Initial public offers

Contents

05 Our Corporate Finance Group 06 Expertise of the Corporate Finance Group 08 Reasons for an IPO 09 Initial Public Offers - The process 16 IPOs - Key issues 20 The Official List - Premium and Standard Listings 22 Conditions for listing - The Official List 25 Conditions for admission - AIM 28 Key documentation - Prospectuses 33 Key documentation - The Official List 36 Key documentation - AIM 40 The UK Corporate Governance Code 42 The QCA Corporate Governance Code 44 Jargon

3 4 Our Corporate Finance group

Taylor Wessing has one of the largest dedicated corporate finance practices in Europe, with genuine cross-border capability and a strong presence in Asia and the Middle East.

Our international capital market In addition to being market experts work as one integrated team leaders in advising clients from the on a range of international security technology field, we advise across transactions and offerings including: many other sectors. We work with IPOs, secondary issues, public leading investment banks, brokers, M&A, tender offers, bond offerings, financial advisers and sponsors, securitisations, and restructurings. and financial services institutions.

Your contacts

William Belcher Robert Fenner Partner Partner +44 20 7300 4221 +44 20 7300 4986 w.belcher@ r.fenner@ taylorwessing.com taylorwessing.com

Russell Holden Tandeep Minhas Partner Partner +44 20 7300 4678 +44 20 7300 4244 r.holden@ t.minhas@ taylorwessing.com taylorwessing.com

5 Initial Public Offers

Expertise of the Corporate Finance Group

Within the UK, the Corporate Finance Group acts on initial public offerings both large and small. This includes new issues on:

„ the Official List maintained by the generally on continuing obligations Financial Conduct Authority (‘FCA’) and regulatory changes. with admission to trading on the The Corporate Finance Group is Premium or Standard Segment also ideally placed to advise on of the Main Market of the London the market opportunities offered Stock Exchange by the NEX Exchange Main Board „ the High Growth Segment of the and Euronext London (aimed at London Stock Exchange’s Main international issuers), which each Market, for medium and large offer an EU regulated market sized high growth companies alternative to the Main Market of the London Stock Exchange for „ the Specialist Funds Segment companies wishing to join the of the London Stock Exchange’s Official List. Main Market, designed for highly specialised investment entities Apart from structural and transactional advice, securities „ AIM, the international market lawyers at Taylor Wessing are for smaller, growing companies available to advise on compliance operated by the London Stock issues, especially in the context of Exchange (‘AIM’). new securities offerings. This includes The international focus of Taylor advising upon the timing for and Wessing naturally means the issue of research notes, conducting Corporate Finance Group advises meetings with research and other overseas companies wishing to analysts, the format of marketing gain access to UK and European presentations and briefings and the securities markets. The role of the timing and content of regulatory Group includes advising the market announcements.

6 This guide

The purpose of this guide is to provide a background to the procedures for listing shares on the principal London equity markets, focusing on the Premium Segment of the Main Market of the London Stock Exchange and AIM.

Admission to the Premium or Standard Segments of the Main Market of the London Stock Exchange will require an application for admission to the Official List (in conjunction with an application for admission to trading on the London Stock Exchange).

7 Initial Public Offers

Reasons for an IPO

There is no single reason which triggers a company to seek a listing for its shares. Typical examples of why a company may seek a listing are:

„ to raise capital „ in discharge of an undertaking or arrangement given by a company „ to create a ‘better’ balance to a private equity institution, between the level of a company’s for example, where an exit by debt finance and its share capital, way of flotation has been a ratio known as ‘gearing’ assumed by a private equity „ where a financial services institution when investing company needs to ensure that its „ to establish a market valuation required equity capital complies for transactions in a company’s with the capital adequacy shares, for instance, involving an requirements of its regulator employee share option scheme. „ to comply with legislation, for example, a venture capital trust must be listed on the Official List

8 Initial Public Offers – The process

From start to finish, the IPO process can take some four to six months and, whilst each transaction will differ, there are common themes in each process which are worth noting.

Appointment of advisory team The timetable will map out the entire transaction and will set out At the outset, the issuer appoints responsibilities for various actions. its advisory team to include a This should include, as a first step, sponsor or nominated adviser or the preparation of a transaction corporate adviser (as appropriate structure report by the solicitors to depending upon the relevant the issuer. The purpose of this report market, but throughout this guide, is to identify hurdles to the process. referred to as ‘sponsor’), solicitors, Appropriate resources can then be reporting accountants, broker, PR applied to resolving problem areas. agent, share registrar and printers. At this early stage, any timetable for The printers and the share registrar the final transaction stages will be will usually be organised by the fairly ‘broad-brush’ but should show sponsor. Each adviser will need to likely marketing and admission dates. enter into an engagement letter with the issuer setting out the scope Due diligence of the appointment and the terms and conditions including payment. The sponsor will require a legal These engagement letters may due diligence exercise to be include limitations on liability and undertaken in relation to the issuer. indemnities, all of which will be the Terms of reference for this exercise subject of negotiation. are agreed and a legal due diligence questionnaire sent to Timetable and list of documents the issuer for completion.

The first step will be for the sponsor to produce a draft timetable and list of documents. 9 Initial Public Offers

Information should be reviewed Working capital review with particular attention to matters To assist the directors in giving of fundamental importance to the the working capital statement in issuer. An outsourcing business the prospectus or admission is, for instance, dependent for its document, reporting accountants revenues and profits on the terms of provide a private report to the its outsourcing contracts. A detailed issuer and its sponsor. This report review of these is essential. Existing is based on the issuer’s financial shareholders’ agreements (if any) projections and supports the should be considered and the impact directors’ working capital statement. of obtaining shareholder consent Technically, this report needs to to the flotation will need to be cover the 12 month period following worked into any timetable. When it admission. However, the sponsor is intended to market into the United usually requires the report to cover States, due diligence procedures a longer period, typically 18 to will also need to take account of US practice in establishing a ‘due 24 months after admission. diligence’ defence to US securities The report includes details of the law claims. basis upon which it was prepared. A commentary is incorporated Long form accountants’ reports covering the accuracy of budgets Whilst legal due diligence is on- prepared by the issuer, current going the reporting accountants trading, profit and loss, cashflow will be preparing a long form report and balance sheet projections and reviewing the issuer, its history and available bank facilities (including commercial activities, organisational a covenant analysis). Concluding structure, trading results, assets remarks involve the application of a and liabilities, cashflows, tax filings, sensitivity analysis to such budgets accounting policies and audit issues, and projections and from this a view management information control as to the minimum level of working systems and employees. capital headroom.

10 Initial Public Offers – The process

Short form accountants’ reports Whilst verification can often seem long-winded, it is designed The prospectus or admission to ensure the accuracy of all document will include short form factual statements and where accountants’ reports. These cover statements of opinion or belief the financial track record of the issuer are included, to confirm that such for the last three financial years or opinions are reasonable. since incorporation, if less and, if relevant, interim accounts. Each director cannot be expected to know every fact relating to Production of draft prospectus or the issuer and its business. With admission document respect to some statements, it Drafts of the relevant prospectus or would be perfectly proper for a admission document are prepared director to rely on other people, by the sponsor. These are circulated including the company’s advisers, for review by all those involved in to check particular aspects of the the process. Whilst less prevalent, relevant document. this review could include drafting Verification requires the production of meetings. If a prospectus is required, verification notes (often in electronic the document must be submitted to form) for which each director takes the FCA for approval. responsibility. In preparing verification notes and conducting a verification Verification exercise, the following key points In view of the duties of disclosure in a should be noted: prospectus or admission document, „ the source for the verification of it is vital such documents are issued the statement of fact should be so as not to be misleading. Each recorded in writing director has a duty to ensure this is the case. This duty is discharged „ a record in writing should be kept through a process called ‘verification’. with a reasonable basis for each statement of opinion

11 Initial Public Offers

„ each of the directors (including In the case of a Main Market non-executive directors) must IPO candidate, any connected be given sufficient time to research must not be released consider and comment upon until at least seven days after the prospectus or admission publication of an approved document and the verification prospectus, unless unconnected notes so that they are each analysts are offered access to the given time to correct and amplify company’s management alongside statements, if necessary the connected analysts (in which case the connected research can „ it is not sufficient for directors to be published one day after the simply record that each statement publication of the prospectus). is ‘confirmed’; supporting evidence must be provided as an annexure This timing restriction does not to the verification notes apply to an AIM IPO candidate, whose broker may publish a pre-IPO „ if statements cannot be verified connected research note. However, they must be deleted or amended market practice is that the pre-IPO so that they can be verified. research note will be published at least two weeks before the pathfinder Research notes documents and, in any event, one The broker to the proposed IPO may month before the prospectus or wish to publish a research note on admission document is published (the the company. There is sensitivity two week period prior to the pathfinder surrounding such notes due to the being known as the ‘blackout period. need to ensure that all investors The research note must not include have access to the same information details about the issuer or its regarding the issuer, as well as an business which are not published increased FCA emphasis on the in the prospectus or admission primacy of the prospectus which document. To avoid any suggestion affects the timing of research notes that the broker is no more than the for Main Market companies. issuer’s agent which could result

12 Initial Public Offers – The process

in the research note being part Pathfinder document of the prospectus or admission Assuming investor appetite for the document, only limited assistance new issue is established from the can be provided by the issuer in the marketing presentations, investors preparation of the note. In reviewing are asked to confirm their interest. any draft, the issuer must limit itself Each investor receives a final to matters of fact and must not draft version of the prospectus comment on issues of judgment. or admission document known If the research note is to include as the ‘pathfinder’ (or in the US financial projections but no profit a ‘red- herring’), together with a forecast is to be contained in the letter seeking confirmation of the prospectus or admission document, level of interest. If the marketing then all relevant information must is undertaken as a placing this be included in such document as confirmation is received by way would enable an investor to draw of a placing letter. If a placing the same financial conclusions. letter is not used this confirmation is This may include an analysis of the received by way of a contract note. key financial drivers of the issuer’s business. The research note must not 20 business days - Submission of be used in substitution for publishing prospectus to the FCA a profit forecast in either the If a prospectus is required, the prospectus or admission document. prospectus must be submitted Marketing presentation to the FCA for approval at least 20 business days prior to the Drafted relying upon the pathfinder intended date of approval. This document and separately verified, period is reduced to 10 business the marketing presentation is used in days where the company’s shares meetings with institutions and other are already traded on a regulated potential investors. The purpose is market or the company has to explain to potential investors, previously made a public offer the issuer, its history, business, track of transferable securities. record and prospects.

13 Initial Public Offers

Submission of documents to the FCA the documents and information - For all prospectuses (but Official must be submitted 20 business days List only if no prospectus is required) before admission. It would then not need an admission document unless Where a prospectus is required, a prospectus is required. certain other information must be provided and fees paid to the FCA Three business days - Submission of at the same time. If no prospectus is application of documents - AIM only required, submission of documents to the FCA is still required if the At least three business days before company is listed on the Official List. the expected date of admission Formal approval from the FCA must and in addition to payment of the be obtained before a prospectus can admission fees, the LSE must receive be published. an electronic version of the relevant admission document together with 10 business day documents - AIM the completed application form and a declaration by the Nomad 10 business days before admission is confirming that the AIM Rules have a key date in the life of an application been complied with in connection to join AIM. 10 business days before with the application. admission a variety of information documentation is submitted to the 48 hour documents - Official List only LSE. An announcement is also made by the LSE that an application has By midday two business days before been received from the issuer for its the FCA is to consider the listing securities to be admitted to trading application, an Application for on AIM. However, if the applicant Admission of Securities to the Official has had its shares traded on an List and associated documentation, AIM Designated Market (such as including a copy of the prospectus the Official List, New York Stock (approved by the FCA), written Exchange, Euronext or NASDAQ) confirmation of the number of for at least 18 months prior to the securities to be allotted (pursuant application for admission to AIM, to a board resolution), and, if a 14 Initial Public Offers – The process

prospectus has not been produced, Board meetings a copy of the announcement There are at least five key board detailing the number and type of meetings of the issuer to be held securities that are the subject of the in connection with an IPO. In order, application and the circumstances these are: of their issue, must be submitted to the FCA. If a prospectus has not been „ to approve the engagement of produced, the application must also advisers in connection with the contain a confirmation that this is not transaction and to undertake required and details of the reasons the IPO why it is not required. „ to approve the marketing presentation Further filings - Official List only „ to approve the pathfinder By no later than 9am on the day document when an application for admission to the Official List is considered, further „ to approve the publication of documents need to be received the prospectus or admission by the FCA, including payment of document the appropriate listing fees and a „ to allot and issue the new completed shareholder statement. securities.

15 Initial Public Offers

IPOs - Key issues

Investor protection – Surrounding every flotation are institutional investor guidelines.

The issue of new shares is a key issue, The Statement of Principles sets out as investors are concerned to avoid certain principal thresholds, which dilution. Investor guidelines have are as follows: been prepared which seek to limit „ Shareholders will generally share issues and these guidelines support an annual disapplication establish terms of reference in of pre-emption rights on the addition to those set out in section following basis: 561 of the Companies Act 2006 (which gives every shareholder a ƒ a general disapplication in proportionate pre- emption right) respect of up to 5% of the issued and Listing Rule 9.3.11R (which ordinary share capital on an requires all companies with a unrestricted basis Premium Listing on the Official List, ƒ a general disapplication of including overseas companies, to an additional 5% of the issued offer their shareholders pre-emption ordinary share capital, provided rights, unless an exemption applies). it is only used in connection These investor guidelines are set with an acquisition or specified out in the ‘Statement of Principles’ capital investment which is published by the ‘Pre-emption announced contemporaneously Group’. The Statement of Principles with the issue, or which has applies to companies with a taken place in the preceding six Premium Listing. Companies quoted month period and is disclosed in on AIM are encouraged to apply the announcement of the issue. these guidelines but the Pre-Emption Group recognises that greater flexibility is likely to be justified in the case of such companies.

16 IPOs - Key issues

„ Companies should not issue Investor protection - Remuneration more than 7.5% of their ordinary The Investment Association has share capital for cash other than published guidance on investor to existing shareholders in any expectations for remuneration, rolling three year period (for these entitled the ‘Principles of purposes treasury share issues Remuneration’. The Principles are are not counted), unless there is for companies with a listing on the suitable advance consultation Official List, but other companies and explanation or the matter are encouraged to observe the was specifically highlighted when Principles in the spirit of best practice the request for disapplication and, in particular, AIM companies was made. are increasingly expected to comply. „ When making a non-pre-emptive The Principles state that shareholders issue, companies should ensure will not support arrangements which they are raising capital on the best entitle executives to reward when this possible terms and should restrict is not justified by performance. the discount to a maximum of 5% The Principles include the following: of the middle of the best bid and offer prices for the company’s „ Remuneration policies should shares immediately prior to the be set to promote long-term announcement of an issue or value creation through proposed issue. A discount of transparent alignment with greater than 5% is not likely to be the corporate strategy. regarded as routine. „ Remuneration policies should support performance, encourage the sustainable financial health of the business and promote sound risk management for the success of the company and to the benefit of its stakeholders.

17 Initial Public Offers

„ Remuneration committees need „ Commitments to issue new shares to exercise independent judgment or re-issue treasury shares under and not be over-reliant on executive (discretionary) schemes remuneration consultants. should not exceed 5% of the issued ordinary share capital of „ A non-executive director should generally serve on the the company (adjusted for share remuneration committee for at issuance and cancellation) in any least one year before chairing rolling ten year period. This may the remuneration committee be exceeded where vesting is and have sufficient skill and dependent on the achievement experience to manage the of significantly more stretching remuneration-setting process. performance criteria. „ Executive (discretionary) share „ All new share-based incentives or any substantive changes options should not be granted at to existing schemes should be a discount to the prevailing market subject to prior approval by price. The price at which shares are shareholders by means of a issued under other share schemes separate and binding resolution. should not be less than the mid- Any change in quantum should market price (or similar formula) be fully explained and justified. immediately preceding grant of the shares under the scheme. „ Remuneration committees „ must respond to any significant A share plan should have a vote against any remuneration maximum life of ten years. resolution when they appear on Therefore, no new awards the Public Register (a register should be made after the tenth tracking shareholder dissent at anniversary of adoption of the listed companies). Companies scheme. Shares and options should seek to understand the should not vest or be exercisable reasons for the dissent and issue within three years from the date of an update statement in response grant. In addition, options should to the dissent. not be exercisable more than ten years from the date of grant.

18 IPOs - Key issues

„ Commitments to issue new shares or re-issue treasury shares, when aggregated with awards under all of the company’s other schemes, must not exceed 10% of the issued ordinary share capital (adjusted for share issuance and cancellation) in any rolling ten year period.

„ The prior approval of shareholders should be obtained before 5% or more of a company’s share capital at any one time may be held within employee share ownership trusts.

19 Initial Public Offers

The Official List – Premium and Standard Listings

Listing on the Official List is divided into ‘standard’ listings, where listed companies comply with certain minimum standards and ‘premium’ listings where the UK’s super-equivalent requirements apply.

The more onerous requirements This creates a level playing field of the Premium Segment include for UK issuers, who now have the demonstrating a three year track option of applying for admission to record, appointment of a sponsor the Official List without having to on admission and complying with satisfy the UK’s super-equivalent continuing obligations regarding requirements. However, only substantial and related party companies with a Premium Listing transactions. will be eligible for inclusion in the FTSE UK Index Series. The Premium Segment of the Official List is only open to voting A Standard Listing will also provide equity shares, whereas both equity UK and overseas commercial and non-equity shares and other companies, which either do not types of securities, such as global wish to submit to the more onerous depository receipts, debt securities requirements of a Premium Listing, or and securitised derivatives, may be do not meet the eligibility criteria for listed on the Standard Segment. a Premium Listing, with an alternative Investment funds and companies to AIM. A company applying for a may only list their equity shares on Standard Listing will have to have the Premium Segment. a minimum market capitalisation of £700,000 and a minimum of 25% of UK companies are now able to its shares in public hands (neither of join overseas companies in which criteria apply for an admission opting for a Standard Listing, to trading on AIM) and will have to regardless of whether they publish a prospectus (which may not have a listing elsewhere.

20 be necessary for admission to AIM). However, the ongoing obligations that apply to the company once it has a Standard Listing will be less onerous than those applying to a company on AIM. For example, a company with a Standard Listing will not need to appoint a sponsor or to seek shareholder approval for, or comply with any disclosure requirements concerning, significant transactions or transactions with related parties.

It is possible to migrate from a Premium Listing to a Standard Listing as long as over 75% of shareholders approve the migration. An issuer wishing to move its equity shares from a Standard Listing to a Premium Listing will not require shareholder approval but must satisfy the UK super-equivalent eligibility provisions.

21 Initial Public Offers

Conditions for listing – The Official List

In considering whether a company is suitable for a listing on the Official List there are certain pre- conditions which must be fulfilled.

In addition, the FCA has an overriding „ If the issuer is applying for a discretion to impose any special Premium Listing, it must have conditions on any listing which it three years of audited accounts, considers appropriate (in the interest which are consolidated accounts of protecting investors). In essence, and independently audited the pre-conditions are: in accordance with IFRS or an equivalent standard and Conditions concerning the applicant have been reported on by the (It is important in this context to auditors without modification. consider the application of particular The accounts must be the latest chapters of the Listing Rules to accounts for a period ended not specialist companies which may more than six months before the waive or amend the application date of the prospectus. There of these conditions, for example, is an overriding provision in the scientific research based companies Listing Rules that a three year which are subject to paragraphs 6.1.11 track record is not needed where R and 6.1.12 R of the Listing Rules.) ‘it is desirable in the interests of investors and investors have the „ The issuer must be duly necessary information to arrive at incorporated and operating an informed judgment about the within its constitution. applicant and the securities for which listing is sought’.

22 Conditions for listing – The Official List

„ If the issuer is applying for a „ The securities must be freely Premium Listing, its business must transferable. be operated independently and „ The market capitalisation for the have been revenue generating shares in respect of which a listing for the period covered by the is sought must be £700,000 or accounts. The new applicant must more. The limit for debt securities is also demonstrate that at least lower, at £200,000. In either case, 75% of its business is supported a lower value can be imposed by a historic revenue earning provided the FCA is satisfied that record which covers the three year there will be an adequate market period of the accounts and that it for the securities concerned. controls the majority of its assets and has done so for at least that „ At the time of admission, at least three year period. 25% of the issuer’s securities in respect of which a listing is made „ All new applicants will need must be in the hands of the to include a working capital public situated in any jurisdiction. statement concerning the For these purposes the ‘public’ group’s present working capital does not include: requirements (covering at least the next 12 months). ƒ a director of the applicant or any subsidiaries Securities ƒ any person connected with „ The securities in respect of which that director the application is to be made must conform with the law of the jurisdiction where the company was incorporated, be duly authorised and have all relevant statutory or other consents.

23 Initial Public Offers

ƒ trustees of any employee share if the securities into which they are schemes or any pension funds convertible are or will (at the same established for the benefit of time) become listed securities. directors or employees of the The FCA has a discretion to applicant or subsidiaries waive this requirement if it is convinced that holders of the ƒ any person who by agreement convertible securities will have all may nominate the appointment the information necessary to form of a director an opinion on the value of the ƒ any person or persons in the underlying securities. same group who are interested „ There are also special listing in 5% or more of securities of the criteria for companies operating same class. in particular markets, for example, „ The application must be in respect scientific research based of all securities of the class which is companies, mining companies and the subject of any application. property investment companies. The Listing Rules contain separate „ The securities must be eligible for electronic settlement (including provisions for each of these settlement in CREST). categories and they must be reviewed at an early stage in the „ As regards warrants and options, application process. Where there in the absence of exceptional is any doubt concerning the ability circumstances, not more than of the applicant to meet any of 20% of the issued equity share the pre-conditions a discussion capital (excluding rights under must be held with the FCA as soon employee share schemes) at the as possible to try and resolve any time of issue must be subject to issues even though this may result warrants or options. in the application being subject „ Regarding convertible securities, to special conditions. You should these will only be admitted to arrange for the sponsor to discuss listing (on the Standard Segment) these issues with the FCA and report back. 24 Conditions for admission – AIM

Unlike the Official List, there are few prescriptive pre-conditions for admission to AIM. As an exchange regulated market it is for the nominated adviser, referred to as the ‘Nomad’, to determine that the issuer is appropriate for admission to listing.

The Nomad’s responsibilities If an issuer is considered by the are set out in the ‘AIM Rules for Nomad to be ‘appropriate’, then Nominated Advisers’. In determining the pre-conditions to joining are: ‘appropriateness’, the Nomad „ a prospectus or an admission conducts initial due diligence document be published (in upon the issuer. This will include English) which should be made investigating the background and available on the company’s suitability of the directors and website following admission (if a the efficacy of the board as a prospectus is required it must be whole as well as gaining a better approved by the FCA, filed with understanding of the issuer’s the National Storage Mechanism business and prospects. The Nomad and published on a website) must also satisfy itself that the issuer has in place sufficient systems, „ the securities to be admitted to procedures and controls in order trading must be freely transferable to comply with the ‘AIM Rules for „ the issuer must have and must Companies’ (‘AIM Rules’). retain a Nomad and broker

„ appropriate arrangements must be in place to enable trades in the relevant securities to be settled.

25 Initial Public Offers

The AIM Rules set out the information document. This includes details of which needs to be included within the any companies of which they were prospectus or admission document. directors or were directors in the 12 The content of prospectuses months before a administrator or is determined primarily by the liquidator was appointed. Prospectus Regulation (EU) 2017/1129 As no three year trading track record as it applies in England and Wales is required as a pre-condition to from time to time after 31 December admission to AIM, it is possible for a 2020 (and supporting legislation) start-up company to be admitted, and also by the FCA’s Prospectus or a company with a trading track Regulation Rules. Even if a prospectus record, which, since incorporation, is is not required, the information less than three years. which must be included in the admission document is, in essence, Where, in the course of preparing for largely the same information as that admission, matters are brought to included in a prospectus prepared the attention of the LSE regarding in accordance with the Prospectus the issuer which could affect its Regulation Rules. Some additional ‘suitability’, special conditions upon information is required under the AIM admission can be imposed. One Rules, for instance, specific wording such condition is the requirement for a working capital statement given for directors and senior employees and any related party shareholders by the directors for at least the next not to dispose of any interests in 12 months following admission and securities for at least one year the inclusion on the first page of the following admission. This condition admission document of a disclaimer applies only in circumstances where, concerning the status of AIM and on admission, the issuer has not been the risks associated with investing in independent and earning revenue for the emerging or smaller companies. at least two years. Information upon each director and each proposed director also needs An additional condition for listing to be included in the admission applies to cash shells. Where an

26 Conditions for admission – AIM

issuer is an ‘investing company’ (namely, a company which, in the opinion of the LSE, has as a primary business the investing of its funds in securities of other companies or the acquisition of a particular business), a condition of its admission is that it raises a minimum of £6 million in cash by way of an equity fundraising on or immediately prior to admission.

Fast-track admission to AIM

Companies already listed on certain foreign exchanges (referred to as ‘Designated Markets’) can use a fast-track admission procedure to join the AIM market. This procedure requires the provision and publication, at least 20 business days before the expected date of admission to AIM, of information amounting to a scaled down admission document. Those companies must provide information equivalent to that required for an admission document which is not already public. The ‘Designated Markets’ include the Australian Securities Exchange, Deutsche Börse, Euronext, Johannesburg Stock Exchange, NASDAQ, NASDAQ OMX Stockholm, NYSE, Swiss Exchange, TMX Group and the FCA’s Official List. 27 Initial Public Offers

Key documentation – Prospectuses

The prospectus regime in the UK relating to public issues of securities and admission of securities to a ‘regulated market’ (such as the Main Market of the London Stock Exchange) is governed by the Prospectus Regulation which (together with supporting delegated regulations) sets out rules governing when a prospectus must be published, what it must contain and the procedure for its approval.

In the UK, the Prospectus Regulation Although such non-legislative is a key source for issuers and materials published by ESMA were the Prospectus Regulation Rules not incorporated into English law published by the FCA set out the when the UK left the European Union, details which must be contained because the EU laws to which such in all prospectuses as well as (in material relates have largely been conjunction with Part VI of the retained, the FCA considers that it Financial Services and Markets is still relevant for compliance with Act 2000) the procedure for their regulatory requirements, including approval and publication. Issuers FCA Handbook provisions. must also have regard to related EU-derived legislation (including two Commission delegated regulations on prospectuses) as it applies in England and Wales from time to time after 31 December 2020 and guidance relating to prospectuses issued by the European Securities and Markets Authority (‘ESMA’).

28 Key documentation – Prospectuses

When is a prospectus required? Exemptions

A prospectus will be required in There are a number of exemptions two situations: available, which, if applicable to an „ if an offer of transferable securities offer of transferable securities to the is made to the public (which public, mean that a prospectus is not covers any ‘communication to any required. For example, a prospectus person which presents sufficient will not be required if: information on (a) the transferable „ the offer is addressed to fewer securities to be offered and (b) the than 150 people, other than terms on which they are offered, ‘qualified investors’ in the UK to enable an investor to decide to „ the offer is made purely to ‘qualified buy or subscribe for the securities investors’ (being persons who in question. The communication can be classified as ‘professional may be made in any form and by clients’ or ‘eligible counterparties’ any means’) under the Markets in Financial „ if transferable securities are Instruments Directive (2014/65) as it being admitted to trading on a applies in England and Wales from regulated market (which includes time to time after 31 December the Main Market of the London 2020, known as MiFID II)) Stock Exchange, but not AIM). „ the total consideration of the If a prospectus is required, it is offer is less than €8 million (or unlawful and a criminal offence for an equivalent amount), when transferable securities to be offered aggregated with offers open to the public or for an application to during the previous 12 months trading on a regulated market to be „ the minimum consideration which made, unless an approved prospectus may be paid by any person for is made available to the public before securities pursuant to the offer the offer or application is made. is at least €100,000, or „ the securities offered are denominated in the amounts of €100,000 (or an equivalent amount)

29 Initial Public Offers

Since the end of the Brexit General duty of disclosure transition period on 31 December The general duty of disclosure for 2020, companies can no longer prospectuses is set out in article use FCA-approved prospectuses 6(1) of the Prospectus Regulation or supplements to offer securities (and reflected in section 80 of the to the public on a non-exempt Financial Services and Markets basis ( or admit securities to trading Act 2000 (‘FSMA’)), which provides on a regulated market) within that prospectuses shall contain the EEA. In those circumstances, the necessary information which is companies need to obtain approval material to an investor making an from a national competent authority informed assessment of: within the EEA to do so (unless an exemption applies under the EU „ the assets and liabilities, profits version of the Prospectus Regulation). and losses, financial position and prospects of the issuer of the Likewise, there are exemptions securities and of any guarantor from the need for a prospectus on admission to trading on a regulated „ the rights attaching to the market. For example, a prospectus securities will not be required if: „ the reasons for the issue and its „ the number of shares being impact on the issuer. admitted represents (over a 12 For these purposes the information month period) less than 20% of the referred to is anything which is shares of the same class already within the knowledge of any person admitted to trading, or responsible for the prospectus or „ the shares arise upon the exercise which it would be reasonable for such of conversion rights of options person to obtain by making enquiries. or warrants (provided that the In addition, section 87A of FSMA resulting shares represent, over a provides that the FCA cannot period of 12 months, less than 20% approve a prospectus unless it of the shares of the same class contains the information required already admitted to trading). by article 6(1) of the Prospectus Regulation.

30 Key documentation – Prospectuses

Prospectus requirements „ the information items required under the relevant Annexes of The prospectus must consist of the Commission Delegated three principal components, either Regulation (EU) 2019/980 on combined into a single document or contents of prospectuses as it kept separate: applies in England and Wales „ a summary, providing the key from time to time after information that investors need 31 December 2020. in order to understand the nature The Annexes set out the specific and the risks of the company minimum information requirements and the securities for a prospectus. The Annexes that „ a registration document, apply in a particular case depend containing information relating upon various factors including the to the company type of securities being issued, the type of issue, the nature of „ a securities note, containing information relating to the shares. the company, and whether the company has a complex financial A company applying for approval history or has made a significant of a prospectus must ensure the financial commitment. The issue of prospectus contains: shares on an IPO will typically require „ the necessary information which is the inclusion of the information set material to an investor for making out in Annexes 1 and 11 and, if there an informed assessment of the is a significant gross change (a assets and liabilities, profits and variation of more than 25% in relation losses, financial position and to one or more indicators of the prospects of the company; size of the issuer’s business (such the rights attaching to the shares; as total assets, revenue or profits) and the reasons for the issue and to a particular transaction), the its impact on the company information set out in Annex 20 also. Specialist issuers may also need to include additional information.

31 Initial Public Offers

The summary must be accurate, fair „ the information is of minor and clear and not misleading and importance only and is not such it must be consistent with the other that will influence assessment of parts of the prospectus, as well the assets and liabilities, financial as limited in length to a maximum position, profits and losses and of seven sides of A4 paper. There prospects of the issuer are detailed requirements for the „ disclosure would be contrary to contents of the summary, which must public interest, or be made up of four sections: „ disclosure would be seriously „ an introduction, containing detrimental to the issuer and is not warnings such that will influence assessment „ key information on the company of the assets and liabilities, (including key historical financial financial position, profits and information in a prescribed format) losses and prospects of the issuer.

„ key information on the shares The prospectus must be approved by the FCA. If the company is not „ key information on the offer and/or already listed on the Official List admission. (or another regulated market) and The summary must contain the most has not previously made an offer material risk factors that are specific of securities to the public, the to the company and the shares, prospectus must be sent to the FCA subject to a maximum of 15. for approval 20 business days in The prospectus must also contain advance of the intended date of details of the risk factors that are approval of the document. Other material and specific to the company issuers must submit the prospectus and its securities. 10 business days in advance.

The FCA can authorise the omission Once approved, the prospectus of information from a prospectus (or must be filed with the National supplemental prospectus) where it Storage Mechanism and be made considers that: available to the public by publication on a website.

32 Key documentation - The Official List

An application for securities to be admitted to the Official List for the first time requires the production of a prospectus.

Subsequent applications for for misrepresentations. Verifying listing shares on the Official List the accuracy of such statements once the company’s shares is important. are already admitted will also require a prospectus unless an Who is responsible for exemption applies. the document?

The prospectus must be submitted The persons responsible for a to and approved by the FCA and prospectus (or supplemental also published on a website. The prospectus) in relation to an Prospectus Regulation Rules set out issue of equity shares are: in full the details which need to be „ the issuer of the securities contained in a prospectus and the „ where the issuer is a body Listing Rules set out the procedure corporate, every director of the for applying for admission to the issuer at the time the document Official List. These should also be is submitted and also any person read in conjunction with appropriate who has authorised himself supporting chapters for, for example, or herself to be named in the certain types of investment entity. document as a director, for The marketing of securities to be example, someone occupying admitted to the Official List will the office of director although be carried out using a pathfinder not formally appointed as such prospectus. This document or anyone who has agreed constitutes a bundle of contractual to become a director of the representations. If these are applicant either immediately incorrect it may lead to claims or at a future time

33 Initial Public Offers

„ in relation to an offer, the offeror Responsibility statements (if this is not the issuer) and, if it is The Prospectus Regulation Rules a body corporate, its directors require a statement to be included „ each person who accepts, and in the prospectus that each director is stated in the prospectus as (and any proposed director) takes accepting responsibility for, or for responsibility for the prospectus – any part of, the document in particular, that, having taken all reasonable care to ensure that such „ each person not falling within any is the case, the information contained of the above paragraphs who has in the prospectus is, to the best of authorised the contents or any their knowledge, in accordance with part of the document. the facts and contains no omission A person will not be held responsible likely to affect its import. for a prospectus if it is published without their knowledge or consent Publication and, on becoming aware of its An application for the admission of publication, that person immediately shares to listing must involve not only gives reasonable public notice the production and approval of a that it was published without their prospectus but also its publication knowledge or consent. on a website. Where a person accepts Prospectuses must not be circulated responsibility for part only of the publicly before they have been prospectus, for example, the approved by the FCA. Once approval accountants in respect of the short has been given, the document must form report, they are only responsible be published on a website (details of for that part and only if that part is which must be given to the FCA when included in (or substantially in) the seeking approval of the prospectus). form and context to which they have agreed. The company must also file the approved prospectus with the National Storage Mechanism.

34 Key documentation - The Official List

Pathfinder prospectus Supplemental prospectus

As part of the marketing exercise If, between approval of a prospectus it is common for the sponsor or by the FCA and the closing of the broker to want to issue a ‘pathfinder’ offer of securities to the public or prospectus with a view to identifying commencement of trading on a the appetite for the company’s regulated market, there arises or securities. In essence, the pathfinder is noted a significant new factor, will be the final version of the material mistake or inaccuracy in document, but without the final the information in the prospectus, a offer price or amount of securities supplemental prospectus containing to be offered. details of the new factor, mistake or inaccuracy must be submitted to the A pathfinder prospectus can be FCA for approval and be published. approved by the FCA (and therefore be distributed more widely) but must then disclose the criteria by which the price or number of securities will be determined or, in the case of price, the maximum price. The final price and amount of securities must then be filed with the FCA and published as soon as practicable.

35 Initial Public Offers

Key documentation – AIM

Whilst an application for securities to be admitted to the Official List requires the production of a prospectus (unless, on secondary issues, an exemption applies), an application for securities to be admitted to AIM may not.

If an offer to the public of transferable reasonably considers necessary securities falling within the scope to enable investors to form a full of the Prospectus Regulation is understanding of: not made in connection with the „ the assets and liabilities, financial AIM application, then only an AIM position, profits and losses, and ‘admission document’ is required. prospects of the applicant and Otherwise, a prospectus complying its securities for which admission with the Prospectus Regulation Rules is sought should be prepared. The prospectus requirements are set out on pages „ the rights attaching to those 28-32. securities

Once a company’s shares are „ any other matter in the admission admitted to AIM, further admissions document. of shares will not require an admission Information to be included as a result document, unless a prospectus is of this obligation is all information required, a new class of share is being which is within the knowledge of any admitted or there is a reverse takeover. person taking responsibility for the The admission document must document or which could have been include the majority of the obtained on reasonable enquiry. information required for inclusion Finally, in determining the relevance in a prospectus. In addition, of information in this context, other information (if any) must regard must be had to the nature of be included which the company securities and the issuer.

36 Key documentation – AIM

Who is responsible for an taken against the directors, admission document? in addition to any potential third party claims. Where an admission document is not a prospectus, then although it must If the admission document is in any be prepared to a standard which event a prospectus, then the issuer includes a majority, if not all, of the is responsible for the document information which would otherwise be together with all directors and those required for inclusion in a prospectus, who have agreed to become a the responsibility provisions of the director of the issuer, together with Prospectus Regulation Rules do not any other person who has authorised directly apply. the contents of any part of the admission document. The AIM Rules provide, however, that the persons responsible for the Responsibility statements information provided in the admission document are the same persons who In the same way as for a prospectus, will be responsible for the information responsibility statements appear in contained in a prospectus pursuant an admission document. to the Prospectus Regulation Rules. Publication of the The AIM Rules also impose an admission document obligation of responsibility upon all directors of the issuer and this An admission document is published responsibility is both individual by making it freely available, for at and collective. Breach of such least one month from admission. responsibility, for instance, by Insofar as the admission document publishing an admission document is also a prospectus, then it must be which contains untrue or misleading approved by the FCA, filed with the information or which otherwise does National Storage Mechanism and not comply with the additional published on a website. In any event, requirements of the AIM Rules, could the company is required under Rule result in disciplinary action being 26 of the AIM Rules to make available,

37 Initial Public Offers

free of charge, on its website, on an For these purposes, the concept of ongoing basis (among other things) ‘significant’ means significant for its most recent admission document the purpose of making an informed and for a period of five years any assessment of the assets of: prospectus it has published on or „ the assets and liabilities, financial after 3 January 2018 . position, profits and losses and prospects of the issuer Supplemental admission document „ the rights attaching to the In practice, a supplemental securities to be admitted to admission document would be trading on AIM. required in circumstances where: If the initial admission document „ there has been a significant was a prospectus, such charge change affecting any matter or inaccuracy would require the contained in the admission approval and publication of a document, or supplemental prospectus. „ a significant new matter arises, which would need to have been disclosed in the admission document, had such matter arisen when the document was being prepared, or

„ there is a significant inaccuracy in the admission document.

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39 Initial Public Offers

The UK Corporate Governance Code

The principal corporate governance guidelines for UK-listed companies are set out in the UK Corporate Governance Code (available on the FRC’s website).

The UK Corporate Governance The UK Corporate Governance Code Code applies to all companies with consists of Principles and Provisions, a Premium Listing of equity shares across five sections dealing with: regardless of whether they are „ Section 1: Leadership and purpose incorporated in the UK or elsewhere. It focusses on the application of the „ Section 2: Division of Code’s principles and reporting on responsibilities outcomes achieved. „ Section 3: Composition, The latest version of the UK succession and evaluation Corporate Governance Code places „ Section 4: Audit, risk and a greater emphasis on relationships internal control between companies, shareholders and stakeholders. It also promotes „ Section 5: Remuneration. the importance of establishing a Although the UK Corporate corporate culture that is aligned with Governance Code itself does not the company purpose and business have legal force, all companies with strategy, promotes integrity and a Premium Listing of equity shares values diversity. in the UK are required under the Listing Rules to report in their annual report and accounts on how they have applied the UK Corporate Governance Code or explain the reasons for non-compliance (the ‘comply or explain’ requirement).

40 The UK Corporate Governance Code

A company with a Standard Listing is not required to comply or explain against the UK Corporate Governance Code. However, it must publish a corporate governance statement detailing its approach to corporate governance in line with DTR 7.2 of the Disclosure Guidance and Transparency Rules. This requirement applies to both UK and overseas issuers.

The UK Corporate Governance Code focuses on the application of the Principles (how they have been applied, articulating what action has been taken and the resulting outcomes). High-quality reporting includes signposting and cross- referencing to the parts of the annual report that describe how the Principles have been applied. This should be supported by high-quality reporting on the Provisions which operate on a ‘comply or explain’ basis. Boards and companies are encouraged to use the FRC Guidance on Board Effectiveness to support their activities and help with their actions and decisions.

41 Initial Public Offers

The QCA Corporate Governance Code

The Quoted Companies Alliance (‘QCA’) represents the interests of smaller and mid-cap quoted companies outside the FTSE 350, including those quoted on AIM.

Rule 26 of the AIM Rules requires The QCA Corporate Governance AIM companies to provide on their Code sets out ten board principles website details of the corporate which focus on the medium to long governance code that they have term value for shareholders without decided to apply, and how they stifling the entrepreneurial spirit in comply with that code or, if no code which the company was created. To has been adopted, any corporate claim adoption of the QCA Corporate governance arrangements they have Governance Code, a company must decided to adopt. apply the ten principles and publish certain disclosures in recommended The QCA publishes a corporate locations (on the company’s website governance code (the ‘QCA or in the company’s annual report or Corporate Governance Code’) sometimes in both locations). which has been specifically tailored to the needs of growing companies, The ten principles are divided into particularly small and mid-size three categories which reflect quoted companies. It can, therefore, the QCA’s view of the purpose of can be a useful code for AIM corporate governance: delivering companies to adopt, as well as being growth; maintaining a dynamic a useful source of guidance for AIM management framework; and companies that wish to follow good building trust. The ten principles are: corporate governance practice. „ Establish a strategy and business model which promote long-term values for shareholders.

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„ Seek to understand and „ Communicate how the company meet shareholder needs and is governed by maintaining a expectations. dialogue with shareholders and other relevant stakeholders. „ Take into account wider stakeholder and social The QCA Corporate Governance responsibilities and their Code states that good corporate implications for long term success. governance requires having the right people (in the right roles), working „ Embed effective risk management, together, and doing the right things considering both opportunities to deliver value for shareholders as and threats, throughout the a whole over the medium to long organisation. term. The board needs to be kept „ Maintain the board as a dynamic and diverse and engender well-functioning, balanced a consistent corporate culture team led by the chair. throughout the organisation. Good corporate governance is about „ Ensure that between them the directors have the necessary ensuring that the board is set up to up-to-date experience, skills make robust decisions and manage and capabilities. risk. It is also increasingly about ensuring that a healthy culture is „ Evaluate all elements of board in place which combines a strong performance based on clear focus on performance and a sense and relevant objectives, seeking shared throughout the workforce continuous improvement. of what is acceptable and what is „ Promote a corporate culture that unacceptable in terms of behaviour. is based on sound ethical values and behaviours.

„ Maintain governance structures and processes that are fit for purpose and support good decision making by the board. 43 Initial Public Offers

Jargon

10 day announcement: smaller companies, two) members the announcement which must be who should all be independent non- made 10 business days before the executive directors. date when new securities are to be Broker or Stockbroker: admitted to AIM. the broker may also be the sponsor Admission: or Nomad. The broker will advise admission of securities to listing or on market conditions and the trading on, for instance, the Official potential demand for shares, act List or AIM. as the company’s representative to investors and be involved in decisions AIM Rules for Companies: such as marketing, pricing of rules for AIM-quoted companies securities and the timing of the issue. published by the London Stock Exchange. Cash shell: a company formed to seek AIM Rules for Nominated Advisers: acquisitions, which usually joins the rules for nominated advisers stock market with a cash pile but (‘Nomads’) in respect of AIM-quoted no actual business. Cash shells may companies, published by the London be used by other companies as a Stock Exchange. method of gaining a listing, by way Audit Committee: of a reverse takeover - the cash shell a committee of a company’s board acquires a bigger private company of directors, which considers the by issuing shares as consideration. company’s application of corporate Shareholders in the larger target reporting and risk management and company receive shares in the cash internal control principles and monitor shell and end up in control of the the auditors’ independence and merged entity, which then uses the objectivity and the effectiveness of shell company’s original listing for the audit process. The UK Corporate the merged entity. Governance Code provides that the Circular: audit committee should comprise a document posted to the holders of at least three (or in the case of securities giving notice to them of a

44 Jargon

meeting at which resolutions set out trading venue where the securities in the circular are to be proposed. are admitted to trading or national The circular provides an explanation law, during which 30 day period of the matters to be taken into directors cannot deal in the securities account when deciding how to vote of an issuer, save in certain limited on such resolutions. and exceptional circumstances. Clawback: the Code (or the Takeover Code): the right of a company to scale the City Code on Takeovers and down the number of securities Mergers. placed depending on the level Connected persons: of applications for securities an expression used in connection received from a company’s existing with the aggregation of directors’ shareholders. interests in shares to include shares Clearances: under their ‘control’. The legal applications made to HM Revenue definition appears in section 252 of and Customs for confirmation that the Companies Act 2006 and should a company’s shares will qualify be reviewed with the directors before for certain tax reliefs, such as ‘EIS’ completing the ‘directors’ interests’ or ‘VCT’. section of the prospectus. Close companies: Contract note: the announcement which must be issued to placees to confirm made 10 business days before the participation in a placing in date when new securities are to be circumstances where a placing letter admitted to AIM. is not used. Closed period: (under the Market Abuse Regulation), CREST: the period of 30 calendar days the paperless settlement system before the announcement of an which enables securities to be interim financial report or year- end evidenced otherwise than by report which the issuer is obliged to certificate and transferred otherwise make public under the rules of the than by written instrument.

45 Initial Public Offers

The system is run by Euroclear UK & EMI: Ireland Limited (formerly known as the Enterprise Management CRESTCo Limited), pursuant to the Incentive Scheme: a form of share Uncertificated Securities Regulations scheme which benefits from 2001 (SI 2001 No 3755). favourable tax status when certain conditions are met. Available to Disclosure Guidance and qualifying companies with gross Transparency Rules: consolidated assets of £30 million or the book of rules published by the less. Employees may each receive Financial Conduct Authority which options worth up to £250,000 at the relate to the disclosure and control date of grant subject to an overall of inside information and securities financial limit of £3 million of the total transactions by directors and senior market value of shares covered by employees and their connected EMI options at any time. Options persons, corporate governance granted at or above market value do reporting, periodic financial reporting not attract income tax or national and notification and dissemination of insurance on grant or exercise. information on major shareholdings and certain other matters. ESMA: the European Securities and Markets EIS: Authority, a European Union financial the Enterprise Investment Scheme: a regulatory agency and supervisory tax efficient investment under which authority, with a role of enhancing the income tax liability of the investor the protection of investors and is reduced by 30% of the sums promoting stable and orderly invested, up to the annual investment financial markets to safeguard the limit, provided the shares are held for stability of the European Union’s three years. The annual investment financial system. limit is £1 million (or £2 million, for shares issued on or after 6 April FCA: 2018, provided that anything above the Financial Conduct Authority £1 million is invested in one or more acting in its capacity as the knowledge-intensive companies). competent authority for listing for the

46 Jargon

purposes of Part VI of the Financial Investor presentation: Services and Markets Act 2000. a presentation made by the issuer to institutional investors who have been Firm placing: identified by the sponsor or Nomad a placing of shares not subject to (as the case may be) as prospective ‘clawback’. investors for a proposed issue of FSMA: securities, such as a placing. Financial Services and Markets Licensed dealers: Act 2000. the financial intermediaries who Investment Association: promote share issues to their the trade body that represents clients and may agree with the UK investment managers, created stockbroker to take an agreed by a merger of the Investment number of securities in the issue Management Association and as a sub-placee. the Investment Affairs division of Listing particulars: the Association of British Insurers for an issuer applying to admit (ABI) in 2014. The IA now covers the certain specialist securities to entire range of investment issues for the Official List, listing particulars investment managers and clients complying with chapter 4 of the and publishes investor guidelines. Listing Rules must be prepared, Investment Association principles if no prospectus is required under of remuneration: the Prospectus Regulation Rules. principles of remuneration published Listing Rules: by the Investment Association the book of rules governing the (the trade body that represents admission of securities to listing UK investment managers), which on the Official List maintained institutional shareholders expect by the FCA and providing for companies to follow in their policies certain continuing obligations and practices on executive pay and for listed companies. long term incentives.

47 Initial Public Offers

Long form report: Multiple: the report on the company prepared the number of times an issuer’s by the reporting accountants giving after tax profits are to be multiplied information on the management of to produce a value for the entire the company, track record, financial issued share capital of an issuer. reporting and other systems. This multiple is also known as a price/earnings ratio. Simply the Market capitalisation: number of years assuming the the aggregate value of an issuer’s stated after tax profits of an issuer listed securities. This is calculated that it will take before a valuation by taking the price of a company’s ascribed to the issuer is paid for listed securities and multiplying by by its earnings. the number of securities in issue. On a ‘fully diluted’ basis the market National Storage Mechanism: capitalisation would assume, the official mechanism for storing for instance, that all options and regulated information provided by warrants had been exercised and Morningstar plc as appointed by any convertible securities had the FCA. been converted. Nomad: Material contract: each applicant to AIM must appoint the prospectus or admission a nominated adviser. The LSE document will include a summary maintains a list of approved of the main terms of each contract nominated advisers. Nominated which was not entered into in the advisers must comply with the ordinary course of business (that AIM Rules for Nominated Advisers. is with a view to either generating The adviser’s role is to act as a turnover or incurring cost to facilitate sponsor to ensure the applicant turnover) in the two years prior to the is suitable to be a publicly traded date of the prospectus or admission company and also to ensure document. compliance with the AIM Rules for Companies.

48 Jargon

Nomination committee: potential investors for the shares a committee of a company’s board on offer. If a prospectus is required, of directors, which leads the process the pathfinder must contain all the for board appointments and makes requisite information, save as to recommendations to the board. price. Either the criteria by which the The UK Corporate Governance price will be set or the maximum price Code requires that a majority of must be provided. the members of the nomination Pitch or roadshow: committee should be independent a marketing presentation designed non-executive directors. to solicit interest from a potential Official List: investor in an issue of securities. the Official List of the Financial Placee: Conduct Authority. In addition a person who subscribes for shares to applying for admission of its in a placing. equity securities to the Official List, an issuer must also apply to a Placing: recognised investment exchange an issue of securities on the basis for the securities to be admitted to that they are restricted to clients trading on a regulated market for of the sponsor or other financial listed securities (eg the London Stock institution assisting in the placing. Exchange Main Market or the NEX Placing agreement: Exchange Main Board). the contractual terms and conditions Pathfinder board meeting: pursuant to which a stockbroker or a board meeting of the issuer to other financial institution undertakes verify and approve the pathfinder a placing of shares. prospectus. Placing letter: Pathfinder prospectus: the offer letter sent out to interested a preliminary offering document or investors by a broker or other draft prospectus which is used to financial institution responsible for assess the level of demand from a placing.

49 Initial Public Offers

Pre-Emption Group Statement position and profit and loss and/ of Principles: or earnings per share following, for Voluntary guidelines produced example, a share issue used to fund by the Pre-Emption Group, an acquisition. whose members represent listed Profit forecast: companies, investment institutions an estimate by the company on and intermediaries. The Pre-Emption the basis of certain assumptions, Group publishes guidance on the of its after tax profits to the end of disapplication of pre-emption rights an issuer’s current financial period. and monitors and reports on how this As to what constitutes a profit guidance is applied. The Statement forecast, the definition set out in the of Principles relates to issues of Commission Delegated Regulation equity securities for cash other than on Prospectuses (EU) 2019/980 as it on a pro rata basis, setting out the applies in England and Wales from extent to which disapplications of time to time after 31 December pre-emption rights are acceptable. 2020 has been replicated in the They apply to all listed companies, Listing Rules. It is defined as a form irrespective of whether they have of words which expressly states or institutional shareholders. by implication indicates a figure or minimum or maximum level of likely Premium Listing: profits or losses for the current or a listing on the Premium Segment future financial period(s) or contains of the Official List. Issuers seeking a data from which a calculation of Premium Listing must satisfy more such a figure can be made, even if onerous admission and continuing no particular figure is mentioned, obligation requirements, as opposed and the word ‘profit’ is not used. This to the minimum requirements for a contrasts with a ‘profit estimate’, Standard Listing. which is a profit forecast for a Pro-forma statement: financial period which has expired usually a balance sheet produced and for which results have not yet to show the resulting balance sheet been published. Depending on the

50 Jargon

circumstances, a forecast of earnings Quiet or blackout period: per share and revenue figures (if they a period during which investment allow a calculation of profit) may research upon the issuer may be viewed by the FCA as a profit not be issued by investment firms forecast, as also is a statement connected with the transaction. of performance against market Main Market IPOs now have the expectations (if there is a clear additional restriction that connected market consensus of expectation research may not be released until that allows a calculation of a floor at least seven days have passed or ceiling on forecast profits). after publication of an approved prospectus unless unconnected Prospectus: analysts are offered access to the the document which must be issuer’s management alongside published, under the Prospectus connected analysts, in which case Regulation and Part VI of the connected research may be released Financial Services and Markets Act from one day after publication of the 2000, by a company which is making prospectus. an offer to the public or seeking admission of its securities to trading Registrars: on a regulated market (such as the the registrars maintain the issuer’s Main Market), unless an exemption share register and issue share applies. Such document will include certificates where shares are still held the information required under the in certificated form. Prospectus Regulation Rules, which Remuneration committee: apply whether the applicant seeks a committee of a company’s to join the Official List or AIM. board of directors, which develops Prospectus Regulation Rules: the company policy on executive the book of rules published by remuneration and fixes the the Financial Conduct Authority remuneration packages of individual governing prospectuses: when they directors. The UK Corporate are required, their content and the Governance Code requires that the procedure for their approval. remuneration committee comprises 51 Initial Public Offers

at least three (or, in the case of small Reverse takeover: companies, two) members, who the acquisition of a larger company should all be independent non- by a quoted or listed company. executive directors. Such transactions are often structured as a share-for-share Reporting accountants: exchange and, as a result, the the sponsor will ask a firm of shareholders of the acquired accountants to produce a long form company become the dominant report on the company and a short shareholders in the listed company. form report which is reproduced Note in this context the application in the prospectus or admission of the Takeover Code and, document. The long form report is in particular, the ‘whitewash’ used by the sponsor to confirm that procedures in appendix 1 to the the company is suitable for listing. Takeover Code which dis-apply Reserved matters: the application of the Code in matters specified in a shareholders’ certain situations, for example, agreement or joint venture agreement reverse takeovers. as requiring the prior approval of Rights issue: certain specific shareholders or the the issue of shares to existing holders of a certain percentage of shareholders on a proportionate the share capital. basis usually on preferential terms, Responsibility statement: for example, a discount often more a statement in a prospectus, than 10% to the current share price. admission document or other The rights are offered by way of a communication to shareholders, provisional allotment letter or ‘PAL’ for in which the persons taking which a trading facility is established. responsibility for the document Shareholders not wishing to take up (usually the company’s directors) all or some of their allocation of new confirm that they accept shares may sell their rights. responsibility for the accuracy of the document.

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Section 551 authority: Short form: directors of an issuer can only the reporting accountants’ allot shares or rights to subscribe report which is reproduced in the for or convert into shares in an prospectus and which reviews the issuer with the authority of a accounts for the published ‘track majority of shareholders in a record’ of the issuer. general meeting or by way of the Slides: issuer’s articles of association. as used in the investor presentation Section 561 dis-application: and which are the subject of the requirements, to issue new equity verification. securities on a proportionate basis Sponsor: to existing shareholders on new every applicant for a listing must issues (shareholders’ pre-emption have a sponsor to handle the right) is set out in section 561 of the administrative aspects of the Companies Act 2006. In certain application and to take responsibility circumstances, this right can be for promoting the applicant and dis-applied under the provisions of ensuring its directors are aware of the Act. This dis-application requires their responsibilities. On AIM, this either the passing of a special adviser is known instead as the resolution of shareholders or sanction ‘nominated adviser’ (or ‘Nomad’) and in the articles of association of on the NEX Exchange markets as the the company. ‘corporate adviser’. Share Capital Management Standard Listing: Guidelines (previously known a listing on the Standard Segment as the ABI Guidelines): of the Official List. Issuers seeking a set of best practice statements a Standard Listing must satisfy the issued by the Investment Association, minimum requirements regarding designed, among other things, to admission to the Official List and protect institutional shareholders continuing obligations. from dilution.

53 Initial Public Offers

techMARK and techMARK The UK Corporate Governance Code: mediscience: the UK Corporate Governance Code specially developed Segments of sets out standards of good practice the Main Market of the London Stock in relation to issues such as board Exchange , designed for companies composition and development, whose business is dependent on remuneration, accountability and innovative technology or innovation audit and relations with shareholders. in the development or manufacture All companies which have a Premium of pharmaceuticals or products Listing on the Official List are required or services dedicated to the to report on how they have applied healthcare industry. the UK Corporate Governance Code in their annual report and accounts. Track record: All companies with a Standard it is a condition of an entity’s shares Listing on the Official List and all AIM (or securities convertible into shares) companies are required to report being admitted to listing on the which corporate governance code Official List that it can demonstrate they have adopted and report a three year trading track record against that code, which could be in respect of which published the UK Corporate Governance Code audited accounts have been filed. or a different code. In accordance with the Listing Rules, this requirement does not apply Whitewash: to mining companies (paragraph in certain circumstances, the 6.1.8R of the Listing Rules) or application of the Takeover Code to scientific research based companies a transaction can be suspended. In (paragraph 6.1.11R of the Listing Rules). such circumstances, a procedure will The track record for AIM can be need to be followed to ensure that short, being whatever track record shareholders appreciate the nature the entity applying for the quotation of the transaction and its impact can demonstrate. Indeed, a start-up upon them. company could be admitted to either market.

54 Jargon

Working capital report: VCT: a memorandum produced by the a venture capital trust which can reporting accountants addressed invest up to £1 million in a qualifying to the directors of the company company. Qualification depends advising whether, on the basis of on several factors including the certain assumptions including, nature of the business of the investee for instance, continued access to company. banking facilities and, if relevant, Verification: the proceeds of the proposed issue the process by which documents of securities, the entity has available produced on a share issue (or sufficient cash to finance its business documents to shareholders such (including any proposed business as circulars and offer documents) activities) for, say, the next 12 months are checked to ensure that the being the regulatory requirement, contents are accurate, true and not albeit that a sponsor or Nomad may misleading. The directors must verify for ‘best practice’ reasons require a the accuracy of the statements in longer period. the documents in order to avoid any Working capital statement: potential civil or criminal liability. the paragraph included in a prospectus or circular in which the directors of the issuer confirm that there is sufficient working capital to meet the issuer’s requirements for the following 12 months (or other period required by the sponsor or Nomad).

55 Initial Public Offers

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56 About us

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