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A Practical Guide to ListingW O R L D C L A S S S E R V I C E S F O R W O R L D C L A S S C O M PA N I E S

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A Practical Guide to Listing on the London Stock Exchange

© September 2002 London Stock Exchange plc, London EC4M 7LS. Telephone +44 (0)20 7797 1000. www.londonstockexchange.com

Registered in England and Wales No 2075721

This guide is written as a general guide only. It should not be relied upon as a substitute for specific legal or financial advice. Every effort has beenmade to ensure that the information in this guide is correct at the time of publication. This guide may be amended and reissued from time to time to accommodate market developments and changes to the UKLA’s Listing Rules.

AIM, techMARK, techMARK mediscience, London Market Information Link LMIL, RNS, SETS, SEAQ, SEATS PLUS and the London Stock Exchangecrest and logo are trademarks of London Stock Exchange plc. FTSE and ‘Footsie’ are trademarks of London Stock Exchange plc and The FinancialTimes Limited and are used by FTSE International Limited under licence.

The information in this publication relates to companies considering joining the main market ofthe Exchange. The main market is the Exchange's principal market for listed companies fromthe UK and overseas. For companies considering joining our AIMTM market for young andgrowing companies worldwide, which has a less stringent regulatory regime than the mainmarket, please visit our website at www.londonstockexchange.com/aim or telephone +44 (0)207797 4404. However, much of the general information included in this guide will be useful tocompanies looking to join either of our markets.

A Practical Guide to Listing

Listing: a pivotal choice

The London Stock Exchange hasbeen helping to finance companies,and provide a market for theirshares, for over 200 years. Forcompanies of all types, nationalitiesand sizes, the market has offeredaccess to a deep pool ofinvestment capital, while bringingsharebuyers the benefits of atransparent and liquid market onwhich to trade.

Most successful privately-ownedcompanies will ultimately reach astage where they consider whetherto list their shares on a publicmarket. In making this decision,they inevitably face a whole seriesof fundamental questions abouttheir future. Perhaps the companyhas venture capital backers orfamily founders looking for anopportunity to realise part of their

investment. Or maybe the business’expansion plans are beingconstrained by a lack of finance.

Clearly, a flotation may providesolutions to challenges such asthese. Going for a listing is one wayto address these challenges – andcompanies need to weigh up all theoptions before deciding which is themost suitable. Even when a flotationappears the best route, thecompany must give carefulconsideration to the pros and consinvolved, and to the longer-termimplications of being a listedcompany.

The purpose of this publication

As its title suggests, this publicationis designed to be a down-to-earth,practical guide to the listingprocess, taking you, in a series oflogical steps, from the very start of

the decision stage, right through tolife as a public company. Thispublication does not seek toencourage you to list, as this is adecision you will reach only aftermuch consideration and discussionwith your advisers. Instead, its aimis to bring to your attention theissues and potential challenges ofwhich you should be fully awarebefore setting out on this road.

Admission Process

A two-stage admission processapplies to companies who want tohave their securities admitted to theExchange’s main market for listedsecurities. The securities need tobe admitted to the Official List bythe UK Listing Authority (UKLA), adivision of the Financial ServicesAuthority, and also admitted totrading by the Exchange. Once bothprocesses are complete, thesecurities are officially listed on theExchange.It may be the most demanding thing that

you’ve ever done...but also the most rewarding.

In researching and writing thispublication, we have spoken tomany people with directexperience of the flotationprocess from every side. Theirco-operation and input has beeninvaluable. In order to enablethem to be as frank as possible,we have allowed them to remainanonymous throughout, andhave only identified them bytheir area of expertise.However, the people who havehelped us know who they are,and we would like to thank themsincerely. Without theirassistance, this publicationwould not have been possible.

The opinions and quotes wehave used have been drawnfrom four types of marketprofessionals:

Accountant

Any firm looking to come to thestock market must have areporting accountant, who isresponsible for reviewing thecompany’s financial record andposition, so that potentialinvestors can make an informedchoice about its shares.Accountants may also act asthe sponsor to an issue. Theaccountants we have spoken toare highly experienced inadvising companies through theflotation process.

CompanyWe have spoken to seniorexecutives who have beenthrough the flotation process ascompany directors, some ofthem several times. Thesepeople come from a wide rangeof industries. Their experiencemakes them ideally qualified tocomment not only on thebenefits of flotation, but also onthe potential pitfalls, and onwhat it feels like to be goingthrough the process.

Fund Manager

The fund managers we havespoken to are responsible forinvestment decisions involvingmillions of pounds every day.They have been able to provideinvaluable advice on what themarket and the investinginstitutions are looking for fromthe companies they invest in.

Stockbroker

Stockbrokers are securitiesfirms which are members of theLondon Stock Exchange,authorised to buy and sellshares on the Exchange’smarkets on behalf of theirclients. They may also act assponsors, the main financialadvisers to a company on itsflotation, and/or as corporatebrokers, acting as thecompany’s main interface withthe stock market. Thestockbrokers we have spokento have extensive experience ofguiding companies throughflotation.

Contributors

P R A C T I C A L G U I D E

5 Narrowing down the options

7 Looking at yourself and your business9 What are the pros and cons of a listing?9 The pros: reasons for going public10 The cons: reasons for staying private

12 Is your company right for a listing?12 Regulatory requirements13 Market requirements

16 Are your company and its management ready?16 Investor relations17 Corporate governance

18 Preparing the way for your flotation18 Appointment of advisers18 Deciding on the method of listing18 Executing necessary changes in the board and operations18 Taxation18 Beginning the valuation process

41 Life as a Public Company42 Continuing obligations42 Disclosure of price-sensitive information43 Directors’ responsibilities43 Dealing restrictions and the Model Code44 Shareholders44 Report and accounts45 Transaction and document disclosure45 Ongoing costs

46 Making the most of your listing46 Best practice: the benefits of going beyond compliance47 Investor and media relations48 Monitoring growth and informing investors49 Monitoring shareholdings and investment patterns49 Corporate governance50 The role of non-executive directors50 Dividend policy50 Active management and use of your listing

52 And finally...

53 Glossary of market terminology

55 Useful contacts

21 What becoming a listed company means21 The role of the London Stock Exchange22 The disciplines inherent in being a public company22 Different methods of flotation23 Public trading of shares23 Liquidity and share price volatility24 Costs of a listing

25 Choosing your advisers – and what they do26 The sponsor27 The corporate broker27 The reporting accountant28 Lawyers28 Other advisers

29 Countdown to flotation29 Documents30 The flotation timetable30 12 to 24 weeks before admission32 6 to 12 weeks before admission34 1 to 6 weeks before admission35 1 week before admission week37 Admission week

38 Countdown to flotation timetable

1 Decision Stage

2 Flotation Process

3 Life as a Public Company

1 Decision Stage

1 D

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TA

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D E C I S I O N S T A G E 5

The decision on whether tolist your company’s shareson a public market is asignificant one. It must bebased on an honest andrealistic assessment of yourcompany, its managementresources, its stage ofdevelopment and itsprospects. And it must bemade after full considerationof the alternative routes bywhich your business mightachieve its goals.

The precise circumstanceswhich prompt a company toconsider floating vary in everycase. It may simply be ashortage of capital forexpansion, with the sourcesof finance which have takenthe business this far – suchas banks or existingshareholders – now unwillingor unable to put more moneyin. There may be existingshareholders, particularlyventure capitalists, looking forthe opportunity to realise partof their investment.

The company may also wantto tie in key staff throughemployee share ownershipschemes, and give them aliquid market on which totrade their shares. Marketingissues may also be influential,since a private company mayoften find itself at adisadvantage if the majority ofits competitors are listed,because those competitorsmay be seen by customersand suppliers as being morefinancially reliable.

As well as improving theperception of a company’sfinancial stability andtransparency, a quote on apublic stock market alsodemonstrably increases theprofile which a companyreceives in the press.

Any or all of these factorsmay help to shape theultimate form of yourdecision. For example, acash-generative business maycurrently have no need offurther finance – and manycompanies opt to join themarket without raising anyadditional capital. In thesecircumstances, the otherbenefits are seen as justifyingthe costs of the listing. Buteven in these cases, there isthe advantage that theopportunity for future capital-raising via the stock market isopened up. And, as a generalrule, access to capital is a

Narrowing down the options

?Main MarketThe Main Market is the Exchange’s

principal market for listed companiesfrom the UK and overseas.

It currently includes approximately 1,325 UK companies and 325 overseas companies.

L O N D O N S T O C K E X C H A N G E ◆ P R A C T I C A L G U I D E T O L I S T I N G6

major stimulus behind mostcompanies’ decisions to floaton the market.

In general, a business whichneeds more long-termfunding, but wishes to retainits independence, will look atfour options:

◆ bank finance, generally inthe form of long-term loans

◆ further investment fromexisting shareholders(possibly in conjunction withadditional bank finance)

◆ venture capital, with theventure capital providersgenerally taking asubstantial equity position,on the understanding thatthey will have an ‘exit’ via atrade sale or flotation inthree to five years

◆ a listing with accompanyingcapital-raising on a publicmarket.

Each of these options has itsown benefits and drawbacks,depending on a wide range of

factors specific to thebusiness, including itsprospects, its sectors ofoperation, its owners and itsmanagers. Raising equityfinance, either public orprivate, may be cheaper butwill inevitably involve a trade-off in terms of loss of control,especially of the nature andtiming of the backers’ exitfrom private equity. Taking onfurther debt finance, on theother hand, may be especiallyrisky in times of rising interestrates or market uncertainty.

Every option should beexamined closely, butinevitably all of them havemajor implications for theownership, control andstrategy of the business. Andsince each of these optionsinvolves further financialcommitment from outside,they will all require a businessplan setting out solid andrealistic targets andprojections for the company’scontinuing development.

?techMARK

techMARK groups togetherinnovative technology companies listed

on the main market, enhancing theirvisibility and profile. Launched in November1999, techMARK has 144 companies frommany different subsectors. More details are

available from our website www.londonstockexchange.com/techmark

?techMARK

medisciencetechMARK mediscience is our

specialist segment which groups togetherpioneering healthcare companies listed onour Main Market. Launched in November2001, it includes 32 companies ranging in

size from £6m to over £100bn. More details are available on our

website www.londonstockex-change.com/techmark

?AIM

AIM is the Exchange’s globalmarket for young and growing

companies. Launched in 1995, it hasbeen specifically developed to meet the

needs of these types of companies. Over1540 companies from the UK and overseas

are quoted on AIM. More details areavailable by visiting our website

www.londonstockexchange.com/aim.


◆ What are my ambitions formy professional career?

◆ How committed am I to thebusiness?

◆ Do I feel sufficientlycommitted to see theprocess through?

◆ Is my relationship with therest of theboard/management teamstrong enough?

◆ Am I prepared for thecontinuing obligations,restrictions and publicprofile involved in running alisted company?

If you do feel committedenough to proceed, then youmust also analyse your owncompany’s strengths andposition in the market, giventhe fact that these will becrucial in persuading investorsto buy and hold the sharesonce the flotation has goneahead. It is often best for thecompany to identify a smallgroup of directors to considerthese issues, in order tominimise the disruption to thebusiness as a whole.Questions you should ask – ifyou have not been doing soalready – should include:

◆ Where is our currentbusiness plan taking us?

◆ What are our likely capitalrequirements?

Before even considering thepros and cons of a flotation,as a director of a companythinking about coming tomarket you must take a longhard look at your ownambitions, both personallyand professionally.

The process of preparing forand seeing through a flotationis a demanding andpainstaking one, and theongoing obligations faced bya listed company represent astep-change from therequirements of a privatebusiness. Indeed, someprivate businesses are run ina way to suit the lifestyle ofthe owner-managers, whichwould prove highlyincompatible with the rigoursof a public listing.

This means that any owner ormanager looking at taking acompany public should thinkcarefully about what thechange will mean. Theyshould also bear in mind thatany disruption or departuresat board level in the aftermathof a flotation are likely to havean effect on both investorconfidence and the shareprice. Anyone taking acompany public should thinkin terms of several years’commitment – and should askthemselves questions suchas these:

◆ What are my long-termpersonal goals?

Looking at yourself and your business

‘You often see

conflicts among the

board members, because

everyone has a different

agenda. The classic

confrontation is the owner

versus the management team –

basically the owner’s desire to

stay in control versus the

managers’ requirement for

shares as a reward for staying

on with the company. If

conflicts like this are addressed

early enough, then there is no

problem.’

Corporate adviser, accountancy firm

‘It can be a very steep learning-

curve for management. It is

generally much easier for them

if they already have venture

capital investors, and are

therefore used to the

idea of outside

shareholders.’

Corporate adviser, stockbroking firm

L O N D O N S T O C K E X C H A N G E ◆ P R A C T I C A L G U I D E T O L I S T I N G8

◆ How strong is ourcompetitive position, andhow can it be maintainedand strengthened?

◆ What is the quality of themanagement team, both atboard level and below, anddoes it need strengthening?

◆ Are all members ofmanagement working to thesame agenda?

◆ What outside advice andperspective – such as non-executive directors – doesthe board have access to?

◆ What will attract investorsto the company and are weready to commit time tocommunicating withinvestors?

Inevitably, the preparations fora flotation place everymember of the managementteam under intense pressure,and if cracks between themare ever going to appear, thenthey will appear during thisprocess. So it is crucial toensure that the board isunified behind whatevercollective decisions havebeen taken – and that allmembers are able to explainand promote the company’splans.


Access to capital for growth:A listing on the Exchange’smain market brings acompany the opportunity toraise equity finance, both atthe time of the initial listingand through further capital-raisings at a later stage.

Providing a market for yourcompany’s shares:The creation of a publicmarket at an externally-agreedprice stimulates liquidity in theshares, and givesshareholders the opportunityto realise the value of theirholdings. This can help tobroaden the shareholderbase, and enables existinginvestors – whether venturecapitalists or other owners –to exit, if they so choose,either on flotation or at a laterdate.

Employee commitment:A public market in the sharesmeans employee shareownership schemes have avisible value and market fortrading. This encouragesemployees’ participation inthe ownership of thecompany, and increases theirlong-term commitment to thebusiness. This in turn helpsthe company to recruit andretain good staff.

Ability to take advantage ofacquisition opportunities:Greater access to capital, andthe capability to issue paperwith a market value as an

What are the pros and cons of a listing?

Many owners and managersof private companies whichhave gone public say thatbefore embarking on theprocess they thought thatthe main advantages of alisting were access to capitaland to provide a market forthe company’s shares. Themost prominent drawbackwas considered to be thecontinuing obligationsplaced on a listed company.

Having been through theprocess, they realise that thespread of pros and cons isboth broader and much morecomplex than that. Forexample, many are surprisedby the scale of the positiveeffect on their relationshipwith suppliers and customers.By the same token, theamount of work required tocomplete the project and theinput and commitment ofdirectors may be higher thansome companies anticipatedwhen flotation was first raisedas an option.

The pros: reasons forgoing publicThe relative importance ofeach argument in favour of alisting depends on thecompany’s precisecircumstances. While thepriority may vary, here are themain benefits which areusually identified bycompanies and advisers.

‘For us, the most

obvious benefit of the

listing has been the ability to

raise capital for growth or

simply to reduce our debt. But

there are other advantages too.

For example, a listing definitely

helps to raise your visibility and

your profile, which is obviously

very important when you are

growing your business quickly.

What I can say is that without

the finance which we have

accessed through the stock

market, we simply could not

have been where we are today.’

Company secretary, media company

‘When you go to see prospective

customers and they realise you

are a publicly quoted company,

it makes a lot of difference. For

example, we sell systems to

clients on three-year service

contracts. If you go in on that

basis and they don’t know who

you are, then they might not

have the confidence to buy from

you, because they can’t be sure

you’ll still be around in three

years’ time. But if you’re

publicly quoted, as we are, then

they’re much more

ready to buy your

product.’

Operations director, technology company

L O N D O N S T O C K E X C H A N G E ◆ P R A C T I C A L G U I D E T O L I S T I N G1 0

acquisition currency, canincrease the potential tomake acquisitions of privateor quoted companies.

Higher public profile: The listing on a public marketinevitably means that thebusiness and its activities willreceive more extensivecoverage in the press, thuswidening the awareness ofthe company and itsproducts. It will also becovered in analysts’ reports.This heightened profile inturn can help to sustaindemand for and liquidity inthe shares.

Reassurance for customersand suppliers: Companies coming to markettend to find that theperception of their financialstrength within their ownindustry is transformed. Thisis especially true of a smallercompany dealing with muchlarger customers, who arereassured that the companyhas received regulatoryapproval and has undergone arigorous due diligenceprocess. This perceivedhigher financial standing mayeven enable the listedbusiness to conduct businesson better commercial terms,since the perceived risk ofdefault is lower.

Greater efficiency:The requirement for morerigorous disclosure tends tolend itself to better systems

and controls, improvedmanagement information, andgreater operating efficiencyfor the business as a whole.

The cons: reasons forstaying privateIt is crucial that a businessconsidering a flotationappreciates the drawbacks,obligations and costs, both interms of money andmanagement time, which arelikely to be involved. Some ofthese are one-off effectsbefore and during the flotationprocess, while others – suchas the higher degree ofdisclosure – continue beyondthe listing. Overall, a flotationbrings significant responsibili-ties as well as benefits, sinceit involves the stewardship ofoutside investors’ money.

Again, the relative importance of these disadvantages mayvary with the precisecircumstances and evenpersonalities involved in thebusiness. Those mostgenerally identified bydirectors and advisersinclude:

Susceptibility to marketconditions: However strong and well-runa business is, it may find thatthe price and liquidity of itsshares are affected by marketconditions beyond its control.A smaller listed company mayfind that its shares suffer fromilliquidity, or a company of any

size may find that its shareprice is adversely (or evenpositively) affected by marketrumour, economicdevelopments or eventselsewhere in the sameindustry. In the worst casescenario, adverse marketconditions at the time ofcoming to market may forcethe postponement of aplanned flotation.

Potential loss of control: The sale of equity in thecompany inevitably involvesceding a degree ofmanagement control to theoutside shareholders, whoseviews must be taken intoaccount. In fact, certaincorporate actions on the mainmarket – such as significantacquisitions – are onlypossible with the priorapproval of shareholders. Andthe need to satisfyshareholders’ requirement fora return on their investment,on a continuing basis, canlead to the company feeling

?Why havedisclosure

requirements?The disclosure requirements which

the UKLA places on all listed companieshave two main purposes: to ensure thetimely disclosure of all potentially price-

sensitive information, and the equal treatment of all

shareholders.

D E C I S I O N S T A G E 1 1

pressure to achieve short-term performance rather thanlong-term strategic goals.Depending on the proportionof the equity which remains indirectors’ hands, thecompany may also run therisk of being taken over by anunwelcome acquirer at somepoint in the future.

Disclosure requirements andongoing reporting: The process of floating, andthe subsequent listing, bothinvolve the company in amuch higher degree ofdisclosure and reporting thanis required of a privatecompany. This will requireadditional investment inmanagement informationsystems, and a more rigorousapplication of compliancecontrols.

Loss of privacy: The greater accountability tooutside shareholders inevitablymeans that the directors losemuch of the privacy andautonomy they may haveenjoyed when running a privatecompany. The company’sheightened profile also meansthat any underperformancereceives a greater degree ofcoverage, which may have adirect impact on the shareprice. The higher degree ofinterest which the press takesin a listed company can be abenefit in good times, but maybe much less welcome whenthings are not going so well.

Costs and fees: Especially if the company isrelatively small, the overallcosts involved in flotation,raising additional capital andthe ongoing costs ofmaintaining a listing mayoutweigh the benefits. Thecompany should ensure that itis aware of the likely costsbefore embarking on theprocess.

Management time: Both the flotation processitself and the continuingobligations – particularly thevital investor relationsactivities (outlined in Section3, Life as a Public Company)– use up significant amountsof management time which might otherwise bedirected to running thebusiness.

Directors’ responsibilitiesand restrictions: The directors of a privatecompany may find that theysimply do not like theimplications of running a listedbusiness. Greater disclosureof salaries, restrictions onshare dealing and price-sensitive information, and theneed to invest time andmoney in investor relationsare all additional burdenswhich are unlikely to havearisen in a private company.

‘First of all, our

London listing means

we enjoy a much higher profile

than a private company –

leading to greater awareness of

us both among the public at

large, and also among our own

customers and suppliers. A

listing also gives us a market in

our shares, meaning we can use

them to motivate our staff. And

we have the opportunity to grow

our business quickly, by using

shares rather than borrowing to

raise finance.’

Managing director, engineeringcompany

‘About 80 per cent of the

companies who come to us

considering a flotation decide

against it first time around. But

a lot of them return to the idea

later when they’re better

prepared.’


‘When you are considering a

listing, you should make the

decision backwards. You should

look at where you will be after

the flotation, and compare it

with where you are now. You

are going to spend hundreds of

thousands and possibly millions

of pounds in fees, and if you are

not sure what benefits you are

buying for that money, then

there is definitely

something wrong.’

Chief executive,manufacturing company


To be able to list on the mainmarket, your business mustsatisfy specific sets ofcriteria.

The UKLA’s Listing Rules setthe specific regulatoryrequirements which you haveto meet to be allowed to liston a market. In addition tomeeting the UKLA’srequirements for grantingofficially listed status, you willneed to apply to the LondonStock Exchange to beadmitted to trading on themain market. The Exchangehas a set of straight-forwardadmission and disclosurestandards that will help you togain admission to the mainmarket.

An additional consideration isthe investment community’sview of your company as anattractive business with goodcommercial prospects.Unless this view isfavourable, your flotation –and, more specifically, anycapital-raising which you areattempting at the same time –may run into trouble, and theprospects for an activetrading market on theExchange in the longer termwill be uncertain, to say theleast.

Not surprisingly, these sets ofcriteria overlap to asubstantial extent, sinceinvestors are unlikely toentrust their money to a

company lacking the formalcontrols and track recordrequired by the UKLA. But itis useful to draw a distinctionbetween them, as it helpsdivide the things you must dofrom those you should do.

RegulatoryrequirementsYour advisers will guide youthrough the fine print of theUKLA’s requirements, and willspare no effort to ensure thatyou meet them in full. Thoughthese rules generally apply,there are also someexceptions. For example, atechnology company at the‘pre-profit’ research anddevelopment stage would notnecessarily be prevented fromlisting – and many suchcompanies have done so.Again, your advisers will beable to guide you through theway the rules are applied, andany specific rules which mightapply to your company.

The precise requirements are

set out in the UKLA’s ListingRules, so there is no need tospell them out here in detail.However, a brief overviewmay be handy. Here are theprincipal requirements whichyour company and itsdirectors must usually meet:

Incorporation: The company must beincorporated under therelevant laws, which for UKcompanies means being apublic limited company (plc).

Accounts:The company must normallyhave published or filedaudited accounts covering athree-year period, such aperiod ending no more thansix months before the plannedflotation.

Track record: The company should have anindependent trading andrevenue-earning recordcovering the same period.Also, if the company hasmade a number of significantacquisitions in the three yearsrunning up to the flotation,then it must show that thesehave a suitable track recordas well.

Directors: The company’s directors andsenior management mustshow they have appropriatecollective experience andexpertise to run all areas ofthe business, and must befree of conflicts of interest

Is your company right for a listing?

?Admission &

Disclosure Standards

The Exchange’s Admission and

Disclosure Standards are available

on our corporate website

www.londonstockexchange.com.

The UKLA Listing rules are available

on the FSA's website

www.fsa.gov.uk.


which might hamper theirability to do this.

Working capital: The company must be able toshow it has enough workingcapital for its current needsand for at least the next 12months.

Independent operations: The company must be able tocarry on its businessindependently and at arm’slength from any shareholderswith a controlling interest –which generally meansanyone with control of morethan 30 per cent of theshares, or who can influencethe appointment of directors.

Shares in public hands: Once the company is listed,at least 25 per cent of itsshares should be in publichands.

Market capitalisation: A company listing its shareson the market must have atotal market capitalisation ofnot less than £700,000, andwould normally be expectedto be much larger.

Market requirementsClearly, any company mustsatisfy the UKLA’s ListingRules before it can apply tobe admitted to be traded onthe Exchange, and youradvisers are there to ensureyou submit the rightinformation at the right time.But you should remember

that by floating your business,you are putting a long-termvalue on it and selling it tooutside shareholders. So,irrespective of your ability tomeet the UKLA’srequirements, if theinvestment community doesnot value your business ashighly as you do then theflotation may not be asuccess.

As you would expect, manyof the UKLA’s requirementscoincide with the attributeswhich investors are lookingfor in a company. Things suchas a demonstrable tradingrecord and appropriately-experienced directors clearlyhelp to satisfy both theregulators and the potentialshareholders. However, ratherthan seeing your company’sability to meet the regulatoryrequirements as being anymeasure of its value, it iscrucial that you try to stepback and look at yourbusiness long, hard and dis-passionately, as an outsideinvestor would. Ultimately, theability to meet the market’scommercial expectations isall-important.

To be suitable and ready tofloat and attractive toinvestors, your businessshould possess the followingattributes, many of which areinter-related. In individualcases, other factors may berelevant – but this list will

‘When I look at the

management of a

company, I am looking for track

record and relevant skills. I

also want to see an ability to

explain the business and where

the growth is coming from. The

best attitude is cautious

enthusiasm – if they are

overstating their aims, it doesn’t

help.’


‘By and large, I don’t think

businesses present themselves

as well as they could do. They

simply have to stand aside from

their business, try to detach

themselves from it and

appreciate that an investor is

starting with a clean sheet of

paper. All too often, directors

speak from their own

perspective inside the company.

They should be more aware of

the need to help other people

understand their business.’

Fund manager, institutional investor

‘Institutions are looking for fast,

controlled growth, and

companies which deliver what

they say they’ll deliver. Above

all, the board must be seen to

be in control, to have the ability

to drive the business forward,

and the vision to expand

organically and make astute

acquisitions. You need board

members who can present well,

or you might never get

your message across.’

Corporate adviser,stockbroking company


provide you with a goodgeneral starting-point:

Track record as a sound,well-managed business: Investors are generallycomforted by the perceptionthat a business has a reliableand relatively broad base ofproducts and customers, anda relatively consistent recordof revenues and profits. Thisis not an absoluterequirement, since somecompanies in sectors such asIT and biotechnology nowcome to market at the pre-profit stage to enable them tofund the necessary R&D.However, as a general rule ofthumb, erratic or decliningfinancial performance is likelyto set the alarm bells ringingfor investors.

By the same token, investorsmay feel that a businesswhich is over-reliant on asmall market niche, or asingle customer or contract,may be disproportionatelyvulnerable to minor changesin market sentiment or in itscustomer relationships.Similarly, a business whichhas grown rapidly on the backof a particular product with apotentially limited marketcycle may be seen as overlydependent on what is‘fashionable’ at the time, thusthrowing its long-termprospects into doubt.Essentially, the market islikely to find a wide range of

sustainable but smallerproducts and clientspreferable to one big productand client.

Viable and realistic businessplan: No one will invest in abusiness which cannot setout where it thinks itsrevenues will come from inthe future. The business plan,which forms one of thebuilding blocks for theprospectus, should not beover-optimistic, and must bebacked up by sound andjustifiable projections of salesand costs, with enoughworking capital to meet theprojected requirements.However, a viable businessplan is really something youshould have anyway, and is aprerequisite for gaining thesource of external finance youare seeking – be it sharecapital, venture capital orbank finance.

Management quality andcontinuity: As potential investors lookover your company, the rangeand depth of its managementexperience will be a key focusof their attention. They willwant to check that the boardand senior managementinclude people who have hadrelatively long experience –preferably several years – inthe business. Recent majorchanges at board level maycause doubts about theoutlook. At the same time,the company should look toidentify and plug any gaps inthe full breadth of expertiseneeded to fulfil its businessplan. This is where non-executive directors can bevery useful. Investors will alsolook for a management teamwhich shows it is unitedbehind the company’s plans,personally committed to itsfuture, and fully agreed on itsobjectives.

Corporate governance:Although compliance with thecorporate governancerequirements as set out in theCombined Code is voluntary,investors will expect to seethe development ofappropriate corporate andmanagement structures.These will help to reduce thecompany’s reliance onindividuals, thus giving greatersecurity to investors. Whilesome changes might beinappropriate for a very small

?Admission

for innovativecompanies

techMARK is open to all innovativetechnology companies who issue stocks,irrespective of their size, industrial classifi-cation or location. The securities must beofficially listed by the UKLA and admitted

to trading on the Exchange’s mainmarket in accordance with the

relevant criteria.


business, potentially relevantsteps may include splittingthe roles of chairman andchief executive, theappointment of non-executivedirectors to the board, andappointing a qualified financedirector. Investors may alsolook for signs of long-termcommitment to the businessfrom key staff at and belowboard level, throughcontractual arrangements orshare option schemes.

Transparency of ownershipand accounting:Potential investors could beput off by the presence of acontrolling shareholder, sincethey may fear that theirinfluence on the business’direction would be morelimited than if no singledominant shareholder was inplace. They will also want tosee evidence that thecompany’s financial controlsand accounting systems areof a high standard.

Timing and marketsentiment: Factors beyond the control ofthe company or itsmanagement, such aschanges in the economicenvironment or shifts inmarket sentiment, may affectthe business’ valuation by themarket and even its ability tofloat. Management shouldalso be aware that somebusiness sectors are morehighly-rated on the stockmarket than others –essentially meaning that abusiness coming to market ina particular industrial categorywill possibly be able to raisemore money. Somebusinesses even choose toreshape themselves forflotation, by shifting the bulkof their operations towardsmore highly-rated areas.

‘Timing is important.

The decision to float

was taken at our financial year

end. So we kept the books open

for two months to catch all the

liabilities, and then started the

flotation process after the audit

was completed at the end of

that two-month period. We

floated four months after that.’

Chief executive, industrial company

‘You’ve got to get your business

looking right for the market. For

example, there are different

multiples for different sectors,

and even for different

businesses within those sectors.

You will want to be in a sector

alongside your own peers.’


‘The chairman and chief

executive of a private company

are often the same person, so

for the float they need to get a

non-executive chairman from

outside, and put him with a well-

integrated management

team which knows the

business inside out.’

Smaller companies fund manager

?Corporate

governance‘Corporate governance’ refers to theway a company conducts itself and

structures its top management. The maincurrent benchmark for ‘best practice’ is the

Combined Code drafted by the HampelCommittee, which took account of the

earlier Cadbury and Greenbury Reports.Copies of the Combined Code and

the Hampel Report are availablefrom Gee Publishing on

08457 573113.


Given the need to sell yourbusiness to stock marketinvestors, it may be a goodidea to compile a checklistof issues which yourbusiness must addressbefore it can considerfloating.

All directors should be able to follow a common line inresponse to questions on anyof these areas. If directorscannot answer searchingquestions on the company’saffairs in a coherent and wellthought-out manner, thenpotential investors will not getthe best possible impressionof its prospects as a listedcompany.

Management should examinea wide range of factors inorder to gauge the business’suitability for the market.These can be divided broadlybetween issues whichmanagement should be ableto resolve themselves,generally relating to thedirectors’ personal wishesand the position of thebusiness in its particularsector; and more stockmarket-related issues intowhich the company’s adviserswill probably have greaterinsight, and whichmanagement cannot reallyaddress alone. Obviously,there are some areas ofoverlap – such as the mix ofskills on the board – butgenerally it is useful to split

the factors into these twoareas.

The issues on which themanagement must make upits own mind include thefollowing:

◆ Where do the directorswant to be, both personallyand professionally, in, say,five years’ time?

◆ What is the management’sposition on market strategy and planning?

◆ Are there any skill gaps atboard level that must beplugged?

◆ How will that be achieved?

◆ Are the directors preparedindividually for greaterdisclosure, openness andaccountability after thelisting?

◆ Have ownership and taxissues been thrashed out atan early stage?

◆ Are you convinced of theloyalty and commitment ofkey employees? How isthat being ensured?

The issues on which youradvisers – especially yoursponsors and brokers – arelikely to have considerableinfluence include the following:

◆ Is flotation the mostappropriate option for themanagement team toachieve its objectives?

◆ The strength of thebusiness and its tradingrecord – is it saleable to themarket?

◆ Should the business bereshaped to put it into amore highly-rated sector andincrease shareholder value?

◆ What strategic initiatives(eg acquisitions) need to becompleted before going forflotation?

◆ Are the operational, financialand managementinformation systems robustenough for a listed company?

◆ Have you taken account of‘best practice’ on corporategovernance, such as thatset out in the CombinedCode?

◆ Is the timing right for yourflotation, both in terms ofthe business and themarket conditions, or wouldit be better to wait?

◆ Do you understand whatinvestors expect andrequire from you?

Investor relationsAccording to many advisers,the greatest difficulty whichsmaller and medium-sizedcompanies face when theycome to market isunderstanding precisely whatthe market wants from them.Investor relations is not aperipheral or optional activity.It is central to maintaining a

Is your company and its management ready?


listed company’s contact withthe stock market, and tostimulating liquidity in itsshares. So the businessshould get its facts and plansstraight in advance, becauseany weaknesses will inevitablybe exposed under the rigoursof the flotation process. Andmanagement must beprepared to spend time andresources on investorrelations if the business is togain the maximum benefit fromits listing.

Corporate governanceA further point to rememberis that it may be worthconsidering going beyond theminimum requirements inareas such as accountingcontrols and corporategovernance, and instead toaim for ‘best practice’ asstandard. Again, this policycan be instituted well beforethe flotation takes place, andmay help convince advisersand investors of the valueand solidity of your business.Your advisers will be able togive you guidance on what isnow regarded as best practicein terms of disclosure andgovernance.

‘The board should be

made up of the key

decision-makers, and it’s always

nice to have a non-executive

director such as an industry

guru. The non-executive may not

be on the board at the time of

the flotation, but it’s good to

start looking round for one as

early as possible. What you

want is someone who has done

it all before and will sharpen up

your act.’


‘The main reason to take action

before going to market is to

avoid finding yourself in a pickle

once you have listed.’

Chief executive, manufacturingcompany

‘A lot of companies make

acquisitions to develop critical

mass pre-listing. The problem is

that we don’t want to see the

management distracted by a

major acquisition just as they’re

going into a flotation.’

Smaller companies fundmanager


If careful consideration of allthe pros and cons showsyou that a listing will benefityour company, that it issuited to joining the mainmarket, and that the timingin terms of the businesscycle appears to befavourable, then it will betime to push ahead withpreparing the ground. All thenecessary steps will becovered in greater depthlater in this guide, but theseare the main issues you willneed to think about:

Appointment of advisersThe first step, once you havedecided on a flotation, shouldbe to identify and appoint thesponsor for your listing. Theywill coordinate yourcompany’s entry to themarket. You will also need acorporate broker, which mayor may not be the same firmas that sponsoring your issue.Further advisers needed forthe flotation include reportingaccountants, solicitors andtax specialists (usuallyaccountants or lawyers), andyou will also probably decideto use public/investorrelations advisers. For moreinformation on advisers, seepage 25.

Deciding on the methodof listingOne of the first things you willdecide with your advisers isthe method of going public.

These can range in cost andcomplexity from a lessexpensive introduction to themarket, raising no newmoney, to a public offer,where institutions and privateindividuals are invited tosubscribe. A half-way housemay be a placing, in whichshares are offered for sale ona selective basis, primarily toinstitutional investors. Yoursponsor will be able to adviseyou on which route best suitsyour business. For moreinformation on methods oflisting, see page 22.

Executing necessarychanges in the boardand operationsIf you and your advisers haveidentified changes whichshould be made in the boardof directors or the shape ofthe business, these should beenacted as early as possible.Investors are keen that acompany coming to marketshould go through a period ofstability prior to the flotation,allowing the management tofocus its attention on thelisting. So, once the decisionis made, any acquisitions,disposals, and recruitment ofnew directors or seniormanagement necessary tosmooth the way for theflotation should be pursued asa matter of priority.

Taxation

In a flotation, the tax position

of the individual directors andof the business as a wholecan be complex, and shouldbe clarified as early aspossible. Again, your adviserswill be able to guide youthrough this complicatedarea. Existing shareholdersmay be liable for capital gainstax if they dispose of shares,and the sale of a family-owned business may affectinheritance tax. You maydecide to use your otheradvisers for tax advice, oremploy specific taxspecialists.

Beginning the valuationprocessThe market value of yourbusiness is clearly central tothe flotation. If funds are tobe raised, it will affect theproportion of the company’scapital which needs to besold. Also, the value of thebusiness might be affected byany corporate restructuringand board appointmentsmade in the run-up to thefloat. The management andits advisers should start doingtheir calculations at thebeginning of the process, toestablish a realistic valuewhich the market might puton the company.Management should beaware, however, that the finalvaluation achieved on flotationwill depend on marketconditions at the time.

Preparing the way for your flotation

2 Flotation Process

2 FLOTATIO

N PRO

CESS

F L O T A T I O N P R O C E S S 2 1

The role of the ExchangeBefore your company comes to the main market, it isimportant that youappreciate the different roleswhich the Exchange and theFinancial Services Authorityplay in the listing and tradingof shares in London.

In its role as the UKLA, theFinancial Services Authorityhas a legal obligation tooversee the listing process,and to ensure that its rulesare met. This duty involvesthe UKLA in reviewing andapproving the prospectus orlisting particulars. Thisdocument – which will bepassed to the UKLA by yoursponsors – primarily containsinformation on the companyand its business, and mustsatisfy the UKLA’s ListingRules to ensure that onlycompanies meeting theconditions for listing come tomarket.

The UKLA engages in adialogue with your company’sadvisers until the regulatoryrequirements are met. Youmay find that you have somedirect contact with the UKLAduring this time, but the mainpoint of contact will usually beyour sponsor or corporatebroker, who will refer queriesback to the relevant companydirectors and other advisers.In parallel to the UKLA’slisting process, you mustapply to the Exchange to have

your company’s securitiesadmitted to trading on itsmarkets. The Exchange hasits own set of admission anddisclosure standards whichare designed to sit alongsidethe UKLA’s Listing Rules tomake access to the Exchangeas straightforward aspossible.

The Exchange works toensure your companyreceives the maximum benefitfrom being traded on itsmarkets. If you areconsidering applying to betraded on the Exchange’smain market you shouldcontact the Exchange as earlyas possible so that we canassist you through theadmission process.Admission to listing becomeseffective only when all therelevant documents havebeen approved by the UKLA,and the decision to list thesecurities and admit them totrading has been announcedjointly by the Exchange andthe UKLA.

Once your company is listed,then you become subject tothe continuing obligationswhich are placed on all listedcompanies, and to whichprivately-owned businessesare not subject. Theseobligations include a range ofrequirements, such asensuring that informationwhich might affect the shareprice is made available to all

What becoming a listed companymeans


investors at the same time,and that financial results arereleased on a timely basis inan acceptable format.

The disciplines inherent in being a publiccompanyThe need to maintain a levelplaying field in the trading ofshares, and to ensure that allinvestors are able to deal onthe basis of the sameinformation, means that thedirectors of any companycoming to the stock marketwill immediately experience astep-change in their responsi-bilities and obligations. Theserequirements affect theconduct both of the companyin general and of theindividual directors, who mustbe scrupulously careful thatthey obey the regulations inareas such as their personalshare trading and the releaseof information. In the worst-case scenario, you riskbreaking the law. The fact thatthese rules must be followedwith absolute attention todetail is one of the mainreasons why the directors ofa private company must havea clear understanding of whatis involved before coming tomarket. As a director, youshould also be aware thatthere are further disciplines –particularly in areas such ascorporate governance anddividend policy – which arenot absolute requirements,

but which may have asignificant effect on investorconfidence and support, andultimately on the share price.

Taken as a whole, thedisciplines inherent in comingto market, and subsequentlyin being listed, may entail atransformation in the wayyour business is run. Tightermanagement control andaccountability must bematched by greateropenness, both internallyamong the directors and alsoin the company’s interactionswith outside investors.Further details on thedisciplines and restrictions ona listed company can befound in Section 3 of thisguide: Life as a PublicCompany.

Different methods offlotationDepending on the nature ofyour business and its capitalrequirements, you maychoose one of three differentways in which to come tomarket.

Public offer: In a public offer, your sponsorwill offer your company’sshares to private and/or insti-tutional investors. Thesponsor will also usuallyarrange for the offer to be‘underwritten’, meaning thatany shares not bought will bepurchased by institutions whohave agreed to do so for a

fee. A public offer is generallythe most expensive route tomarket, and is often used bylarger companies. However, italso brings in privateinvestors who are importantin increasing the liquidity of acompany’s shares. It is alsothe method of choice for abusiness looking to raisesubstantial amounts ofcapital.

Placing: A placing usually involvesoffering the shares to aselected base of institutionalinvestors. This allows thecompany to raise capital butwith lower costs and greaterfreedom in terms of how it isdone. It also potentially givesa company more discretion tochoose its investors.However, the downside isthat it can result in a narrowershareholder base than apublic offer, which can giverise to less liquidity in theshares.

Introduction: An introduction is where acompany joins the marketwithout raising capital and istherefore often the leastexpensive and most straight-forward way of joining themarket. Generally, a companycan use this method if over25 per cent of its shares arein public hands, and there isalready a fair spread of share-holders. It involves no under-writing fees and little


called SETS. This is an ‘order-driven’ system, based on anelectronic order-book, whichpairs up matching ‘buy’ and‘sell’ orders for the sameshares and executes theresulting trade automatically.

Liquidity and shareprice volatilityThe term ‘liquidity’ is muchused in the share markets,and refers to the amount oftrading in a company’sshares, which is afundamental factor in the levelof its share price.

Generally, demand for acompany’s shares isstimulated by a good financialperformance, since this islikely to result in a risingdividend return for sharehold-ers. However, there areseveral other factors whichcan influence the share price.Many companies look tocultivate loyalty and long-termsupport among privateinvestors, who may well becustomers for the company’sproducts as well. And theproportion of a company’sshares in ‘free float’ – held byoutside investors of all types– can also affect demand forthe shares, and their price.The more shares in publichands, the greater theamount available for trading.

At the same time, otherfactors beyond a company’scontrol can influence both thelevel of demand and the

2 3

requirement for advertisingthe flotation, which keepscosts to a minimum.However, the downside of anintroduction is that the oppor-tunities for boosting thecompany’s profile and visibilityare more limited than withother methods of flotation.

Public trading of sharesThere are various differentways in which shares can betraded on the Exchange’smarkets. If you are a small ormedium-sized company, onceyou are listed your shares willbe quoted on one of theExchange’s automaticquotation systems, SEAQ orSEATS PLUS. The buy andsell prices for your shares willbe set by competing ‘marketmakers’, who are effectivelywholesalers offering to tradein your shares at their statedprice. Stockbroking firms,trading on their own accountor on behalf of investors, buyand sell the shares when theyfeel the price is right. Themarket makers will changetheir quote for your sharesdepending on the strength ofdemand for them, and inreaction to news about yourcompany or its tradingenvironment.

For bigger companies,including those in the FTSE100 index, the Exchange runsa separate trading system

‘We raised £2.5

million in total when

we floated – £2 million went to

the existing owners and the rest

came into the business. We

didn’t need the money for

operations because we are cash-

generative, but we used the

balance to fund the flotation and

raise the company’s profile.’

Managing director, distributioncompany

‘Once you become listed, don’t

become too hung up on the

volatility of your share price.

Also, when you have a new

product, you may suddenly feel

very excited and optimistic –

and then it’s very disappointing

when you find out how hard it

is to get the institutions

interested.’


‘The upsetting bit comes when

you report a 25 per cent rise in

your interim profits and your

share price doesn’t move at all.

It isn’t the Exchange’s fault, but

clearly a lot of the institutional

investors are currently putting

their weight behind the really

big companies in areas such as

telecoms and pharmaceuticals.’

Chairman, smaller quoted company


share price, such as asignificant piece of economicnews with implications for thebusiness, or speculation overa potential corporate action. Ifa company’s share price hasmoved dramatically and thishas happened for no apparentreason, then the UKLA willask the company and itsadvisers if they know of anyreason for this, and mayrequire the board to make anannouncement if they haveanything relevant to say. Asthis scenario suggests, listedcompanies – particularly atthe smaller end of thespectrum – must also beprepared to experienceperiods of volatility in theprice of their shares. Sincethe liquidity in smallercompany shares tends to belower than in bigger stocks,the price can be movedrapidly by relatively smallvolumes of trading.

Management may also feelthat the share price is notreflecting the growing value ofthe business. This can beannoying, but directors oflisted companies stress that itis important not to becomefixated on the share price,and that – like investors – thedirectors should take a long-term view.

However, whatever theinfluences on the share price,a listed company cannotexpect to sit back and let themarket beat a path to its

door. One of the greatestsurprises for somecompanies coming to marketis the active role they need toplay in terms of investorrelations, helping to generateinterest in the company andits products. You shouldregard time and money spentin developing contacts andawareness among theinvestment community asbeing a sound investment forthe future – and you must beprepared to make time for italongside the day-to-daydemands of running thebusiness.

Costs of a listingComing to the stock marketis a major investment for anybusiness. A listing on themain market is likely to costyour company at least£500,000 in professionalfees. This figure can rise sig-nificantly for a sizeable listing,especially when factors suchas underwriting fees aretaken into account. On amore positive note, you maywell be able to fix some ofyour costs at the start of theprocess, such as foraccounting and legal advice,helping you to get a cleareridea of your outgoings inadvance.

At the same time, the UKLAand the Exchange also chargefees to listed companies.Both fees are among themost competitive charged

worldwide and are set out inprice lists available from theUKLA and the Exchange.

Once listed, companies havean obligation to disclose pricesensitive information to themarket through a RegulatoryInformation Service (RIS). Thecost of this service is paiddirectly by the company totheir prefered RIS.

While the total costs varywidely depending on individualcircumstances, as a rule ofthumb they tend to come tobetween four and eight percent of the total proceeds ofthe sale, although thisproportion may be higher forrelatively small share offersas some of the fees, forexample for accountants andsolicitors, are a fixed cost.

It is also important to notethat costs can be paid out ofthe proceeds of the sale.

?UKLA &

Exchange fees

These fall into two categories –admission fees when the companylists/increases its share capital, and

annual fees on an ongoing basis. Eachtype is payable to the UKLA to coverthe UK Listing Authority, and to the

Exchange to cover its activitiesin providing the trading

market.


expertise, experience andresources to act for you onthe flotation. If not, they willcertainly be able torecommend and introduceyou to suitable firms ofadvisers who can provideindependent guidance.

Many companies approachthe appointment of advisersby holding ‘beauty parades’with a series of them, askingeach about their expertiseand fees, and getting afeeling for what it would belike to work closely with themover an extended period. Youwill be spending a consider-able amount of time (andmoney) with your chosenadvisers, and the relationshipmay well continue after theflotation, so it is crucial thatyou can get on with them ona personal level. You shouldalso investigate the potentialscope for negotiation oncosts and areas of responsi-bility.

During the flotation process,you will inevitably rely heavilyon your advisers for guidanceas to what is happening ateach stage – and to what willhappen next. As the flotationprocess gets under way, it isall too easy for managementto develop the feeling that itis being swept along in asequence of events it doesnot really understand, andover which it has little control.This sensation is one which

Choosing your advisers – and what they do

Choosing good qualitycorporate advisers is one ofthe first and most importantthings that you must do inpreparation for a flotation –and is also one of the mostdifficult.

The sheer range of differentaspects on which you needadvice means that you requirea whole team of professionaladvisers, each looking aftertheir own specific area ofspecialisation. Some areas ofresponsibility, such as theroles of sponsor andcorporate broker, canpotentially be combined by asingle firm. But manydirectors feel it is actually in acompany’s interest to haveseparate advisers for eacharea, since it may lessen thepotential for conflicts ofinterests in the event of anyproblems or unforeseendevelopments.

The natural starting-point inyour search for suitable pro-fessional advisers to guideyou through the listingprocess is to talk to yourexisting advisers, usuallyaccountants and solicitors.You should really start thisprocess at least a year beforeyou intend to join the market,although you may ultimatelyfind that the process takesless time than you expect.Your existing solicitors andaccountants may alreadypossess the necessary

‘The process typically

takes about two years

and is likely to cost at least

£500,000 for a listing on the

main market.’


‘We needed to choose a

corporate broker, so we fixed up

meetings with four of them and

asked them all the same three

questions. How much will it cost

us to float? What range of

valuations can we expect? And

which market should we float

on?’


‘Any private company with any

ambition should already have a

PR agency. A positive profile

before you come to market will

go a long way in

helping your flotation.’

Smaller companies fundmanager


many directors, after theflotation, admit to having feltduring it. To avoid this, it isimportant that you understandwhat is going on at all times,and to retain someperspective on the overallprocess. Your advisers will behappy to help you to do this –they will have been throughthe whole thing many times,and will be happy to put eachstage in context for you.

The sponsorThe first concrete steptowards your flotation is toidentify and appoint a suitablesponsor for the listing. Thesponsor takes a central rolein the flotation process,advising the company on awide range of issues,probably including theappointment of other profes-sional advisers. Aninvestment bank, stockbrokeror other adviser eg acorporate finance house oraccountancy firm, can take onthe role of sponsor, providedthey are approved by theUKLA to do so. A full list ofapproved sponsors can beobtained from the UKLA atwww.fsa.gov.uk/ukla.

Since acting as a sponsoralso requires a high degree ofcommitment from the firmtaking on the role, theappointment process is prettymuch a ‘two-way street’. Youwill certainly want to look atthe potential sponsor’s

expertise, experience andlikely fees. But they will alsowant to have a good look atyour business beforeagreeing to take on yourflotation. It is a good idea toprepare a ‘snapshot’ briefingin advance on your company’sbusiness and financial historyfor each prospective sponsor.

Although the precise valuationof your business will not bedecided until the eve of theflotation, many better-informed companies make adiscussion about companyvaluation part of the beautyparades for their sponsor. Asa would-be issuer, it is alsosensible for you to conductresearch into the listedcompanies in your ownsector, to give you some ideaof the methods of valuationand the kind of rating youmight expect from themarket. This will ensure thatyour management can have ameaningful discussion withthe parading investment bank.

A further good idea at thisstage is to quiz theinvestment bank about thelikely investor base for yourissue. If the investment bankis well-prepared, it should beable to discuss the proportionof the issue that should go toinvestors specialising in yoursector or perhaps to fundswith an international flavour,and will have the evidence toback up its opinions. Much of

this advice can apply to theappointment of your brokeras well.

If you and the potentialsponsor are still interested inone another after the initialmeeting, they will then requiremore detailed financialinformation, and will probablywant to come and look atyour operations and premisesbefore accepting yourbusiness. Essentially, thesponsor will want to be surethat your business and itsmanagement are appropriatefor a listing, and that theflotation stands a very goodchance of success. So, aswell as assessing theirabilities and fees, it is yourjob to convince them of yourown company’s strength andprospects.

The sponsor’s pivotal role,and its responsibilities both toyour company and to theUKLA, mean it has toundertake a wide range ofduties right through theflotation process. Many ofthese will overlap with thecompany’s own assessmentof its suitability, in areas suchas management depth andfinancial controls. First of all,the sponsor will assess thecompany’s general suitabilityfor a listing, in the light of itsorganisational structure andcapital requirements. It willthen advise on the structureand make-up of the board,


the best method of flotationfor the company, and theflotation timetable. It will alsoassist (if required) with theappointment of otheradvisers, and co-ordinatetheir activities once they areon board. As the flotationapproaches, it will advise onthe pricing and underwritingof the shares.

The corporate brokerThe corporate broker acts asyour main interface with thestock market and potentialinvestors. The firm youappoint will assess thecurrent conditions in thestock market, and providevital feedback on investors’likely response to the issue. Ifyour sponsor is an integratedfirm offering both investmentbanking and stockbrokingservices, then you maydecide you also want them totake on the role of corporatebroker. Again, your sponsorwill help and advise on theselection of the right firm,although you may want to seea number of them to comparetheir fees and approach. Oneuseful guide is to look at theother companies they haveacted for, which will give yousome idea of their standingand areas of expertise. Forexample, if your company isin the high-tech sphere, youmay want a broker which hasa solid track record instimulating investor interest in

technology businesses.

You may also want to be surethat your chosen brokerappears in the league tablesof leading research housesfor your particular sector.

As well as advising you andyour sponsor on marketconditions and the likely levelof demand, the corporatebroker also actively marketsthe shares to potentialinvestors, and can advise onthe best method, size, timingand price. It can put in placemarket-related arrangementssuch as underwriting andplacing agreements. It willalso help you meet theUKLA’s Listing Rules, andusually continues to work withyour company after theflotation to maintain yourshares’ liquidity and profile inthe after-market.

The reportingaccountantThe role of reportingaccountant in a flotation isseparate from that of thecompany’s existing auditors,but can be (and often is)fulfilled by a separate team inthe same firm if you sochoose. The sponsors maywant to appoint a differentfirm to ensure the highestpossible level of detachmentand independence in this keyrole. Essentially, the reportingaccountant is responsible forreviewing the company’s

‘After meeting several

corporate brokers,

we chose one because of their

good image, good people,

reasonable fee structure and

their very thorough ‘lead by the

nose’ approach to the whole

process. In retrospect, we feel

we made the right choice.

However, the fees to lawyers

and accountants were much

higher than we had expected.’

Finance director, support servicescompany

‘Your team of advisers must

have experience of flotations.

However, that does not mean

you will have to sack your

lawyers or accountants if they

are not a major firm. It may be

possible to retain your existing

smaller firm of accountants as

your auditors, and use a major

firm of accountants as reporting

accountants for the prospectus.

Remember many investors take

comfort from seeing ‘known’

names among your advisers.’


‘The quality of research and

regular analysts’ reports are

vital in supporting your ongoing

quotation and should be

considered during the

broker beauty

parades.’

Chief executive, engineering company


financial record and internalsystems for potentialinvestors, and thus has aninfluence on their decision asto whether to buy the shares.

As you go through theflotation process, you willhear a lot about ‘long form’and ‘short form’ reports. Thedifference is quite simple. The‘long form’ report, as thename suggests, is a detailedfinancial and managementhistory of the business. It isnot published, but doesprovide the management andsponsors with the informationneeded to draft theprospectus. It also serves asthe basis for the reportingaccountants’ ‘short form’report, which is published aspart of the prospectus itself.The reporting accountants willalso usually prepare a reportfor the sponsor on thecompany’s projected workingcapital position over the 12 to18 months following flotation.They may also advise on thetax implications of theflotation, or you may havedecided to appoint separatetax specialists to do this.

LawyersMost flotations involve twoseparate sets of lawyers –one to advise the companyand its existing shareholders,and the other to advise thesponsor. The responsibilitiesof the company’s lawyers,with whom you will of course

have the most contact,include overseeing thechanges to the company’sarticles of association anddirectors’ contracts, andpossibly re-registering thecompany as a plc. They alsoprepare the painstaking ‘verifi-cation’ questions, which areused to confirm that everysingle statement in theprospectus can be justified asfact. The rigours of thisprocess mean you will get toknow your lawyers very well.

Your lawyers will also workalongside the sponsor’slawyers on the necessaryagreements between yourcompany, the sponsor andthe existing shareholders,covering aspects like under-writing and tax. You mightalso want them to draw up share option schemes forstaff, to be introduced withthe flotation.

Other advisersDepending on the method ofyour flotation and the specificcircumstances of yourcompany, you might alsodecide to use a number ofother advisers in particularareas. The most likely is afirm of financial publicrelations consultants, tomaximise the degree ofpositive awareness of yourcompany, and its products orservices, among both thegeneral public and the profes-sional investment community

in the run-up to the flotation.Companies coming to marketoften underestimate theimportance of public profileand press contacts. Yourfinancial PR consultantsshould also help ensure thatany public statements andpress releases arepermissible under the relevantdisclosure regulations. Youwill also find that by helping togenerate ongoing pressinterest and publicity, yourfinancial PR consultants canplay a key role in sustainingawareness and liquidity afterthe flotation. You mayconsider media training forthose key directors who willbe under the spotlight.

You may also require anumber of other advisers.These include: registrars tomanage your company’sshare register; charteredsurveyors or valuers toassess property values;security printers for safe,accurate and speedyproduction of documentation;actuaries to assess theposition of company pensionschemes; receiving bankersto handle share applications(only in a public offer); andinsurance brokers to checkthat all risks are adequatelycovered.


Countdown to flotation

It is difficult to be precise onthe length of time which acompany will take to cometo market, since the lengthof the process is influencedby so many variables –including the size, sectorand structure of thecompany, the method offlotation being used, and thedegree and complexity of‘due diligence’ which has tobe conducted by profession-al advisers.

While it can often take up totwo years to prepare acompany thoroughly forflotation, and most adviserssuggest at least a year fromdecision to execution, thetimetable for the flotationprocess itself is much shorter.The period from thepreparation of theaccountants’ report on thecompany to the start ofdealing on the main market isoften around 24 weeks,although as little as threemonths is not uncommon.Theprecise stages making up thisperiod of activity also vary,depending on the method offlotation. A companyundergoing an introductionwill have to follow through thefull due diligence anddisclosure process, includingthe preparation of listingparticulars. It probably will notneed to conduct investorroadshows to generateinterest.

In contrast, a flotationinvolving an offer for subscrip-tion to the public is a muchbigger project. The companywill have to follow through thefull due diligence anddisclosure process includingthe preparation of aprospectus. In addition, it willprobably require participationin various marketing activities,including roadshows,alongside the regulatory anddisclosure duties. Thissounds more expensive – butit is interesting to note that,as a general rule, the totalcosts of coming to market asa percentage of the fundsraised tend to fall as theactual size of the offerincreases.

DocumentsWhatever method of listingyour company is going for,you and your advisers willhave to prepare a prospectusor listing particulars, asappropriate. This document iscentral to your flotation, andhas two main functions.Firstly, it sets out all theinformation which has to bemade public to investorsunder the UKLA’s ListingRules. And secondly, it playsa crucial role for the companyitself, amounting to acoherent description of thebusiness, its areas of activityand its prospects. The qualityof the document can have afundamental impact on thesuccess of your flotation, andyou and your advisers should

‘The lawyers can be

very demanding in

terms of what the company can

say and what forecasts it can

make. That’s one reason why

we prefer it if a company has

had venture capitalists involved.

It means the management is

more familiar with how lawyers

and accountants react to things,

and what they expect from the

directors.’


‘We invite companies to put

together a trial prospectus, and

then present it to a few tame

institutions. That way, we can

see how it goes down, and test

the likely response. It is a dose

of reality for the company, and if

it goes well it gives them a lot of

confidence at an early stage.’


‘Our preferred lead-in time

before a flotation would

generally be at least a year, and

probably more like two. That

gives us time to make

sure the board is

properly put together.’



pay close attention to both itsstyle and content.

According to the UKLA’sListing Rules, the absoluteminimum period between thesubmission of yourdocuments and approval foryour flotation is 20 workingdays. After that, if yourcompany is coming to marketvia a placing or public offer,then it may decide to issue a‘pathfinder’ prospectus (alsoknown as a ‘red herring’),which contains almosteverything a full prospectuswould except the price. Thepathfinder can be used tomarket the issue to selectedpotential investors, on arestricted basis. For biggerissues, a ‘book-building’process may be conducted toidentify potential institutionalinvestors and the price atwhich they are prepared tobuy. The full prospectus isthen issued, complete withthe price and a notice of anychanges from the contents ofthe pathfinder.

It is important for yourcompany to be properlyadvised during this wholeprocess as to whatinformation can be releasedto whom, and at what time.

For example, employeescount as members of thepublic during the offer, so itmay not be legally possible tosend them documentsrestricted to sophisticatedprofessional investors.However, smaller businessesoften come to market via aninstitutional placing on behalfof existing shareholders orventure capitalists, and therules on selling to the publicmay not apply.

The process of going tomarket is painstaking andtime-consuming. Manycompanies effectively releasea small team of directors –perhaps two or three – fromday-to-day managementresponsibilities for theduration of the process, andallow them to commit theirtime and energies to drivingthe flotation forward. Thismay be less disruptive thanhaving all the directorscontinually interrupted duringthe course of their normalwork, although a smallcompany may not havesufficient managementresources to allocatedirectors in this way.However, whatever approachyou take, no director will beimmune from the process, or

from the need to providedocuments and information.

The flotation timetableThis section should be read inconjunction with the accom-panying timetable on page 38.

The run-up to the flotation isgenerally described in termsof a timetable counting downto ‘admission’. Admissionfollows ‘impact day’. Impactday is when the fullprospectus will be issued andadvertised to investors, andthe flotation officiallyannounced. For a mainmarket listing, the ‘listingprocess’ is generally regardedas starting between 12 and24 weeks before admission,depending on the size,complexity and method offlotation. The period up to 24weeks before impact day isregarded as ‘pre-floatpreparation’ – during whichthe company should prepareitself for life as a publiccompany and discuss theplanned float with potentialadvisers. The timetable startswith the appointment of thesponsor.

12 to 24 weeks beforeadmissionThis period essentially

Exchange UKLA Company Corporate Broker Sponsor Accountant Lawyers PR

12-24 weeks before admission

Appoint advisers ✔

Detailed instructions to all advisers ✔ ✔ ✔ ✔ ✔ ✔

Detailed timetable agreed ✔ ✔ ✔ ✔ ✔ ✔


involves getting all thenecessary elements in placefor a successful flotation. Thesteps completed during thisperiod would usually include:

Appointment of advisers: This would generally beginwith the ‘beauty parades’ andappointments of the sponsorand corporate broker, and (ifyou are not using yourexisting advisers) lawyers andreporting accountants. Apublic relations consultancywould usually be brought in at this stage as well.

Sponsor’s visit and meeting: Your sponsor will generallycome to your business anddiscuss the flotation processin detail with the entire board.

Detailed timetable andinstructions: Letters of engagement anddetailed instructions will beagreed with your advisers.They will issue administrativedocuments about the flotationand give initial views of itsmarket potential. A realistictimetable will be agreed andyour advisers will produce adetailed list of the documentsrequired before the flotationcan go ahead.

Advisers’ planning meeting: All the advisers involved willcome together with thedirectors to discuss theflotation and their respectiveroles in it. The timetable willbe studied and finalised. The

precise structure of theflotation, and the proportionof the company’s shares togo into public hands, will bediscussed at this stage. Butthere may well be no finaldecision until later in theprocess, when the market’slikely response is clearer.

Commence accountants’reports: The reporting accountantsbegin to conduct ‘duediligence’ on the company,and to pull together theinformation for short and/orlong-form reports, asnecessary.

Preliminary consultationswith the Exchange and theUKLA: The company and (more par-ticularly) your advisers willconsult the Exchange and theUKLA at an early stage aboutthe planned flotation, givingan idea of the timetable andpreparing the way for thenecessary submissions andapprovals.

Plan the marketingprogramme: The company, sponsor,brokers and (if appointed) PRadvisers will discuss plans forthe marketing of the issue topotential investors. The scaleand nature of these plans willdepend largely on the formthe flotation is taking, andespecially whether it involvesa public offer. The lead role in

‘There were many

side benefits of the

listing process. For example,

preparing the prospectus helped

the new directors understand

the business, because it helped

to refine the story and the

strategy, and to highlight areas

where improvements were

needed.’

Finance director, support servicescompany

‘The time taken depends on

how organised the company is.

If they come to us 12 months

ahead and are well-prepared,

then it’s no problem. If venture

capitalists are already involved,

then three months is generally

enough. But with something like

a high-tech company with little

organisational structure and a

value which depends on its

intellectual property, then that

would be difficult.’


‘The truth is that from 20

weeks before the float, no real

work is done on the business

by the top management. The

brokers like to hold meetings at

7am, the accountants at 10am,

the PR people want to meet for

lunch, and the lawyers like to

see you at 7pm. That keeps the

afternoon free for seeing your

sponsor. And at

weekends you’re on

the phone.’



marketing is generally taken bythe brokers, since they are inconstant direct contact withthe market itself and have theclearest feedback on theresponse to the issue.

6 to 12 weeks beforeadmissionThe pace and intensity ofactivity is picking up, and youwill find that much of yourcompany’s managementresources are now focusedon the flotation. Differentadvisers are involved invarious aspects of the float,so you may find yourself witha queue of meetingsthroughout the day involving,in turn, your sponsors,brokers, lawyers, accountantsand PR advisers. Thecommon thread in thesemeetings may be you, whichcan make them wearing aswell as extremely time-consuming. Due diligence willbe well under way, and you(like many management

teams) may be surprised bythe depth and detail ofinformation required.However, this is crucial forinvestors to make a reliableand informed decision on yourbusiness.

The steps usually completedduring this phase include:

Review of problem areas:Any remaining factors whichyou or your advisers thinkcould become a sticking-pointfor the flotation should beraised and addressed as soonas possible.

Documents drafted: These may include theaccountant’s long-form andshort-form report, togetherwith the first draft of theprospectus. All drafts will bethe subject of detailedmeetings with advisers topore over the contents andget them as near as possibleto their final state.

The requisite draft documents

are submitted to the UKLA.The UKLA raises questionsabout the contents of thedocuments, which are thenreturned to the advisers, whomay address the query to therelevant director. Since theoverall aim is to ensure thatthe documents comply withthe UKLA’s Listing Rules,their comments can be quitedetailed, clarifying things likethe basis of any estimates ofmarket share or growth.

One issue which can arisewith your advisers is thatmessages may not alwaysget through clearly to andfrom the UKLA. For example,there may be a dialoguebetween the UKLA and youraccountants, involving yourbroker (who may not be anaccountant) acting as a go-between – with the result thatsomething might well get lostin translation. Problems likethis can slow the process andmake it seem unduly pickyand bureaucratic. The solution



Review of problem areas ✔ ✔ ✔

Draft prospectus produced ✔ ✔ ✔

Other documents in first draft ✔ ✔

Initial review of pricing issues ✔ ✔ ✔

First drafting meetings ✔ ✔ ✔ ✔

Draft documents submitted to the UKLA ✔ ✔

Initial meeting with the Exchange ✔ ✔ ✔

Review PR presentations ✔ ✔ ✔ ✔ ✔

Analysts’ presentation ✔ ✔ ✔ ✔ ✔


is that you ensure that eachof your advisers is availableto talk to the UKLA at a suffi-ciently early stage to makesure changes and commentsget through in the right wayand to the right people onboth sides.

At the same time assubmitting draft documents tothe UKLA you will need toarrange an initial meeting withthe Exchange. The main focusof the meeting will be adiscussion about yourcompany’s business and anassessment of ways in whichthe Exchange can assist youto develop an active tradingmarket following admission.

Start of legal verification: As the documents go throughtheir iterative process withthe UKLA, the company’slawyers will begin the ‘verifi-cation’ process – apainstaking task involving theconfirmation of everystatement or claim in eachdocument. This can involvethe directors digging backinto their personal and profes-sional records. This ishowever, largely for theprotection of the directorswho ultimately take responsi-bility for the documents.

Initial review of pricingissues:Pricing is one of the mostdelicate decisions in theentire process, and may beaffected by events and

conditions outside yourcompany’s control. Theeconomic background,current market conditions andthe market’s rating of yoursector of commercial activityare highly relevant, alongsideyour company’s specific trackrecord and prospects. Yoursponsor and broker will wanta realistic price which themarket will find attractive,while you want to optimisethe money raised. If under-writers and sub-underwritersare involved, then their viewsmust be taken into accountas well.

The initial pricing meetings,generally involving yoursponsors and brokers, willlook at all these issues. Youcan get an early indication atthis stage of the likely pricingrange, but the final decision isleft as late as possible –largely because marketconditions can changeovernight. In the worst-casescenario, an issue might evenhave to be ‘pulled’ in theevent of a market collapse, ascenario which leaves youwith advisers’ fees to pay andno listing to show for it.

Detailed asset valuations: As part of the due diligenceprocess, precise valuationsare produced of thecompany’s assets rangingfrom pension funds toproperty holdings. This mayinvolve advisers such asactuaries and surveyors, andyour accountants will be able

‘We felt ourselves to

be under great

pressure during the process.

This was really due to our

feeling that we weren’t really in

control, since our advisers were

the ones who had been through

it all before and understood

what was happening.’

Chief executive, technology company

‘During verification, the lawyers

go through the prospectus line

by line, and want proof of

everything. So the managing

director is 54? Prove it. So he

has worked for BP and ICI?

Prove it.’


‘The issue price is often not

thought through properly.

Unless you are looking to sell

your shares on day one, it really

isn’t that important – so

it’s better to set it at a

lower level.’



to advise you on whom to use.

Review PR presentations:The form and design of thepromotional activitysurrounding the listing isdiscussed at this stage, withlikely input from your PR andlegal advisers alongside yourbrokers and sponsor. In anintroduction to the market,involving no sale of shares,any public marketing effortswould clearly be minimal.However, at the other end ofthe scale, a public offerinvolves substantial promotion of the company and itsplanned flotation in order toattract as wide a range ofinvestors as possible. Evenhere though, practice isalways changing. For

example, companies nowrarely (as they used to)publish the entire prospectusin the national press, optinginstead for a summaryversion. It is important that allPR material is reviewedcarefully and professionallyfrom a legal as well as amarketing standpoint.

1 to 6 weeks beforeadmissionThis period sees thevindication of all your previoushard work, as you geteverything in place for theflotation itself.

Drafting meetings onprospectus: Following the process offeedback from the UKLA andresponses from youradvisers, the prospectus isnow nearing its final form.There will be repeatedmeetings to ensure that allhistorical statements anddetails on the issue aredemonstrably correct. If youhave decided to issue a‘pathfinder’ prospectus,without any pricing details,then it will be published atthis stage.

Review of cash flow andforecasts:You may decide to include aforecast of cash flow andprofits in your prospectus.



Drafting meetings ✔ ✔ ✔ ✔

Due diligence on prospectus ✔ ✔ ✔ ✔

PR meetings and roadshow ✔ ✔ ✔ ✔

Formally submit and agree all documents with the UKLA ✔ ✔

Bulk print pathfinder prospectus if required ✔ ✔

1 week before admission

All documents completed and approved by the UKLA ✔ ✔ ✔ ✔ ✔

Pricing and allocation meeting ✔ ✔ ✔ ✔

Register prospectus ✔ ✔ ✔

Sign subscription agreement ✔ ✔

Bulk print final prospectus ✔

Admission week

Submit 48 hour documents ✔ ✔ ✔ ✔

Formal application for listing and admission to trading ✔ ✔ ✔ ✔

Pay UKLA and Exchange fees ✔ ✔ ✔

Listing and admission to trading granted ✔ ✔

Trading commences ✔


If you do this, you and youradvisers must make sure thatthe assumptions on whichthey are based are clear,readily understandable andrealistic. Your reportingaccountants and sponsorsare required to report publiclyon the forecasts, confirmingthat they believe them to befair and reasonable.

Legal verification: During this period, thelawyers complete thepainstaking ‘verification’process of all statements inthe listing documents.

PR and investor relationsmeetings: All promotional and investorrelations material will becompleted and approved bythe board and advisers. Thebrokers will also report on thelatest state of play in terms of the flotation’s marketability toinvestors. Their views willfeed into the pricingdiscussions.

Appointment of registrars: Registrars to maintain yourshare register are appointedat this stage. There may alsobe a need to complete otherformalities, such as re-registering the business as apublic limited company, andensuring the Memorandumand Articles of Associationwill allow dematerialisedsettlement of shares inCREST.

Investment presentations:Your brokers move into ahighly active marketing effort,including a series of presenta-tions, to convince investorsthat they should buy yourcompany’s shares. Asidefrom the completion andpricing meetings, this isgenerally the directors’ maintask during the weeks leadingup to admission.

1 week beforeadmission weekThis is the final week leadingup to impact day. During it,you and your advisers willcomplete and sign off each ofthe diverse tasks pursuedduring the previous weeksand months.

Completion and pricingmeeting:At the completion meeting, allrelevant documents andpaperwork are reviewed intheir final form by both thedirectors and their advisers.This opens the way for theregistration of the prospectusand accompanyingdocuments with the UKLA.Once all the documents havebeen reviewed in this way,the focus of attention for theboard, sponsor and brokerswitches to the pricing of theshares. This decision oftenrepresents a fine balancebetween ensuring the issue‘gets away’ successfully andbringing in as much capital as

‘Before you go to the

market, you really

must do your homework, and

plan everything very thoroughly.

You need a squeaky-clean

business – the lawyers will go

through it with a fine toothed

comb, and if there’s anything

untoward, they’ll find it.’

Chief executive, software company

‘Due diligence is inevitably

stressful and time consuming, or

else the advisers aren’t doing

their job properly.’


‘When you first meet institution-

al investors, getting good

responses from them can be

quite exhilarating. But it’s still

very hard to tell how the presen-

tation has gone down. The

sponsor will groom the

directors in doing this, but what

you must do is practise your

presentation in advance, keep it

to about 45 minutes, and get

your ‘unique selling points’ in

early. You don’t need to tell

them everything – that’s

up to the prospectus.’



is practicably possible.Generally, the price is the lastthing to go into a prospectusbefore completion.

UKLA approval ofdocuments:The prospectus must besubmitted to and approved bythe UKLA. The UKLA alsorequires any supportingdocuments including theunderwriting or placingagreement, directors’ servicecontracts, audited accountsand all reports referred to inthe prospectus to bedelivered on the date ofapproval. It is important tonote that the UKLA onlyapproves the prospectus onthe day it is dated andpublished.

Impact day: This is the day on which theavailability of the prospectusis advertised, and the flotationis officially announced, alongwith the pricing of the shares.

Publication of prospectus:Applications for the shares,and the prospectus on whichthey can base theirinvestment decision, areissued to potential investors.The directors and adviserswill be involved in briefings forthe press and for investmentanalysts to maximisecoverage and awareness ofthe flotation.

Applications for listing andtrading:At least 48 hours beforeadmission, the formalapplication for a listing issubmitted to the UKLA. Atthe same time a formalapplication for admission totrading is submitted to theExchange.


Admission weekTwo things happen at thisstage:

◆ Applications and cash fromprospective investors arereceived. If more sharesare requested than areavailable, the issue is saidto have been over-subscribed, and a basis ofallocation will have to beapplied. If the issue isunder-subscribed, then theunderwriters will have topick up the unallocatedshares at the agreed price.

◆ The share application listsare closed.

Admission: This is the point at which yourshares are admitted, and youstart to see your sharestraded publicly on the mainmarket.

◆ The basis of the shareallotment is agreedbetween the board andadvisers, and is announcedto investors.

◆ The listing is officiallygranted by the UKLA inconjunction with admissionto trading being granted bythe Exchange.

◆ Your listing becomeseffective and dealing in yourshares begins. If the marketprice rises above the issueprice, then the shares aretrading at a premium. If theprice falls below the issueprice, then they are tradingat a discount.

Advisers and companiesusually hope for a smallpremium – suggesting thatthe price was attractive butnot a ‘give-away’. However,the difference between adiscount and premium couldwell come down to marketconditions on the particularday, rather than signallinganything about the companyitself.

‘Completion day is the

most stressful, when

all the paperwork is being

signed off, and all the company

wants to know is whether you

have placed the issue. They tend

to be more relaxed by the first

day of dealings, so we lay on a

champagne breakfast for that.’


‘Going through a flotation is like

being a top salesman with only

one big deal – and

everything is riding

on it.’

Chief executive, software developer


Countdown to flotation timetable


12-24 weeks before admissionAppoint advisers ✔

Detailed instructions to all advisers ✔ ✔ ✔ ✔ ✔ ✔

Detailed timetable list agreed ✔ ✔ ✔ ✔ ✔ ✔

6-12 weeks before admissionReview of problem areas ✔ ✔ ✔

Draft prospectus produced ✔ ✔ ✔

Other documents in first draft ✔ ✔

Initial review of pricing issues ✔ ✔ ✔

First drafting meetings ✔ ✔ ✔ ✔

Draft documents submitted to the UKLA ✔ ✔

Initial meeting with the Exchange ✔ ✔ ✔

Review PR presentations ✔ ✔ ✔ ✔ ✔

Analyst presentation ✔ ✔ ✔ ✔ ✔

1-6 weeks before admissionDrafting meetings ✔ ✔ ✔ ✔

Due diligence on prospectus ✔ ✔ ✔ ✔

PR meetings and roadshow ✔ ✔ ✔ ✔

Formally submit and agree all documents and derogations with the UKLA ✔ ✔

Bulk print pathfinder prospectus if required ✔ ✔

1 week before admissionAll documents completed and approved by the UKLA ✔ ✔ ✔ ✔ ✔

Pricing and allocation meeting ✔ ✔ ✔ ✔

Register prospectus ✔ ✔ ✔

Sign subscription agreement ✔ ✔

Bulk print final prospectus ✔

Admission weekSubmit 48 hour documents ✔ ✔ ✔ ✔

Formal application for listing and admission to trading ✔ ✔ ✔ ✔

Pay UKLA and Exchange fees ✔ ✔ ✔

Listing and admission to trading granted ✔ ✔

Trading commences ✔

3 Life as a Public Company

3 LIFE AS A PUBLIC CO

MPAN

Y

L I F E A S A P U B L I C C O M P A N Y 4 1

Your flotation should be seenas a means to an end, andnot an end in itself. Indeed,the day of flotation is not theend of the process but just anew beginning in the life of alisted plc and its employees.For many directors this isone of the highlights of theircareer.

As a director of a newly-listedcompany, you will feel thatyou have, in a very real anddemonstrable sense, arrived.As a publicly quotedcompany, the directors,employees and shareholderscan check its share price onone of the various share infor-mation services, and they canactually watch trading as ithappens.

Most people who have beeninvolved in the flotation arelikely to be both elated andvery tired, and may be lookingto take a well-earned rest.

However, this is the beginningof life as a public company,and that new status meansthere is a lot to get used to.The first priority, apart from agood sleep, is to get backinto your day-to-day manage-ment of the business – a rolewhich the directors may wellhave put on the back-burnerduring the frenetic activity ofthe flotation process.

Day-to-day management willnot be the same as it wasbefore. As your advisers willhave made you well aware,you cannot now run thecompany in precisely the wayyou did before floating, sinceby joining the market youhave submitted yourself andyour business to a range ofdisciplines and requirements.These can be broadly dividedbetween the legal/regulatoryrequirements, which are thecontinuing obligations that alllisted companies must meet;and market-driven disciplinesand activities, which are notcompulsory, but which areadvisable and even necessaryif you are to make the mostof your listing and gain themaximum benefit from it.Being listed also involvessome ongoing costs, as youwill have to pay fees on acontinuing basis both to yourprofessional advisers, theExchange, the UKLA and aRegulatory InformationService (RIS).

Life as a Public Company

?P/E ratio

The ‘price/earnings ratio’ is ameasurement of a company’s rating

by the stock market. It is calculated bydividing the share price by the annualearnings per share. A high PE ratiomeans the company is highly-rated,since its share price is relatively highcompared to its earnings – suggest-

ing that investors think itsprospects are good.


The continuing obligations ofthe UKLA require all listedcompanies to fulfil two aims:to ensure the timely disclo-sure of all relevant informa-tion and equal treatment ofall shareholders.

While these aims are clearcut, as a director of a newly-listed company you may findit less easy to defineprecisely which actions andinformation fall into these obli-gations – especially if you aretrying to do things such asdecide what information maybe deemed price-sensitive.As a rule of thumb, youshould err on the side ofcaution and seek advice fromyour professional adviserswhenever there is uncertainty,especially from your brokersand lawyers.

There are several facets ofthe continuing obligations towhich you should pay closeattention. These are set out infull in the UKLA’s ListingRules.

Here is a brief overview ofthe main requirements:

Disclosure of price-sensitive informationIt is in everyone’s bestinterests that there is a flowof timely and accurate infor-mation between listedcompanies and the stockmarket. It means thatinvestors of all types are ableto trade on the basis ofcurrent and reliable informa-tion, and helps protectcompanies from the unpre-dictable, unexplained andpotentially volatile share pricemovements which can resultfrom rumour and speculation.Clearly, different types ofinvestor will receive and acton the information at differentspeeds, but the fairestapproach is to ensure every-thing is released to themarket as a whole at thesame time. Public announce-ments via an RIS are requiredon a range of occasions,including major developmentsin your company’s activities,dividend decisions, half andfull-year profits figures, andany changes at board level.

For all listed companies, thefundamental rule is that theymust notify the market assoon as possible of any price-sensitive information, whichmight be a significant changein the company’s financialposition or outlook, or a major

new development. Anannouncement must also bemade if you have reason tobelieve that a leak may haveoccurred about any ongoingnegotiations of a price-sensitive nature. Any boarddecisions which mightinfluence the share price mustbe announced before thestart of trading next day.Information relayed at ashareholders’ meeting whichcould be price-sensitive mustbe announced no later thanthe time the information isdelivered at the meeting.

Many unexpected circum-stances can arise whichtrigger an announcement –and sometimes you may haveto move very fast indeed. If acompany’s share price doesmove sharply for no apparentreason, then that companyand its brokers are likely toreceive a call from the UKLAto establish whether a leak ofprice-sensitive informationmay have occurred. If thismay be the case, and thereappears to be a risk of a dis-orderly market, then thecompany will be required tomake an announcement tothe market. Similarly, youcould find yourself awoken inthe small hours of themorning by a call from youradvisers, telling you that thepress is carrying a speculativestory about your company.Much of the article may be

Continuing obligations

?Price-

sensitive informationA company has an obligation to notifythe market of any information whichwould be likely to lead to substantial

movement in the price of its shares. Forexample, new developments in its activity

which are not public knowledge; anychanges in the company’s financialcondition, the performance of its

business or in its expectationof its performance.


closure of many aspects ofdirectors’ activities, andrestrictions on share dealing.These are additional burdenswhich are virtually unheard ofin a private company. Anychanges at board level mustbe announced immediatelyonce a decision has beenmade, even if the precisetiming of the change has notyet been set. You should alsotake account of the corporategovernance guidelinesappended to the UKLA’sListing Rules, which can havean effect on directors’behaviour and how they areremunerated.

Dealing restrictions andthe Model CodeAll directors of a listedcompany, and even someemployees in contact withprice-sensitive information,have to comply with a rangeof restrictions on their share-dealing activities. These aregrouped together in theModel Code, which isdesigned to prevent peoplewith unpublished price-sensitive information, or whomay be perceived as havingaccess to such information,from dealing on the basis ofit, and thereby gaining anadvantage over other share-holders who do not have suchinformation. Directors alsohave to inform the company,which in turn must make an

4 3

wide of the mark – but itcould contain just enoughtruth about your commerciallysensitive negotiations to forceyou to make a rapidannouncement.

If you ever happen to becomeinvolved in merger ortakeover talks, then specialrules come into play on thesecrecy, timing and content ofyour announcements. Theseare set out in the City Codeon Takeovers and Mergers,which your advisers will knowvirtually by heart. As ever, it iscrucial that you consult youradvisers on anything you arenot sure about.

Directors’ responsibilitiesAs a director of a newly-listedcompany, you have alreadyaccepted legal responsibilityfor the information yourcompany supplied to themarket during the flotationprocess. You and your fellowdirectors also have individualand collective responsibilityfor your company’s continuingcompliance with the UKLA’sListing Rules and theExchange’s Admission andDisclosure Standards. Inaddition to these weightyresponsibilities, directors aresubject to a whole raft offurther requirements andduties which they have to getused to, such as greater dis-

‘It seems like a simple

thing, but you should

make sure that your announce-

ments are properly written. If

they are not, it makes a terrible

impression.’


‘After the listing, it is useful to

arrange for your sponsors to

come to a board meeting shortly

after the flotation to check that

you are not encountering any

problems with the market

requirements – or making any

fundamental errors.’


‘As a listed company, you find

that meeting the continuing obli-

gations becomes second nature

– it just seems to happen

alongside running the rest of the

business. Once you’re accus-

tomed to them they are no real

bother, and generally speaking

we don’t perceive ourselves as

having any extra costs

because of them.’

Chief executive, propertycompany


announcement to the market,of details of all the dealingsthey conduct in theircompany’s shares. The ModelCode is set out in full in theUKLA’s Listing Rules.

The range of restrictionsimposed by the Model Codeinclude a ban on dealing inyour company’s shares whenyou are (or could be) in pos-session of price-sensitiveinformation, or within aminimum period – normallytwo months – before theannouncement of regularinformation such as annualresults. Also, directors mustfirst get approval for theirshare dealings from thecompany chairman or from adesignated director specifical-ly appointed to monitor andapprove their fellow directors’share dealings under theModel Code. Overall, theModel Code sets a minimumstandard of good practice foryour company’s agreed pro-cedures – and many listedcompanies go well beyond itin setting their own guide-lines.

ShareholdersIn terms of the requirementsplaced on a company, themanagement must bear inmind a range of factorsincluding the proportion ofshare capital in public hands,which should normally stay atabove 25 per cent of thetotal. Substantial sharehold-ers in a listed company mustalso disclose any significantchanges in the proportion ofshares they hold. They mustmake this disclosure to thecompany, which in turn mustdisclose the information tothe market via an RIS.

Report and accountsAll listed companies mustpublish their annual report andaccounts, including an auditedfinancial statement, no later

than six months after the endof the financial year – and anycompany failing to do so willface having the listing of itsshares suspended. Thecompany also has to prepareunaudited half-yearly figureswithin four months of the endof its half-year. Again, thepenalty for failure is suspen-sion of the shares. Theseresults must be sent to theUKLA and published to themarket via an RIS. It isbecoming common practiceamong many listed companiesto publish summary financialstatements (a shortenedversion of the annual reportand accounts) particularly forprivate investors.


you will also probably needfurther advisers in areas suchas public and investorrelations. Increasingly, spe-cialist environmental advisersand employee benefits con-sultants may also be worthpaying for, as these areasbecome more important andprominent. If your flotationgoes well, it is highly likelythat you will retain the sameadvisers who guided youthrough it.

It is difficult to give even arough figure for what yourongoing advice will cost you,since it depends on so manyvariables, including the sizeand nature of your business,and the use you decide tomake of your advisers. Youwill also have to pay annualfees to the Exchange, formaintaining the market in yourshares and to the UKLA.Prices are available separately from the Exchangeand the UKLA. In addition,there will also be the costs ofan RIS for the disclosure ofinformation to the market, asrequired by the UKLA’sListing Rules.

Transaction anddocument disclosure

Many types of transactionmust be disclosed to themarket, and for some – suchas a major acquisition ordisposal – shareholderapproval is required inadvance for the deal to goahead. As a rule of thumb,the larger or more significanta transaction is, the greaterthe requirements imposed onthe company, ranging from astraightforward companyannouncement for a relativelymodest deal, up to the publi-cation of a circular, sharehold-ers’ approval and even sus-pension of the shares for thebiggest transactions.Transactions covered bythese requirements willinvolve considerable discus-sion with advisers and theUKLA. Types of transactiongenerally excluded from theserequirements include thosethat are in the ordinary courseof business such as thebuying and selling of stockand raw materials.

Ongoing costsInevitably, there are costsassociated with meeting thecontinuing obligations of alisted company.

Financial, legal and account-ing advisers are a must, while

‘The annual report isvery useful as a salesdocument to be used

by your sales force. It lets youmention every part of thebusiness and what is happeningin it, so the salesperson feels asense of belonging andownership. Also, every year webring together our top 50people, and point out to themthe bits of the annual reportwhich we think they should beaware of, such as the part ondirectors’ responsibilities. It’sone thing to send your people abig box of annual reports, but ifyou get them to pick it up andactually read it then they willreally understand it and use it.’


‘Being quoted has brought usseveral advantages. Initially,there was the clear benefit ofgiving the company’s existingshareholders the opportunity tosell their shares if they wantedto. Secondly, it has certainlyraised our profile – it’s hard toprove what tender lists wewouldn’t have been included onwithout being quoted on thestock market, but I’m sure itwould have been quite a few.And the third and mostimportant thing is that we havebeen able to raise moneythrough the stock market forgrowth and acquisitions. For abusiness of our size, the advan-tages of being quoted may notbe as great at the moment asthey usually are, but there arecertainly no disadvantages.These things do tend to go incycles – and we’re here for thelong term.’

Managing director, house-building company


Like any relationship – com-mercial or personal – beinglisted on the stock market isnot something which willreap benefits without sub-stantial commitment andeffort. A company whichassumes that its listing willautomatically attractinvestors, and stimulate highlevels of interest andliquidity in its shares, is infor a rude awakening.

Any listed company has totalk to the market, promoteitself to the investmentcommunity, and listen closelyto what the market is tellingit. Those messages comeacross in a variety of ways,both direct and indirect,ranging from changes in theshare price and tradingpatterns to direct communica-tion from investors of allsizes.

There are three thingsinvestors are interested inthat are worth mentioninghere. The first is knowing thata business is well-run, and

has an organisationalstructure which promotes thecross-fertilisation of ideas. Acompany – and its executives– must not be seen to beindulging in self-interestedpoliticking or navel-gazing asevents unfold around them.The second is good commer-cial strategy and transparen-cy, involving a demonstrationthat the business is sure-footed, focused, knows whatit is about, and has soundobjectives going forward. Thedirectors and their advisersmust be able to communicateall this to the market on acontinuing basis. Otherwise,interest in the company, andultimately its share price, willsuffer as a result – and manyof the principal benefits ofbeing listed will be lost. Thethird area of interest is thebottom line for investors: thedelivery of growing profitsand dividends, at least in linewith their expectations, andhopefully in excess of them.

Achieving all this is not easy,and requires the commitmentof considerable managementtime and effort. Beforecoming to the market, youmay have seen your flotationas some kind of conclusion toa logical process. But to alarge extent, the challengedoes not end when you jointhe market; rather it begins.The challenge pervades allareas of your business, butthere are several areas where

you can usefully concentrateyour energies to themaximum effect.

Best practice: thebenefits of goingbeyond complianceThe legal and regulatory obli-gations in areas such as dis-closure and corporate gover-nance only provide listedcompanies with the barestminimum framework in termsof communication, informationprovision and organisationalguidance – and it is crucialthat you build on them asactively as possible, if you areto make your listing a long-term success. Once you arelisted, your relations withinvestors, analysts and thepress are no longer peripheralto your company, but shouldbe regarded as core businessrelationships on a par withany other.

Like anyone else, thesedecision-makers and opinion-formers are influenced bywhat they see and hear fromand about your business.They like to see a coherentstrategy, and to hear it well-expressed. They like to see acompany taking advantage ofwider commercial experience,for example, in the appoint-ment of suitable non-executive directors fromoutside. And they often wantto see a business goingbeyond the legal require-ments in corporate gover-

Making the most of your listing

?Liquidity

Liquidity is a measure of tradeabil-

ity of a company’s shares. Smaller

companies’ shares tend to be less

liquid than those of larger companies,

as, for example, there may be fewer

shares available for trading or

they are more tightly held.


nance, potentially involvingactions such as splitting theroles of chairman and chiefexecutive – see page 49 oncorporate governance. As alisted company, you are in agoldfish bowl, and everydecision or action should betaken with that fact in mind.

In recent years, given thegrowing prominence of envi-ronmental and ethicalconcerns, the concept of bestpractice has extended rapidlyinto these formerly obscureareas. Environmental auditsand statements are relevantfor some listed companies,and the number of ethicalinvestment funds beinglaunched gives this pressureadded commercial edge,since it can feed into liquidityand demand for your shares.As a result, companies needto keep a tight rein onaspects such as potentiallypolluting emissions from theiroperations, and must also payserious regard to the employ-ment record and policies oftheir business, not only withintheir own operations but alsoin their suppliers’ businesses.An ethical or environmentalscandal involving a listedcompany is now potentialfront-page material for thepress, and in the worst-casescenario can result in fallingsales or even consumerboycotts.

Inevitably, activities such as

investing in your profile andadhering to (and evenexceeding) best practice costmoney. This may be especial-ly galling since it comes ontop of the regular costs whichmere compliance involves.However, failure to invest inthe awareness and image ofyour business may well turnout to be a false economy inthe long run, as problemsarise and your failure tocultivate shareholder andpublic opinion comes back tohaunt you.

Investor and mediarelationsIt is vital that you maintainyour company’s profile, andstimulate interest in its shareson a continuing basis. Manylisted companies, even rela-tively small ones, employ spe-cialist financial public relationsand investor relationsadvisers on a retainer basisto keep the business on thefinancial pages and in theminds of investors. Theseprofessionals generally workseparately from the ‘product’PR operation, which may bekept in-house. The fact thatthese two roles are often splitreflects the different skills andcontacts which they involve.

However, you cannot leavepress or investor relations toyour advisers. Top executiveswill commonly devote at leasta couple of days a month to

‘Profile is clearly one

advantage of a listing.

Over and above that, there is

access to capital for growth. At

the same time, having a public

market for the company’s

shares can be a very motivating

factor for both management and

employees, who benefit from

share option schemes.’


‘Yes, it is a good idea to go

beyond compliance, and adhere

to best practice. Just being

compliant is not sufficient. If you

do decide not to comply with

best practice in some way, such

as not splitting the chairman and

chief executive roles, then you

must make sure you can explain

exactly why you are doing it.’


‘There are lots of surveys done

about why companies go to

market, and the bottom line is

that they usually do it as a

source of money – whether for

existing shareholders, for devel-

opment of the business or to

pay for acquisitions. Frankly, it

doesn’t really matter what the

purpose is, since the main thing

is access to capital. And it’s

seen as an attractive and high-

profile way of raising money,

compared to alterna-

tives such as venture

capital.’



developing and nurturing suchcontacts, in lunches, briefingsand presentations to opinion-formers and investors. Thiscommitment will increasesharply around regularannouncements such ascompany results, at thelaunch of a new product orstrategy, or at times when thebusiness and its profile havebeen hit by adverse events.This must be regarded astime well spent, and as aninvestment in the future. As apublicly-quoted company, it isa core element of runningyour business properly andresponsibly.

Sadly, research has shownthat the standards and qualityof dialogue and relationshipsbetween smaller companiesand the investmentcommunity are often patchy,and marred by a lack ofmutual understanding andtransparency. This is partlydue to the increasing consoli-dation of the investmentindustry, and the accompany-ing tendency to concentrateon larger stocks. However,there is a lot that companiescan do to counteract theseeffects, and the currentthinking on how smallercompanies should engagewith the market – and keepinvestors interested and up todate with what they are doing– is advancing all the time.

The more forward-thinkingcompanies have now intro-duced formal proceduresunder which they providehigh-quality, meaningful andtimely information to improvethe market’s understanding oftheir companies. These mayinvolve instituting internal per-formance indicators, a regular‘Statement of Prospects’, andquarterly trading reports.Companies should alsoconsider producing an‘Investor CommunicationStatement’, setting out theprocedures which they applyto their investor communica-tions. The DTI produced avery useful report ‘CreatingQuality Dialogue betweenSQCs and Fund Managers’,available from www.innova-tion.gov.uk/finance.

Monitoring growth andinforming investorsAs the move towards moreformal monitoring and com-munications processes

indicates, it is not enoughsimply to talk to investors.You must also havesomething interesting andmeaningful to say, or theymay stop listening. With thisin mind, it is crucial that youkeep a close eye on the per-formance and growth of yourbusiness – and are able bothto respond strategically towhat is happening, and alsoto communicate the resultingchanges to potential andactual shareholders. By com-municating your growthstrategies, and showing thatyou know what challengesyou face and have workedout how to meet them, youwill inevitably improve themarket’s perception andunderstanding of yourcompany. This openness andhonesty will also serve youwell if and when problemsarise, since investors will bemore receptive to what youtell them, and are more likelyto believe you.


Monitoring sharehold-ings and investmentpatternsOnce you are listed, yourshare register is a mine ofuseful information, and can beused pro-actively as a tool topromote your business andbroaden your shareholder(and even customer) base. Byexamining the split betweendifferent types of investor,such as institutions andprivate individuals, and even –on the institutional front –between individual investorsthemselves, you can identifywhich investors needaddressing, and formulate aspecific and targeted investorrelations strategy. There isalso often a cross-overbetween customers andshareholders, who are oftenthe same people. Manycompanies offer shareholderincentives to smallerinvestors, or even contactthem directly to welcomethem. As well as encouragingcustom, this helps establishloyalty which can be veryuseful in difficult times.

On a more defensive note,the share register also givesyou early warning of anystake-building by a potentialpredator. An unusual or unex-plained holding may have aperfectly innocent explana-tion, but should be investigat-ed to find out if there is amore threatening purpose.

Corporate governanceThroughout the 1990s, aseries of high-powered com-mittees – notably Cadbury,Greenbury and Hampel –drew up sets of guidelines onbest practice in the waycompanies manage them-selves. These corporate gov-ernance issues are notincluded in the UKLA’s ListingRules. However, current bestpractice guidelines (theCombined Code) areappended to the ListingRules, and disclosure isrequired in a company’sreport and accounts outliningto what extent they complywith the Combined Code.Such is the importancecommonly attached to themthat companies are well-advised to take them intoaccount.

Among the more prominentissues raised in the guidelinesare the separation of theroles of chairman and chiefexecutive, the need for inde-pendent non-executivedirectors and effectiveinternal controls, the types ofshare incentive offered, andthe role and structure ofremuneration committees.Organisational structure andexecutive pay are very topicalissues both with investorsand the general public, andthe media clamour over ‘fatcats’ and a failure to link payand performance has become

‘At the time of ourfirst results as a listedcompany, we did a

roadshow involving one-to-onemeetings with institutionalinvestors in London andScotland, organised by our CityPR firm. They also used theirpress contacts to generate a lotof media coverage. With subse-quent annual results announce-ments, we have done presenta-tions to 35 analysts at once,followed by an open day for allinvestors. It takes up a lot of ourtime, but it’s worth it.’

Chief executive, support servicescompany

‘I had always believed that if thecompany performs, then theshare price will look after itself.But for a company of our size,that does not seem to applynowadays. I am now talking tofinancial PR companies aboutwhat we should be doing interms of investor relations.’

Chief executive, hospitality servicescompany

‘Our chief executive and myselfboth spend one or two days amonth dealing with investorrelations – and we regard it astime well spent.’

Finance director, software company

‘With institutional investors, thekey is to be available to them allthe time, and to badger them tosee you. They have the power ofownership, so it’s reallytheir responsibility tosee you.’

Chief executive, manufacturingcompany


a focus of concern atGovernment level. Investorsdo look at such issues, and acompany’s commitment tomeeting and exceeding ‘bestpractice’ can be seen not onlyas a sign of good faith, butalso as a reflection of thedegree of openness andforward thinking inherent inthe senior management. Thisgreater credibility, in turn, canmanifest itself in levels ofinvestor interest, trading and– ultimately – the share price.

The role of non-executive directorsThe appointment of non-executive directors to theboard or as a chairman iswidely seen as a litmus testof a company’s attitudetowards maintaining highstandards in its corporategovernance. As voices ofexperience and (relative) inde-pendence on the board, theyfulfil two principal roles – firstas strategic business adviserswith extensive knowledge andcontacts, and second asarbiters of best practiceacross all areas of thebusiness. They are especiallyuseful in areas such asexecutive pay and businessethics, although it is all tooeasy for them to becometarred with the same brush asthe ‘fat cats’ when a contro-versy arises. In severalboardroom confrontations,relations between the

executive directors havereached such a state ofdeadlock that the ultimatedecision has had to be left tothe non-executives as theonly way out. They can bevery useful in such a situation– although it is to be hopedyou never have to resort tothis use for them.

Dividend policyThe level of dividend whichyou opt to pay your share-holders is a key measure anddeterminant of the price ofyour shares. It is also adecision which involves a finebalancing act between theinterests of the company,which may want to hold backthe cash for investment orexpansion, and the sharehold-ers looking for a good returnon their investment. Thebalance is further complicatedby the fact that holding backon investment may impair thecompany’s long-termprospects, and reduce theprospects of capital gains forthose same shareholders.

As in other areas, the realkey may be to take pains toexplain to your investors notonly what level the dividend isto be paid at, but why thatlevel is in the best interestsof the company. At least thiswill allow shareholders tomake a decision based on thelong-term commercial logicrather than the immediatepayout.

Active management anduse of your listingYour listing is not a staticthing. By floating on the stockmarket, even if you haveraised no capital while doingso, you have opened a newlong-term funding route foryour company. As directors oflisted companies often pointout, banks will ultimatelydemand their money back,but shareholders’ money isnot normally required to bepaid back. The capital youraise through the market canbe used for the full range ofcorporate requirements –including paying off outstand-ing debt, growing thebusiness organically, andmaking acquisitions.

Many substantial listedcompanies openly say thatthey would not be where theyare today without access tothe stock market to fund theiracquisition trail. And evenmore of them say that theprestige of being listed hastransformed their relation-ships with a whole range ofbusiness partners, bothsuppliers and customers, irre-spective of the fundingaspects. Other companies willsee you as more solid andfinancially transparent, andmay be happier to strike long-term contracts with you. So itis important that you work toexploit the edge which yourlisting gives you in business-


to-business marketing terms,both with existing contactsand new ones. This edge canbe especially pronounced ifyou have competitors whichare still privately-owned.

A further major opportunitypresented by your listing is to reward and retain outstandingstaff by offering share optionschemes. The publicquotation gives suchschemes a demonstrablevalue, and makes them feelmuch more ‘real’ to theemployee shareholders, whoalso gain a long-term interestin the success of thebusiness. It is highly likelythat your advisers will havehelped you institute suchschemes in readiness for theflotation, but if not then youshould consider bringing themin at an early stage.

Once you are on the market,the most common way ofraising extra funds is via aplacing. Alternatively, rightsissues allow existing share-holders to pick up additional

shares so their holding is notdiluted. These will generallybe underwritten (for a fee) toprotect the issuer against anysudden adverse move inmarket.

As the director of a newly-listed company, you will havejoined a select group of menand women – and will alsohave crossed a majorthreshold in any businesscareer. Congratulations willcertainly be in order.However, much will still lieahead. Your listing will raisethe profile of your business,and should establish its credi-bility more firmly in the eyesof competitors and partners.And, as you move forward, itcan be a platform for strong,controlled growth which willtransform your company.

However, this process cannotbe left to take care of itself.The best captains of industrynever waste the chance tolearn more about their craft.In running a listed company,as in anything else, there isno substitute for experience,and on every working day youwill learn more about theprocesses and pressuresinvolved in being on the stockmarket.

‘The whole point of

investing in smaller

companies is to try and outper-

form blue chips. Also, the

smaller companies which have

made it to the market should be

the best in their sector. We

mainly look at earnings growth

and capital growth, although a

reasonable growth in dividends

is also quite important – so long

as it’s managed properly.’


‘I would recommend to any

director that they should

become a non-executive in

another business. It means you

get a clear view of other

people’s mistakes – which you

might then realise you are also

making yourself, in your own

company. It’s tremendously

useful, and all executives should

put aside some time to do it.’


‘Our strategy is to continue

growing the company through

licensing, collaborations and

acquisitions. And capitalising on

our listing by using shares to do

that is certainly part of

our long-term plan.’

Investor relations vice-president, biotechnology company

?Rights issue

In a ‘rights issue’, a companywhich is already listed invites its

existing shareholders to purchase addi-tional new shares in the company for aset price. Shareholders can either ‘takeup’ their rights, thus maintaining theirpercentage holding in the company,or they can ‘pass’ them, meaning

the proportion they holdwill fall.


Your advisers, who havebeen through it all before,are there to help you. So isthe Exchange. And aconstant flow of guidanceand information is readilyavailable for those willing tolook. We recommend thatyou tap into these informa-tion sources, and exploitthem to the full. Rememberalso that you can contact theExchange’s business devel-opment and admissionsteams – a list of usefulcontacts is included on page55.

This publication has taken youfrom the first concepts offlotation to the final product. Itwill have been a long road,but – we are sure – a worth-while one. For your business,the best is yet to come.

And finally...


AIMThe Exchange’s global market for young

and growing companies.

Combined CodeThe current benchmark for best practice

corporate governance, drafted by the

committee chaired by Sir Ronald Hampel.

The Code is appended to the UKLA’s

Listing Rules.

CRESTThe paperless share settlement system

through which trades executed on markets

can be settled. CREST is operated by

CRESTCo Ltd and was introduced in

1996. See Settlement.

Daily Official List (DOL)The daily record setting out the prices of

all trades in securities conducted on the

Exchange.

DividendThat part of a company’s profits after tax

which is distributed to shareholders –

usually expressed in pence per share.

EquityThe risk-sharing part of a company’s

capital, usually made up of ordinary

shares.

FTSE indicesIndices, including the FTSE 100 index,

which are calculated and maintained by

FTSE International Ltd to illustrate the per-

formance of various sectors of the UK and

European markets.

FlotationWhen a company’s shares are admitted to

trading on an exchange.

Free floatSee Shares in public hands.

FSAThe Financial Services Authority. The

agency appointed by the Government

under the Financial Services and Markets

Act to oversee the regulation of the invest-

ment industry.

Insider dealingThe purchase or sale of securities by

someone who possesses ‘inside’ informa-

tion affecting securities which has not yet

been made available to the market and

which, if made available, would significantly

affect the share price. In the UK such

deals are a criminal offence.

LiquidityEase with which a security can be traded

on the market.

Listed companyA company whose securities have been

admitted to the UKLA’s Official List and

admitted to trading on the London Stock

Exchange.

Listing particulars

When a company applies for a listing of its

securities in circumstances other than an

offer to the public, listing particulars (or a

prospectus) are required in accordance

with the UKLA’s Listing Rules, detailing

information on the company, its accounts,

directors and its securities to be listed.

Main MarketThe Exchange’s main market for UK and

international listed securities.

Mandatory quote periodThe time when market makers on the

Exchange’s quote-driven SEAQ and SEAQ

International services are obliged to make

firm two-way quotes for the securities in

which they are registered. This time is

0800-1630 hours for SEAQ and 0930-

1530 hours for SEAQ International.

Market makerA securities firm which is obliged to offer

to buy and sell securities in which it is reg-

istered throughout the mandatory quote

period.

New issueAn issue of shares when a company

comes to the market for the first time or

issues extra shares.

Nominated adviser

Exchange-approved adviser for AIM

companies. AIM companies must retain a

nominated adviser at all times.

Offer priceThe selling price for securities in the

market.

Offer for subscriptionA method of bringing a company to the

market. The public can apply for shares

directly at a fixed price.

Official List

The list of all securities officially listed

by the UK Listing Authority.

Ordinary shares

The most common form of share. Holders

may receive dividends in line with the

company’s profitability and on the recom-

mendation of its directors.

POTAMPanel on Takeovers and Mergers, which

regulates conduct of takeovers

and mergers in the UK.

Preference shares

These are normally fixed-income shares

whose holders have the right to receive

dividends before ordinary shareholders. If a

company were to go into liquidation, pref-

erence shareholders would rank above

ordinary shareholders for the repayment of

their investment in the company.

Price/earnings ratio (P/E ratio)The P/E ratio is a measure of the level of

confidence investors have in a company

(rightly or wrongly). Generally, the higher

the figure the higher the confidence. It is

calculated by dividing the current share

price by the last published earnings per

share – where earnings per share is net

profit divided by the number of ordinary

shares.

Price-sensitive informationInformation which, if made public, is likely

to have a significant effect on the price of

the company’s securities.

Primary marketThe function of a stock exchange in

bringing securities to the market for the

first time. Money is raised either for the

company at admission or through further

issues to fund future growth.

Glossary of market terminology


ProspectusWhen a company applies for a listing of its

securities which are to be offered to the

public in the UK, a prospectus is required

in accordance with the UKLA’s Listing

Rules, detailing information on the

company, its accounts, directors and its

securities to be listed.

Private companyA company which is not a public company

and which is not allowed to offer its shares

to the general public.

Public limited company (plc)A company whose shares may be

purchased by the public and whose share

capital is not less than a statutory

minimum. Not all plcs are listed

companies.

RegistrarAn organisation responsible for maintaining

a company’s share register.

RIERecognised Investment Exchange which

meets the FSA requirements for recogni-

tion. The London Stock Exchange is an

RIE.

Rights issueAn invitation to existing shareholders to

purchase additional shares in the company.

RIS Regulatory Information Service – which

ensures that information from listed and

AIM companies, and certain other bodies,

is disseminated to all subscribers, such as

major information vendors at the same

time for onward transmission to the

market.

RNSThe Exchange’s Regulatory Information

Service – which ensures that information

from listed and AIM companies and certain

other bodies is disseminated to all RNS

subscribers, such as major information

vendors at the same time for onward

transmission to the market.

SEAQSEAQ is a continuously updated electronic

notice board containing price quotations of

UK securities. Market makers use the

system to display the prices at which they

are prepared to buy or sell shares of a par-

ticular company.

SEAQ InternationalThe Stock Exchange Automated

Quotations system for international

equities.

SEATS PLUSSEATS PLUS is a hybrid market model

combining market maker quotes and an

order book. All AIM and some main listing

securities are traded on SEATS PLUS.

Secondary marketMarketplace for trading in securities.

SecuritiesGeneral name for stocks and shares of all

types.

SETSTrading of the most liquid stocks is

through the electronic order book often

referred to as SETS (Stock Exchange

Trading System). It is a fully automated,

screen based market where buy and sell

orders are entered into a system anony-

mously and automatically executed during

continuous trading when the price details

match. Otherwise known as the order

book.

SettlementThe process of transferring stock from

seller to buyer and arranging the corre-

sponding movement of money between

the two parties (see CREST).

SharesSee Ordinary shares, Preference shares,

Securities.

Shares in public handsA company seeking admission to the

Official List must have at least 25 per

cent of its shares in public hands. Shares

are not deemed to be in public hands

where they are held by a director of the

company or its subsidiaries, individuals

connected with the directors and any

person holding five per cent or more of the

shares.

StockbrokerA securities firm which provides advice

and dealing services to the public and

which can deal on its own account.

techMARKThe Exchange’s international market for

innovative technology companies.

techMARK mediscienceThe Exchange’s international market for

healthcare companies.

Touch The best buying and selling prices available

on SETS or from a market maker on

SEAQ or SEAQ International in a given

security at any time.

UKLAThe Financial Services Authority acting in

its capacity as the United Kingdom Listing

Authority.

UnderwritingAn arrangement by which a company

is guaranteed that an issue of shares

will raise a given amount of cash.

Underwriters undertake to subscribe for

any of the issue not taken up by the

public. They charge commission for this

service.

WarrantsSecurities giving the holder a right to

subscribe for a share or a bond at a given

price and from a certain date.

Yellow stripThe yellow band on a SEAQ or SETS

screen which displays the highest bid and

the lowest offered prices that competing

market makers are offering in a security.

They are known colloquially as the ‘touch’

or ‘yellow strip’ prices.

YieldThe return earned on an investment taking

into account the annual income and its

present capital value. There are a number

of different types of yield, and in some

cases different methods of calculating

each type.

London Stock Exchange plcLondon EC4M 7LSTelephone +44 (0)20 7797 1000

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A Practical Guide to ListingW O R L D C L A S S S E R V I C E S F O R W O R L D C L A S S C O M PA N I E S

A Practical Guide to Listing on the London Stock Exchange

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