing requirements and reporting obligations refer to the standard rules set by SIX Swiss Exchange. Switzerland's second stock exchange, the BX Swiss, is more focused on small and mid-size domestic issuers.

With its listing on a stock exchange, a public company becomes subject to additional and more comprehensive regulatory requirements, stricter supervision by regulatory authorities and increased scrutiny by the public. An IPO candidate, its shareholders and its executive management are thus well-advised to prepare the envisaged flotation carefully and familiarise themselves with the additional regulatory provisions and requirements, as early and holistic preparation is key in this process.

Switzerland has seen strong IPO activity over the past few years. In 2020 and 2021, the following companies listed on the SIX Swiss Exchange with an initial market capitalisation of more than CHF 100 million:

  • Ina Invest Holding Ltd (CHF 196.8 million, 2020).
  • V-ZUG Holding AG (CHF 502.4 million, 2020).
  • PolyPeptide Group AG (CHF 848 million, 2021).
  • Montana Aerospace AG (CHF 506 million, 2021).
  • medmix AG (CHF 315 million, 2021).
  • Skan Group (CHF 270 million, 2021).

The above listed IPOs in 2021 achieved an issue volume of around two billion Swiss francs. In comparison to 2020, with an issue volume of close to 700 million Swiss francs and only two companies that had listed on the SIX Swiss Exchange, the Swiss business and financial world can look back on a successful IPO year 2021. This development can be attributed, among other things, to the fact that with the start of the COVID-19 pandemic in 2020, some companies might generally have been ready for an IPO, but temporarily put it off until 2021.

Internationally, the market for special purpose acquisition companies ("SPACs") hyped in recent years, providing for an alternative to classical IPOs. Following a longer regulatory process, the SIX Swiss Exchange approved the listing of SPACs in November 2021. The new regulation addressed FINMA's initial concerns around market transparency, investor protection and market integrity in connection with SPACs. Finally, in December 2021 the first Swiss SPAC VT5 started trading on the SIX Swiss Exchange, taking advantage of the new framework and marking a milestone for Switzerland.

Further, on 1 October 2021 SIX Swiss Exchange launched "Sparks", a new segment specifically designed for small and mid-size companies. This segment facilitates the listing and trading of such companies, giving them the opportunity to broaden their financing options and access a broader investor base.

In terms of legal developments, the Swiss Financial Services Act ("FinSA") and its implementing ordinance (the Swiss Financial Services Ordinance ("FinSO")) that entered into force on 1 January 2020 continued to be of prime importance, with new practices still evolving. This new regulatory regime resulted in a substantial change of the regulatory environment for IPOs in Switzerland because it provides for detailed requirements regarding the content of a prospectus and its review by the new Swiss Financial Market Supervisory Authority ("FINMA") licensed review bodies. Prior to the FinSA/FinSO taking effect, the regulatory framework in Switzerland was primarily based on self-regulation by the Swiss stock exchanges and limited, partly outdated statutory provisions. In contrast, the new regulatory regime converges to the model of the European Prospectus Regulation. However, the new law did not fundamentally change the content of prospective Swiss IPO prospectuses or the timeline of the IPO preparation because IPO candidates already adhered to international disclosure standards under the former regime.

The IPO process: Steps, timing and parties and market practice

The IPO process is largely driven by the characteristics of the IPO candidate itself and by the envisaged IPO structure (primary vs. secondary offering, particularities such as a so-called "complex financial history"). In general, four key phases can be distinguished:

  • Phase I: Preparation (approximately four to six months prior to the first day of trading). The shareholders and the issuer, together with their advisors, set up the structure, make strategic decisions for the offering, and implement the IPO-readiness of the issuer:
    • Selection of advisors: The issuer chooses its advisers, including in particular the underwriting banks, the legal advisors to both the issuer and the underwriters, the auditors, and often a pre-IPO advisor. In larger IPOs offered internationally, the issuer and the underwriters are each advised by two law firms: a Swiss law firm; and an international counsel, whose task is to ensure compliance with international and U.S. securities laws (which may be necessary to allow re-sales into the U.S. market, such as under a Rule 144A offering). Depending on the IPO structure, a selling shareholder might also engage separate counsel. Most often, the issuer appoints further advisors, such as a specialised PR firm.
    • Structuring: The underwriting banks and legal advisors advise the issuer and its current shareholders on the structuring and, in particular, whether it should be structured as a primary offering (sale of newly-created shares) or secondary offering (sale of existing shares only), or a combination of both. They also advise on the listing venue and the review body to be chosen. In case of a foreign issuer, the structuring involves the decision as to whether the issuer should list its shares on SIX Swiss Exchange or whether it should migrate to Switzerland for the IPO. This decision is typically driven by marketing and/or tax considerations. Structuring may also include the reorganisation of a group, e.g., the establishment of a holding company.
    • Development of equity story: Together with the issuer, the underwriters develop an equity story to market the shares. A key element is the confidential meetings between the issuer and potential investors to test the water (so-called "pilot fishing" or "early-look meetings"). In case the issuer has publicly traded debt outstanding (in particular, high-yield bonds), these meetings must comply with the relevant requirements regarding disclosure of price-relevant information; in particular, under the European Market Abuse Regulation ("MAR"), if the bonds are traded at an EU venue. The development of the equity story leads to the issuer presenting itself to the underwriters' analysts, following which the analysts prepare and publish research reports for the investors to attract their attention. These reports are key elements of the marketing strategy.
    • Corporate governance: One of the main tasks of the issuer's Swiss legal counsel is advising the issuer on its corporate governance set-up and preparing the necessary corporate documentation. If the issuer has issued several classes of shares, any preferred share classes will typically be converted into common shares prior to listing, as different share classes may adversely impact the liquidity of the listed shares and be viewed negatively under good corporate governance standards. Other corporate governance measures include the adoption of mandatory Swiss "say on pay"-rules (see below) and amending the constitutional documents to ensure compliance with applicable Swiss law, as well as best practice for public companies. Existing shareholders often appoint new members to the board of directors as of the first day of trading. It is advisable to give due consideration to the recent guidelines published by the prominent proxy advisors and the Swiss standards for corporate governance, which recommend a sufficient number of independent board members. Under certain circumstances, issuers may also consider increasing the threshold for mandatory takeover bids from 33⅓% to 49% (opting up), or completely opting out of the mandatory takeover regime, which, however, is typically perceived negatively by investors.
    • Financial statements: The issuer works closely with the auditors for the preparation and audit of its financial statements. Generally, a listing at SIX Swiss Exchange requires a three-year track record evidenced by audited financial statements drawn up in accordance with one of the eligible accounting standards (see below). In certain situations, the preparation of pro forma financial statements becomes necessary and, in this case, the preparation of the financial statements should be initiated as early in the process as possible. The stock exchange may grant exemptions from the three-year track records.
    • Due diligence and prospectus: The underwriters, the legal advisors and the auditors conduct a detailed due diligence (business, legal and audit, respectively) about the issuer. Based on the outcome of this due diligence and the equity story, the issuer's legal counsel drafts the prospectus. The disclosure must comply with the FinSA/FinSO requirements which are very similar to the former SIX Swiss Exchange requirements and in line with EU standards. A Swiss prospectus should mainly include a summary, an overview of risk factors, information on the use of proceeds, information about dividends/dividend policy, information about the issuer (such as members of the board of directors and executive management, the issuer's business and share capital, as well as capitalisation and indebtedness) and the issuer's major shareholders, as well as information about the offering and the financial statements. Even though neither SIX Swiss Exchange nor the FinSA/FinSO require an MD&A section, it is standard to include such section in an equity prospectus.
    • Underwriting agreement: The Swiss underwriters' counsel drafts the underwriting agreement. The agreement contains the main duties and rights of the underwriters and the issuer. It is market practice that the underwriters commit to a 'soft underwriting', i.e., they only commit to purchasing the shares upon pricing. The Swiss underwriters' counsel prepares ancillary agreements and documents, such as a share lending agreement for the over-allotment option (see below), the agreement among managers, and the lock-up undertakings. Major shareholders, as well as directors and managers of the issuer, typically sign lock-up undertakings confirming they will not sell their shares in the first months following the IPO.
    • Review of prospectus: The IPO prospectus must be filed with and reviewed by a review body for completeness, consistency and comprehensibility. Pursuant to the FinSA, the filing must be made at least 20 calendar days prior to publication. However, the IPO timetable should allow for sufficient time to reflect on comments received from the review body and to refile the prospectus.
    • Listing formalities: The issuer is obliged to appoint a listing agent which in general must be a bank in line with the meaning set out in the Swiss Banking Act or a securities firm in line with the meaning set out in the Swiss Financial Institutions Act, or have a corresponding authorisation in accordance with the law of the jurisdiction of its registered office. The listing agent is responsible for submitting the listing application, which must be filed with the SIX Exchange Regulation 10 trading days prior to the start of the bookbuilding.
  • Phase II: ITF and marketing (approximately four weeks)
    • Intention to float: This phase is initiated by the issuer publishing an intention to float ("ITF"). The issuer's executive team and the underwriters market the issuer. The ITF does not yet contain detailed information about the IPO but is meant to draw the attention of the market to, and create momentum for, the upcoming IPO. Research reports prepared by analysts are distributed shortly after publication of the ITF.
    • Roadshow and bookbuilding: If the IPO gains sufficient momentum, the issuer ultimately signs the underwriting agreement with the banking syndicate and publishes the prospectus. This marks the formal 'launch' of the IPO and is followed by a bookbuilding phase, during which the issuer's executive management markets the company on a roadshow with the support of the underwriters. This leads to investors placing orders for the shares within the price range indicated in the prospectus. At the end of the roadshow, i.e., the end of the bookbuilding period, the underwriters evaluate at what price the shares may be placed with the investors.
  • Phase III: Execution
    • Allocation: After the roadshow/bookbuilding, the underwriters calculate at what price all offered shares may be sold and, together with the issuer, allocate them to investors in accordance with their bids. The issuer and the underwriters execute a supplement to the underwriting agreement, which sets out the final offer price of the shares and obliges the underwriters to purchase these shares and sell them to the investors. In addition, the issuer publishes a supplement to the prospectus, setting the final price for the offered shares.
    • Capital increase: In case of a primary offering, the issuer conducts a capital increase (typically immediately prior to the first day of trading).
    • First day of trading: The start of the trading is the test for the issuer and the underwriters, as they see for the first time how the issuer's shares are traded.
    • Settlement: The closing of the IPO occurs a few trading days after the first day of trading.
  • Phase IV: Stabilisation (the first 30 days after the listing)
  • After the first day of trading, one of the underwriters acts as a stabilisation agent. When placing shares in the bookbuilding, the underwriters typically sell more shares to investors than they purchase from the issuer and/or the selling shareholder (typically 15% of the base size) so that these shares can be used to stabilise the market price during the first days of trading. Initially, the additional shares are not purchased from the issuer or a selling shareholder, but are lent under a share lending arrangement.
  • Whether or not the over-allotment option (also known as 'greenshoe') is exercised, then depends on the development of the share price:
    • If the share price is not doing well, the stabilisation agent purchases shares in the market to stabilise the price. These shares are then returned to the lending shareholder(s).
    • If, on the other hand, the stock is trading well, the stabilisation agent does not interfere in the market activity and ultimately either purchases the shares from the lending shareholder(s) or from the issuer (which are created in (another) capital increase) and returns these to the respective share lenders.

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Originally published by Global Legal Insights Initial Public Offerings 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.