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To IPO We Go Ment engaged for many months, including periods of high intensity, and it is critical they can work well with each other and the company. The investment bank acts as the quarterback for the IPO, advising on execution, valuation and pricing, as well as marketing the offering to potential investors. banks will often act as a sponsor, providing a link between the company and the relevant stock exchange. In many IPOs, the same investment bank or banks underwrite the offering, taking up shares that | IN-HOUSE PREPARING FOR IPO are not bought by investors on launch. Account- ants will be involved in preparing public and private reports relating to the IPO-offering document, performing financial due diligence and providing advice statement which is often required to be included in the offering docu- To IPO we go ment. They will also ensure that the company has effective financial reporting procedures. The ‘Going public’ can be beneficial for a private company looking to develop, company’s legal advisers will play a key role, but the road to success presents many challenges say Andrew Tarbuck not only in drafting the offering document and and Oliver Simpson other documents needed, but also in advising on any pre-IPO restructuring and on applica- peculation continues that the Middle IPO process can be offset by efficient project ble securities laws in jurisdictions into which East initial public offering (IPO) management, for example, appointing an IPO the offer will be made. An IPO team will also market will awaken over the second committee, and appointing the right team of require the involvement of financial PR advisers, half of 2010. There are promising advisers. Issuers must be fully committed to who will take the lead on strategic and tactical Ssigns that this has already started, both in the IPO and make resources available for the communications, preparation of press releases the GCC and further afield. smooth running of both the business and the (often working with the lawyers) and engaging An IPO is more than a one-off capital raising IPO throughout the process. A united board, with the press and media. depending on the exercise. It is a major milestone in the life of any unanimously approving a listing as the appropri- market, it may be imperative to have advisers company, and one that necessitates fundamental ate course for the company, having considered with Arabic language capability. In all regional and lasting changes to the corporate mindset other capital-raising possibilities, is critical. markets, it is hugely advantageous to have of the company’s directors and shareholders. advisers who are well known and regarded by In the Middle East, a hitherto private compa- the local securities regulator and other relevant ny’s transition on listing into a world of “ThE IPO process official bodies. increased publicity, scrutiny and disclosure, ShOuld bE considered A lot of focus is often given to the advisory and a potential minefield of ongoing compli- An Endurance EvEnT team, but it is important to note that it is the ance and corporate governance requirements rather ThAn A sprinT. company’s IPO, the company’s team and the presents particular challenges. IT will InEvitably company which are the drivers behind the dIvert significanT transaction, not the advisers. A successful issuer PLANNING AHEAD, STARTING EARLY will be pro-active and take the lead in driving From the initial decision to float to the day of managemenT time the IPO process forward and ensuring the admission to trading, an IPO takes time to away from managinG advisers are kept informed; the role of an IPO complete – usually six to nine months, but some- ThE business” committee and appointment of an external IPO times longer. Planning ahead and starting work liaison is recommended. Potential investors will early are crucial. Equally important is allowing management also needs to be confident of the be particularly interested in the senior manage- flexibility and reacting effectively to changes equity story that the company will market to ment of the issuer which should have a blend in circumstances. A company should target a potential investors. “Why should an investor of talent and experience (industry sector and two- to three-month window during which it buy our shares?” is a question directors should listed company experience being particularly aims to list. In the Middle East, particular regard constantly ask. potent) to attend roadshows, conduct media should be had to the effects, in terms of time interviews and generally bring dynamism to management and market conditions, experienced GETTING THE RIGHT TEAM IN PLACE the IPO process. Continuity is essential and any during summer and Ramadan. The core advisory team for an IPO includes senior management changes should be done as The IPO process should be considered an investment banks, accountants, legal and PR soon as possible so they have some track record endurance event rather than a sprint. It will advisers. Getting the team in place is more at the time of the IPO. Senior to the company inevitably divert significant time away from than a matter of agreeing fees and negotiat- on IFRS compliance and the working capital managing the business. The opportunity cost ing engagement letters. It is also crucial that management changes immediately prior to the of management time being devoted to the the right chemistry is there. The team will be IPO can be viewed as destabilising. Corporate 32 THEBRIEF JULY10 www.thebriefonline.com TB043_32-34_in house.indd 32 7/13/10 2:55:23 PM of accountability to family members. Each exchange or regulator will have its own corporate governance requirements but international best practice is a blend of recom- mendations from public or quasi-public bodies, middle-ground “comply or explain” provisions and strict legal or regulatory requirements, particular to that jurisdiction. Invariably, potential issuers need to adopt a formal board structure with clear lines of responsibility leading downwards from the board through senior and middle management into the opera- tional areas of the business, and clear and well documented reporting lines in the opposite direction, with a view to keeping the board appraised of significant developments at every level in the group. THERE IS A The board of directors will need to comprise DAUNTING ARRAY OF REGIONAL AND a balance of executive directors and independ- INTERNATIONAL ent non-executives (nEds). In the GCC region, STOCK EXCHANGES TO CHOOSE FROM in practice, finding nEds with the requisite experience who meet the test of being truly governance requirements may also necessitate efficient settlement procedures. The decision independent can be difficult. In the uAE, for changes to senior management. on which exchange to select will also depend on example, foreign ownership restrictions require market considerations. An IPO candidate will that the chairman and a majority of the board CHOOSING AN EXCHANGE typically prefer to list on a market that is close of directors of a public joint stock company be At first blush, there is a daunting array of to its geographic target audience, has sufficient uAE nationals. Given the small pool of avail- regional and international stock exchanges to liquidity and ideally already hosts other listed able uAE national directors and the extensive choose from. however, not all exchanges are companies from the same or similar sectors web of family, social and business relationships appropriate for, or even open to, all companies. against which the company can benchmark. between them, the task of finding and engag- Selecting the right exchange on which to list ing truly independent nEds with the requisite is crucial, and will require consideration of a GETTING THE FINANCES IN ORDER skills is not easy. number of factors. These include the relevant Many exchanges require issuers to have a The company will also need to establish exchange’s admission criteria, including its trading track record; often at least three finan- formal board committees, which should be market capitalisation and free float (being the cial years. For the period between the latest populated by nEds and not by executive direc- proportion of the company’s shares that must be financial year-end and the date of launching tors. These committees will likely comprise in public hands) requirements. More developed the IPO, much debate is often had about the an audit committee, a nomination committee markets have senior and junior exchanges aimed need or otherwise to publish interim financial and a remuneration committee. In turn, the at companies of different sizes or in different statements. The majority of exchanges require board committees will need to be supported by stages of their development. An example of this financial information to be prepared in accord- appropriately staffed and trained administra- is the london market, with the london Stock ance with IFRS, together with an unqualified tive functions within the company. Exchange’s main market listing the largest opinion from the accountants as to the pres- It is important that this corporate govern- public companies and AIM and PLUS markets entation of the financial information in the ance “ecosystem” is introduced as organically hosting a wide range of smaller to medium-sized offering document. For a previously privately as possible – ideally by complimenting existing issuers. different exchanges also have different held company, which may not be accustomed structures and practices. It is important the requirements as to the financial track record to reporting publicly its consolidated group board committees and other such checks and for companies coming to list. Some exchanges financial information in line with IFRS, the balances are not viewed as an internal police focus on issuers from particular industry sectors move to a formal set of financial information force, but rather as helping to enhance share- (such as mining or high-tech) and have specific will be a significant change.
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