This note is intended as a general guide to assist a company (the 'Company') which may be considering an IPO on the main market of the London Stock Exchange (the 'Exchange'), to identify what steps should be taken towards achieving that aim. This note also provides a checklist of some of the key considerations that should be borne in mind when deciding whether or not an IPO is right for the Company and/or its shareholders.
2. Listing in London
The main market is the London Stock Exchange's principal market for listed companies from the UK and overseas and over 1,200 companies are listed on the main market with an average market capitalisation of £3.1bn. In 2014 there were 57 IPOs on the main market raising £11.8bn.
3. Why list and why in London?
The main reasons most companies give for obtaining a listing are to:
- provide access to capital for growth
- encourage employee commitment
- create a market for their shares
- increase a company's ability to make acquisitions
- obtain an objective market value
- create a heightened public profile
- enhance status with customers and suppliers
A London listing has a number of attractions:
- The Exchange is the largest stock exchange in Europe and the world's most internationally focused.
- London is a global financial centre – all the major banks have offices in London.
- The great majority of all IPOs on Western European exchanges take place in London.
- London is well known for its high standards of regulation.
4. Premium listing
A company with an anticipated market capitalisation of £500m or more is likely to be looking at obtaining a premium listing or possibly a standard listing rather than an AIM listing assuming London is its first choice listing location.
5. Listing requirements for the main market
The table below compares the key differences for obtaining a premium listing as opposed to a standard listing.
|London Main Market (premium listing)||London Main Market (standard listing)|
|Accounting Requirements||Latest 3 years audited accounts (a dispensation is available for mineral and scientific research companies)||Latest 3 years audited accounts (or such shorter period that the issuer has been in operation)|
|Recognised accounting standards||IFRS or equivalent||IFRS or equivalent|
|Market capitalisation||£700,000 (in reality £100-£200m or more)||£700,000 (in reality £100-£200m or more)|
|Shares in public hands||25%||25%|
6. Further listing requirements
The requirements for a premium listing in London are more stringent than those for a standard listing and the table below sets out the key criteria for a premium listing in addition to those set out above:
|Premium Listing||Standard Listing|
|Key conditions for a premium listing||At least 75% of the Company's business must be supported by a historic revenue earning record covering the last 3 financial years which must put investors in a position to make an informed assessment of the business||Not applicable|
|The Company's shares must be freely transferable and eligible for electronic settlement||Required in practice|
|The company must be carrying on an independent business as its main activity||Not applicable|
|The total of all warrants or options to subscribe for equity shares must not exceed 20% of the company's issued equity share capital||Not applicable|
|Working Capital||Clean working capital statement covering 12 months following Admission||Working capital statement covering 12 months following Admission but in theory can be qualified|
|Shareholder approval for transactions||Class tests require shareholder approval for a Class 1 acquisition (broadly speaking acquiring or disposing of a company or assets worth more than a quarter of the company's value) or on a reverse takeover||No class transaction tests (although market practice is to voluntarily abide by them)|
|Primary adviser||A sponsor must be appointed||No adviser required.|
|Pre-emption rights||Shareholders must have pre-emption rights on new issues for cash||Not applicable|
7. Common obligations for a premium listing and a standard listing
|Cost of listing||Typically 7-10% of funds raised for smaller companies|
|Ongoing costs||Ongoing costs Higher fees for auditors, lawyers and non-executive directors in view of greater continuing obligations|
|Lock-in Requirements||Typically at least six months|
|Announce half year results||Within 2 months of the end of the first six month period of the financial year|
|Publication of full year accounts||Within 4 months of the end of the financial year (including a management report and responsibility statement)|
8. Corporate governance issues for a company with a premium listing?
In considering a premium listing, a Company should be aware of a number of key obligations:
- Relationship Agreements – controlling shareholder(s) who exercise or control, on their own or together with any person with whom they are acting in concert, 30% or more of the company's voting rights must enter into a relationship agreement.
- Retirement of Directors – normally the Company's articles will require one-third of the board to retire by rotation each year, and in FTSE 350 companies, directors would be expected to offer themselves for re-election annually.
- Notice Period - directors' service contracts should have notice periods of 12 months or less.
- Length of service of non-executive directors - annual shareholder approval should be obtained for any non-executive director who has served on the board for more than nine years.
- Non-pre-emptive share issues for cash should be limited to 5% of the company's shares in one year and 7.5% in any rolling three year period.
- For larger companies, a majority of the board (excluding the Chairman) should be comprised of non-executive directors. For smaller companies, the number of non-executive directors should be at least 21.
- Restrictions on dealing - no dealing in the two months prior to publication of half year and full year results and insider dealing and market abuse rules apply.
- An overseas company should also be aware that if it is seeking to be included in a FTSE UK Index, it should have a premium listing and a free float of not less than 50%.
The majority of the above corporate governance issues derive from the UK Corporate Governance Code and best practice would be to follow this although it is possible to instead explain the Company's non-compliance.
9. Advisers on a premium listing
The Company will need to appoint the following:
- Investment bank - the investment bank or bookrunner will manage the IPO process and coordinate the listing with the other advisors. Often, it will also act as financial adviser, sponsor (a supervisory role required by the Financial Conduct Authority) and underwriter. Normally, the lead bank acts as global co-ordinator and one or more further banks may also be appointed as bookrunners.
- Lawyers – lawyers will be required to advise the Company itself, as well as any shareholder who is selling all or part of its stake as part of the IPO. The sponsor/bookrunners will also require lawyers. The Company's lawyers will be responsible for drafting the 'back end' of the prospectus which contains all legal information relating to the company including share capital, material contracts and litigation. They will also manage the legal due diligence and 'verification' process, which seeks to ensure that the prospectus is not misleading in any way.
- Reporting accountants - the reporting accountants are responsible for reviewing the Company's financial records and internal systems. They will prepare the long form report, the short form report (which is published in the prospectus) and the working capital report.
- PR Consultants – the PR consultants will help to generate positive publicity and interest in the IPO.
- Others – the Company will need to appoint registrars and any other advisers that may be required in relation to its specific business.
10. Preparing the way for a listing
Careful consideration should be given to the following issues in preparing for a listing:
- Deciding on the method of listing, e.g. a placing to institutional investors, an introduction to the market or a public offer.
- Identifying any necessary changes to the board and/or its operations. If the shareholders have identified changes which need be made to the board or the shape of the business these should be made as early as possible.
- Ensuring the Company has sufficient internal resources to dedicate to the IPO.
1. A smaller company is one that is below the FTSE 350 throughout the year immediately prior to the reporting year.
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.