listing equity in london a quick guide : by berwin leighton paisner llp

Listing equity in London A quick guide

Our experienced team has continued to build its market share of equity capital markets transactions, for both UK and international business, capitalising on the firm’s deep market presence and our industry sector strengths. David Collins Partner, Head of Corporate

Your guide to listing in LondonListing a company on a public market is a significant milestone in the company’s life. A listing gives a company access to a large investor base and to a deep pool of capital. It is critical to make the right decisions from an informed perspective.

We have put together this guide to listing equity in London to give you an overview of the key issues involved. It examines some of the major decisions you will need to make to achieve a successful IPO, the eligibility requirements for the different markets in London, a typical timetable for a listing, continuing obligations once you are listed and the UK corporate governance requirements.

Our team of over 100 corporate lawyers coupled with our international preferred firms network in over 100 countries enable us to deliver cross-border deals in most jurisdictions. In addition, if you are looking to access the US market at the same time we work closely with highly respected US law firms who are able to provide the necessary US securities advice and legal opinions.

The IPO and listing process can seem somewhat daunting but we are happy to talk you through the process and discuss any questions you may have.

Listing equity in London /01

Berwin Leighton Paisner LLP

The whole team is very commercially aware and more than able to guide me through what I need to know. They always meet deadlines and are keen to get on with the job.Chambers UK, 2012

David Collins Partner, Head of Corporate [email protected]


by volume for EMEA equity and equity related deals 2010 by manager/legal adviser

number one legal adviser for small and mid-cap UK flotations and AIM for six consecutive years

5th

02/ Listing equity in London

IPO considerationsAt a glance

countries in which BLP has worked

At a glance The following facts and figures provide a quick introduction to BLP’s Corporate Finance practice

>20equity capital markets transactions completed in the past two years

130x5five times winner of ‘Law Firm of the Year’ in the last decade

corporate finance and funds specialists in our team

offices in international locations: Abu Dhabi, Beijing, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Moscow, Paris, Singapore

11

>100

top-tier corporate finance related rankings in the legal directories in the past five years

15

IPO considerationsThe following are questions for any Company looking to start an IPO process? They are not definitive and invariably lead to more questions.

What is the Company looking to achieve from the IPO?What are the Company’s aims? Is the purpose of the IPO to raise funds, to raise profile, to achieve liquidity in its shares or an exit? Is the Company looking to achieve entry to a FTSE index? Is an IPO the best way to achieve those aims?

Which is the appropriate market for the Company to be admitted/listed?Eligibility, continuing obligations, geographic location and the suitability of the market to achieving the aims of the IPO are among the factors to be considered. See pages 5, 10 and 11

What are the liabilities associated with the process?Who is responsible for the documents (at law or under stock exchange rules)? What form of responsibility acknowledgements will the directors’ accept or have to accept? What warranties or indemnities will be given in any underwriting or placing agreement and with what limits. See page 7

Are there specific requirements for the type of company?For mining and oil and gas companies there will be a requirement for a Competent Person’s Report. Property companies will have meet the requirements in relation to valuations. Specific types of companies may have less stringent requirements in relation to historic independent operation or historic audited accounts (i.e. mineral companies).

What is the timing of the IPO?Is timing driven by need for funds? When can the Company deliver financial information? Other factors involved in timing include market conditions and the impact of other parties’ fundraisings on the market. A timetable should be developed early in the process. See pages 8 and 9

What vehicle should be used for the IPO?Where the listed company is situated may be determined by commercial or tax reasons but some jurisdictions may not be as appropriate for a company on a regulated market or seeking to raise funding.

Does the structure of the Company or the Group need to be changed for the IPO?Is a reorganisation required prior to IPO? What are the commercial and timing implications of the reorganisation?

What advisers does the Company need for the IPO process and when should they be appointed?Financial Advisers (Broker/Sponsor/Nomad), accountants, lawyers and public relations advisers. All need to have appropriate expertise and be appointed having regard to the aims and timetable of the IPO. Does the Company or the Board want a project manager or independent financial adviser?

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#12007 - 2012

UK

LEGAL ADVISER

Key eligibility criteria for listing

What financing is associated with the IPO and what is the best structure for the financing?Is the fundraising to raise working capital, to raise funds for acquisitions or to provide an exit for shareholders? Are funds coming from institutions or is there a public offer element? What jurisdictions is marketing to be carried out in? Is there a US element to the fundraising? Will special arrangements be needed to enable employees or customers to participate?

What valuation is to be put on the Company?Are the indications that the market will value the Company within acceptable parameters? What dilution are existing shareholders willing to accept? What proportion of the company will be in public hands? See page 5

What are the key messages in the IPO and what information has to be disclosed?What are the key messages that the Company and the brokers want to get across? What information is required to meet regulatory/market requirements? Are there any risks or information that will be sensitive and if so how are they presented?

Can the Company meet the continuing obligation requirements?Different markets have different continuing obligations. The Company and the Board need to understand and evaluate the continuing obligations. Institutional shareholder organisations may impose more onerous obligations than the market itself. Does the UK Takeover Code apply? See pages 10 and 11

What is the proposed board structure of the Company?What is the right mix of executive and non-executive directors? Are there sufficient independent directors? Do the directors understand their duties and obligations and are they suitably experienced? See page 12

Does the Company have adequate reporting lines in place?A quoted company must have structures in place throughout its group to identify risks and to ensure that the board and the market are kept informed of the performance of the business.

Does the Company have sufficient corporate governance structures in place?What board committees need to be put in place? Is there a substantial shareholder which might need to enter into a relationship agreement? Are the appropriate procedures and safeguards in place in relation to future share dealings? What are the implications on employee incentive arrangements?

Will the management be able to devote sufficient time to the process?An IPO is an intensive process of information gathering, reporting and structuring. The management needs to be able to devote time to the process without detriment to the Company’s operations and business.


Good, thorough knowledge of law and practice. Legal 500 UK, 2012

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IPO considerations


Key eligibility criteria for listingIPO considerations cont.

Criteria Main market premium listing (equity shares)

Main market standard listing (shares)

Main market High Growth Segment (equity shares)

AIM

Incorporation Anywhere EEA State Anywhere

Regulation Regulated Market (Official List) Regulated Market Multilateral trading facility

Rules Listing Rules, Admission and Disclosure Standards, Prospectus Rules

High Growth Segment Rulebook, Admission and Disclosure Standards, Prospectus Rules

AIM Rules, Prospectus Rules if public offer

Prospectus/Admission Document

Prospectus Admission Document Prospectus if public offer

Minimum free float 25% 25% 10% and a value of £30m NOMAD assessment of suitability

Minimum market capitalisation

£700,00 N/A but see above NOMAD assessment of suitability

Audited historical financial information

Three years Three years or such shorter period

Revenue earning 75% of business supported by revenue earning record for three year historic period

N/A Growth of at least 20% on a CAGR basis for three year historic period

N/A but see lock-ins

Controls majority of its assets

For the three year historic period

N/A From admission N/A

Transferability of shares

Freely transferable

Working capital statement

Clean 12 month statement Clean/qualified 12 month statement Clean 12 month statement

Adviser required Sponsor N/A Key adviser NOMAD

Settlement Eligible for electronic settlement

Lock-ins N/A If the applicant has not been independent and revenue earning for at least two years, lock ins for one year from admission

BLP has been widely acknowledged as ‘totally committed; they put in the hours and the effort’.Chambers UK, 2013

Liability and responsibility


Liability and responsibility

*NB the table above is based upon a standard international IPO and does not take into account any local legal and regulatory requirements

Liable for the contents at law jointly and severally with directors

Liable for the contents at law jointly and severally with the Company

No

Yes Not usually applicable (although check local listing requirements)

Not usually applicable (although check local listing requirements)

Required to give warranties and indemnities in favour of the Bank; warranties may be limited in time and amount; indemnity will generally be uncapped

Executive directors required to give warranties in favour of the Bank; warranties will be limited in time and amount; NED’s typically give “offer related” warranties only and liability caps are smaller

Required to give limited warranties (as to title and capacity) in favour of the Bank; warranties will be uncapped

Under an obligation to act in a certain way in certain circumstances i.e. re: appointment of directors etc.

N/A Shareholder will be bound by various undertakings and restrictions, including conducting business with the Company on an arms’ length basis and permitting the Company to operate without influence of Selling Shareholder

Letters of comfort given in favour of the Bank regarding compliance with Listing Rules, disclosure obligations and certain other procedures

Directors will be required to give “Responsibility Letters” in favour of the Company and the Bank

N/A

Letters of comfort given to support information provided to, and underlying role performed by, reporting accountants, i.e. working capital, financial reporting procedures, tax, significant change, financial information

N/A N/A

OffeRIng CIRCULAR AnD ReLATeD PReSenTATIOn

STOCK exChAnge COnfIRMATIOnS

UnDeRWRITIng/ PLACIng/InTRODUCTIOn AgReeMenT

ReLATIOnShIP AgReeMenT

COMfORT LeTTeRS In fAvOUR Of The BAnK

COMfORT LeTTeRS In fAvOUR Of RePORTIng ACCOUnTAnTS

ReSPOnSIBLePARTy COMPAny DIReCTOR SeLLIng

ShARehOLDeR

International IPO timetableInternational IPO timetable

Listing equity in London /0908/ Listing equity in London

International IPO timetable (without reorganisation)

Key DATeS

LegAL

fInAnCIAL

TeChnICAL

PROSPeCTUS/ ADMISSIOn DOCUMenT

InveSTORS/ MARKeTIng

BOARD MeeTIngS

DUe DILIgenCe

WORKIng CAPITAL

TeChnICAL RePORT

PLACIng AgReeMenT

RePORTIng PROCeDUReS/ SIgnIfICAnT ChAnge

DIReCTORS QUeSTIOnnAIReS/ BOARD PACKS

fInAnCIAL DUe DILIgenCe/ LOng fORM

ADMISSIOn DOCUMenT/ AIM

InveSTORS

InveSTORS

PROSPeCTUS/ MAIn MARKeT

AnnOUnCeMenTS

veRIfICATIOn

ADMISSIOn DOCUMenT/ PROSPeCTUS

InTenTIOn TO fLOAT PAThfInDeR IMPACT DAy ADMISSIOn

UKLA review 2Draft 1 Draft 2 UKLA review 1 Finalise Pathfinder Finalise P-ProofDraft 3

Draft 1 Draft 2 Draft 4 Finalise Pathfinder Finalise P-ProofDraft 3

Company prepares model Review by accountants Draft 1 Challenge Draft 2 Update

Draft Negotiate Finalise

Draft UpdateReview

Scope Draft 1 UpdateReview Draft 2 Draft 3

Draft Review Finalise Update

Scope Draft 1 Draft 2 Draft 3 Draft 4 Update

Drafting Finalise Pathfinder Finalise P-Proof

Test Marketing Investor road show

Prepare teaser Analyst prepares research Prepare presentation Investor roadshowTest Marketing

Intention to float

Verify Update

Scope Draft 1 Draft 2 Draft 3 Finalise Update

Intention to float

Draft 4 UKLA review 3

Prepare intention to float

Prepare announcement

of listing

Key

Board meeting

Final form

Substantially complete

Signature

Admission

Determine share offer price

WeeK

1WeeK

2WeeK

3WeeK

4WeeK

5WeeK

6WeeK

7WeeK

8WeeK

9WeeK

10WeeK

11WeeK

12WeeK

13WeeK

14TIMeLIne




AIM

Prospectus/Admission document for further issues of shares

Yes (unless <10% shares of same class admitted to trading in 12 month period)

Yes (unless <10% shares of same class admitted to trading in 12 month period) and a Form 1 must be submitted to exchange

Only if public offer

Significant transactions (Class Tests)

Transactions (other than ordinary course of business) which are significant in size (Class 1 acquisitions/disposals and reverse takeovers (RTO) require shareholder approval and a circular (plus a prospectus if RTO)

N/A Transactions (other than ordinary course of business) which are notifiable (25% or more on class tests) must be notified to an RIS as soon as possible after the terms are agreed

RTOs and fundamental disposals require shareholder approval and circular/admission document. Other non-ordinary course transactions require disclosure only

Related party transactions

Independent shareholder approval required and “fair and reasonable” statement

N/A Transactions with a related party where the class test is 5% or more must be notified to an RIS as soon as possible after the terms are agreed

Disclosure and “fair and reasonable” statement only

Application of UK Takeover Code

Target incorporated in the UK, Channel Islands or Isle of Man – UK Takeover Code applies

Target incorporated elsewhere in EEA – UK Takeover Panel will have shared jurisdiction

Target incorporated outside the EEA – UK Takeover Code will not apply

Sponsor, nOMAD or key adviser required

Yes. Certain transactions and circumstances only e.g. where a prospectus or class 1 circular is required; or in connection with a RTO/related party transaction; or where breach of Listing Rules; or when transferring from investment co to commercial co with Premium Listing status or vice versa

N/A only required when transferring from a Standard Listing (shares) to a Premium Listing

Yes. Key adviser required for certain transactions only e.g. notifiable transactions, or in connection with a RTO/related party transaction

NOMAD required at all times

Obligation to publish annual and half-year financial reports and interim management statements (IMS)

Yes (DTR 4) Yes but not IMS

Continuing obligationsContinuing obligations

Continuing obligations1

Listing equity in London /1110/ Listing equity in London




AIM

Obligation to publish inside information and insider lists

Yes (DTR 2) Yes (insider lists N/A)

Major shareholder notification regime applies

Yes (DTR 5) Yes

Director/senior manager dealing disclosures

Yes (DTR 3) Yes

Corporate governance UK Corporate Governance Code and corporate governance statement (DTR 7.2). Overseas company comply with DTR 7.2 if no equivalent rule and “comply or explain” against the UK Corporate Governance Code

DTR 7.2 applies to UK and extended to overseas companies if no equivalent rule

Issuer will be required to report on its corporate governance practices in its annual report

Market practice is to comply with UK Corporate Governance Code or (for smaller companies) QCA Corporate Governance Code

Listing Principles Yes N/A

Share dealing code Yes N/A Yes

Pre-emption rights Yes2 N/A local company law only

Transfer between listing categories (cancellation of listing not required)

75% shareholder approval to transfer within Premium listing or transfer Premium commercial co to Standard commercial

No shareholder approval required

No shareholder approval required to transfer to Premium listing. 75% shareholder approval to transfer to Standard listing

N/A

Cancellation of listing 75% shareholder approval. Not required if takeover offer or scheme

No shareholder approval required but 20 business days’ notice

75% shareholder approval and 20 business days’ notice. Not required if concurrent application to Premium listing or if takeover

75% shareholder approval and 20 business days’ notice

fTSe eligibility FTSE UK Series, where eligible3

N/A FTSE AIM Series, where eligible

1 References to the DTRs assume in most cases UK incorporated companies

2 An overseas company with a Premium Listing must offer pre-emption rights unless it has shareholder approval to disapply such rights. If no equivalent rule of law to LR 9.3.11 (pre-emption rule), an overseas company applying for a Premium Listing now must provide for equivalent rights in its constitution (LR 6.1.25) as qualified by LR 9.3.12

3 Non-UK company needs 50% free float to be considered eligible for UK FTSE Indices (see section 4.2.3 FTSE Ground Rules for the Management of UK Series of the FTSE Actuaries Share Indices)

Board composition


Board compositionUK Corporate Governance Code1

The

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MIT

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SC

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MIT

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nominationMajority of independent NEDs.

Chairman/independent NED should be chair. Responsible for board

appointments; search for candidates should be on merit against objective criteria with due regard to diversity

on the board, including gender

RemunerationAt least three independent NEDs (except for smaller

companies). Chairman can be a member of but not chair the

committee. Responsible for setting remuneration for all executive

directors and the chairman

AuditAt least three independent NEDs (except for smaller companies).

One member should have recent relevant financial experience.

Responsible for monitoring integrity of company’s financial statements

and internal financial controls

1 Companies with a premium listing of equity shares on the Main Market must “comply or explain” against the UK Corporate Governance Code. Companies with a standard listing or on the HGS must publish a corporate governance statement (DTR 7.2). It is market practice for AIM companies to comply with the QCA Corporate Governance Code or the UK Corporate Governance Code

2 Factors which determine independence: employee of the group within last five years; material business relationship with the company, within the last three years, directly or indirectly; close family ties with any directors, senior employees or company’s advisers; has served on the board for more than nine years; represents a significant shareholder; has received additional remuneration from the company excluding a director’s fee; or holds cross-directorships or has significant links with other directors through other companies

Independent neD’sThere should be one senior

independent director

DirectorsThe board should have

appropriate balance of skills, experience and knowledge

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SID

50% or more of the board

should be independent NED’s, excluding the chairman. For FTSE 350 companies annual re-election of all directors and external board

evaluation is required every three years

ChairmanShould be independent2 and is responsible for leadership of the board. He/she should

ensure the views of shareholders are communicated to the board and discuss governance and strategy

with major shareholders

About BLPToday’s world demands clear, pragmatic legal advice that is grounded in commercial objectives. Our clients benefit not just from our excellence in technical quality, but also from our close understanding of the business realities and imperatives that they face.

Our achievements for clients are made possible by brilliant people. Prized for their legal talent and commercial focus, BLP lawyers are renowned for being personally committed to clients’ success. Our approach has seen us win five Law Firm of the Year awards and three FT Innovative Lawyer awards.

With experience in over 70 legal disciplines and 130 countries, you will get the expertise, business insight and value-added thinking you need, wherever you need it.

expertise•Commercial•Competition, EU and Trade•Construction•Corporate Finance•Dispute Resolution•Employment, Pensions and Incentives•Finance•Funds and Financial Services•Intellectual Property•Private Client•Projects•Real Estate•Regulatory and Compliance•Restructuring and Insolvency•Tax

Clients and work in 130 countries, delivered via offices in: Abu Dhabi, Beijing, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Moscow, Paris and Singaporewww.blplaw.com

getting in touchWhen you need a practical legal solution for your next business opportunity or challenge, please get in touch.

LondonAdelaide House, London BridgeLondon EC4R 9HA England

David CollinsT: +44 (0)20 3400 [email protected]

This document provides a general summary only and is not intended to be comprehensive nor legal advice. Specific legal advice should always be sought in relation to the particular facts of a given situation.

listing equity in london a quick guide : by berwin leighton paisner llp

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