ipo readiness - britcham brasil pr meetings and marketing roadshow 1 week - all documents completed...
TRANSCRIPT
Access to global institutional investor base
Domestic
market
US Regional institutional
Middle East US
Asia Eastern Europe
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Global institutional investor base
US institutional investors
Regional institutional and retail investors
Asia Eastern Europe
Europe UK
London Stock Exchange - key statistics
Total companiesDomestic: 2,345International: 618
Market capitalisation Main Market: UK listed: US$1,732bnInternational listed: US$2,090bn
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Source: London Stock Exchange statistics – March 2009
Used currency exchange as of 14/04/09: GBP/USD 1.48
International listed: US$2,090bnAIM: US$57bn
Turnover value (Jan-Dec 2008) Main Market: 4,587bnAIM: US$73bn
Comparison of international listing locations
High profile
Rapid timing
Simplified disclosure
Trading / liquidity
London Stock Exchange
NYSE / Nasdaq
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Optimal Least suitable
Bovespa
Strategic financings from global companies will converge on London or New York
? ?
An intelligent approach to regulation
Balance Competing Needs
Companies Investors
Minimise bureaucracyand cost
Maximise protection
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Needs
US
UKRanked first in corporate governance standards by GMI, Deminor and Davis Global Advisors
Increased cost of compliance and risk premium (Financial Executive & Korn Ferry Surveys)
Principles based -“comply or explain”
Rules based -prescriptive and expensive
Main features
Setting the standard for excellence Where ideas take off
Highest standards of regulation
Investable indices
Different entry requirements
Flexible regulatory regime
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Investable indices
Largest institutional investor base
Deepest capital pool
Most liquid trading platforms
Enhanced profile and status
Flexible regulatory regime
Specialist small-cap institutional & retail investor base
Bespoke indices
� Pre-IPO preparation
� Timetable
� Costs
� Alternative sources of finance
� Timing is key
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� Pricing your IPO
� Following the IPO
� Choosing your advisers
� Role of the NOMAD
� Continuing obligations
Pre-IPO preparation
■ Start early!
- Appoint the right team to manage the process
■ Get your house in order
- Develop robust business plan, be clear about your objectives
- Review internal controls and financial reporting
- Consider ownership and tax issues
- Complete any planned strategic initiatives
- Adopt best-practice corporate governance standards (eg Combined Code)
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■ Talk to your existing advisers
- Identify issues early on
- Think about advisers you will need to appoint
- Understand the IPO process and manage expectations
■ Other considerations
- Pre-IPO fundraising?
An IPO is not just a transaction, but an opportunity to transform your business
Timetable
Typical time frame to flotation on AIM is 3 to 4 months from the appointment of the advisory team
Weeks before Admission
12 – 16 weeks
- Appoint and instruct advisers
- Agree timetable to Admission
- Initiate due diligence (Long Form and Working Capital Reports, Legal Due Diligence)
6 – 8 weeks
- Review any problem areas that have arisen
- First draft Admission Document
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- First draft Admission Document
- First draft other required documents
2 – 4 weeks
- Drafting meetings
- Complete due diligence
- PR meetings and marketing roadshow
1 week
- All documents completed and approved
- Pricing and allocation
Costs
■ The main cost of an IPO is commission on money raised (typically 4% - 6%)
■ Ongoing costs of listing on AIM (excluding accounting and legal) approx USD150,000 p.a.
■ Small fundraisings and more complex IPOs are proportionally more expensive
■ While listing can be expensive, the benefits to a company, its employees and shareholders should outweigh the costs
■ Fees may form part of the adviser selection process but should not be the dominant consideration – simply opting for the lowest fees may compromise the success of the IPO
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consideration – simply opting for the lowest fees may compromise the success of the IPO
Consider all options before going down IPO route
■ An IPO can bring significant benefits to a company
- Access to capital at relatively low cost
- Opportunity to realise value for shareholders and employees
- Enhanced corporate profile
■ But the benefits are not without cost
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■ But the benefits are not without cost
- Ongoing compliance requirements
- Dilution of control
- Pressure of life in the public eye – the market can be unforgiving
- Management inflexibility and short-term decision making
The attractions of an IPO are not without cost. Management must consider all options to ensure
that an IPO is right for the company
Alternative sources of finance
■ Private placing
Pros
- Relatively quick process
- Fewer disclosure, due diligence or regulatory requirements
- Selective institutional investors or HNWI
■ Private equity or venture capital
Cons
- Investor pool may be limited and lower funds raised
- Less competitive pricing – illiquidity discount
- Likely to IPO anyway to provide exit route
Alternatives depend on stage in the development cycle and company objectives:
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Pros
- Availability of further finance
- Provision of management expertise
- Likely to support a MBO or MBI
■ Debt financing
Pros
- Flexible structures e.g. PIK, mezzanine
- Optimise capital structure to enhance ROCE
- Less dilution
Cons
- Dilution of control
- Require exit route (IPO or sale)
- Cost – target IRR 30%
Cons
- Increased gearing - risky if interest rates are rising
- Restrictive covenants
- May be difficult in current market
Timing is key
■ State of the market
- Beyond the control of the company
- Success at IPO is highly dependent on investor sentiment
- Windows of opportunity brief in volatile markets
- Be ready!
■ Performance of the business
- Largely under the control of the company
- Track record of earnings pointing to a growth trend, opportunities, execution?
Visibility of future earnings?
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- Visibility of future earnings?
■ Company strategy
- Investors are looking for a clear strategy and medium term growth prospects
- Can the company deliver?
■ IPO’s are time consuming and distracting so ensure business is not damaged by the process
Better to be ready early – be prepared for the window of opportunity
Pricing your IPO – A Technical Starting Point
• Initial valuation based on the following:
• Peer group analysis
• Precedent transactions (IPO & M&A)
• Discounted cashflow
•Sum of the parts
Initial Valuation Range Three phased marketing and price
discovery approach
Not a simple process:
• What is the peer group? Direct comparables are rare
• Which ratios? Which industry? Blended multiples?
•Environment – tax, structures
• Subjective and objective measures
•The bookbuilding process
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Optional
Pre-Marketing
Orders &
Bookbuild
PRICE
discovery approach
Phase I – Educate potential investors
Phase II – Target and contact interested investors
Phase III – Company management roadshow
Pricing your IPO – Supply and Demand
• Pricing driven by far more than simply a desktop valuation
• Pricing ultimately driven by supply of and demand for available shares
- Supply
• Funding needs of the company
• Selling shareholders
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• Demand
• Oversubscribed issue
• Better price although an uplift in pricing best achieved if issue marketed with arange rather than fixed price
• Undersubscribed offer
• A cut in the price often required to meet minimum increase fundraise requirement
Strike a balance to ensure fair pricing
Pricing your IPO – Factors Affecting Price
•Fund Factors
– Availability of funds (redemptions / need to sell)
– The psychology of the fund manager is key. Ultimatelyhe / she will invariably seek the lowest entry price
– Balance of sector / country / exchange risk
•Technical Factors
– Perceived after-market liquidity
Macro factors
� Market conditions
� Economic sentiment
Company factors
� Credibility of story / management
� Track record
� Management remuneration arrangements
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Need to understand various factors affecting your ultimate valuation
– Perceived after-market liquidity
• price of pre-IPO rounds
• which market?
� Management remuneration arrangements
� Risk
Following the IPO
– An IPO is a beginning not a end
• A strongly rising share price post-IPO offers opportunities
• A declining share price restricts and frustrates
– Role of the equity research analyst key
• In UK, an IPO is accompanied by pre IPO research
• Use the research as a medium to sell your story
• Resist the urge to overstate projected financial performance
–Profits warnings early in a company’s public life can be disastrous
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–Profits warnings early in a company’s public life can be disastrous
• Under-promise and over-perform
– Unless you are selling shares in an IPO, the downside from over-pricing an issue will vastly outweigh the damage caused by under-pricing it
Choosing your advisers
– Your advisers play a central role in your company’s IPO - and beyond
– Key advisers:
- NOMAD/Sponsor and Broker
- Lawyers
- Reporting Accountants
– Key questions to bear in mind when appointing your advisers:
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– Key questions to bear in mind when appointing your advisers:
- Do they understand my business?
- Do they have experience with companies in the same sector?
- Do they share my vision for the company and understand where I want to take it?
- Do they have a proven track record of getting the deal done?
Role of the Nominated Adviser (NOMAD)
– AIM is an ‘exchange regulated’ market
- The NOMAD plays a crucial role in upholding regulatory requirements
- AIM has rules for Companies as well as for NOMADS
– NOMAD’s role is to advise company’s board regarding their responsibilities/obligations to their shareholders, investors and London Stock Exchange
- Assess a company’s suitability and appropriateness for admission to AIM
- Perform due diligence on company and its management
- Project-manage IPO
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- Project-manage IPO
- Assist a company to meet its continuing obligations once admitted
– Choose a NOMAD with relevant transaction and sector experience
– NOMAD may also act as broker to an company on AIM
– All companies listed on AIM must retain a NOMAD at all times
Indicative Timetable
Month 1 Month 2 Month 3 Month 4
Financial due diligence, long form and short form reports
GENERAL
ACCOUNTANTS
Agree capital and group
structure requirements
and board structure considered
including non-executive search
Agree
shareholder
objectives
Draft Memorandum
andUndertake verification exercise
Tax planning
commencesWorking capital report
Dealings
commence
Final
-Long form report
-Short form report
-Working capital report
Final verification
Analysis of share optionSchemes and remunerationpackages
Submission of tax clearance
Discussions with existing shareholders
Preparation Long Form and Working Capital
Reports
Draft Memorandum
and Undertake verification exercise
Agree
shareholder
objectives
Agree capital and group
structure requirements
and board structure considered
including non-executive search
Tax planning
commences
Analysis of share optionSchemes and remunerationpackages
Working capital report
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LEGAL
DOCUMENTATION
MARKETING
DISTRIBUTION Preliminarypricing
Legal Due Diligence including competent person’s
report if applicable
and
Articles of Association
Drafting /Placing
Agreement, Board
Minutes and other legal
documents
Undertake verification exercise
Prepare pricing model
Institutional
meetings
arrangedPreparation of institutional presentation
Prospectus
issued
Final verification
notes issued
Pricing
Sharesplaced
Brokers research issued
Impact DayRoadshow
and one to one
presentations
Final version of
legal reports
AppointLegalAdviser
Analysts visitcompany
Appoint PRconsultants
and
Articles of Association
Undertake verification exercise
Prospectus cover and other design
Pathfinderissued
Drafting of Prospectus
Resolve any preliminaryRegulatoryissues
Prospectus cover and other design
Contact
Graham Dallas
Head of business development – Americas
+44 (0)20 7797 4055
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Anne Moulier
Business Development Manager – Americas
+44 (0) 20 7797 4584
Website: www.londonstockexchange.com