Andrew Peddie, corporate partner in Gateley plc’s Reading office, summarises the key aspects of an IPO and what businesses considering it as an alternative to sale or other fundraising options should know before taking the plunge.
Companies that are able to demonstrate high-quality management, good corporate governance and growth prospects in the right sectors, might look towards an Initial Public Offering (IPO) as a way to access growth capital, as opposed to a sale or other fundraising options.
An IPO is a major step for a business to take but in the Thames Valley, we have more than 50 businesses that are currently listed on the Alternative Investment Market (AIM), the London Stock Exchange’s international market for smaller growing companies. Described as the most successful growth market in the world, since its launch in 1995 AIM has seen more than £98 billion raised by more than 3,600 companies. In 2016, there were 38 IPOs on the AIM market, achieving an aggregated valuation of £699 million. Could it be the right option for your business?
At a time when companies are increasingly considering IPOs, it is important to stress the planning that is required in the months, and sometimes years, before listing. If you can get this part right, the process will be much easier and the chance of its success increased. Preparation for an IPO is crucial in ensuring that there are no surprises when it comes to taking the step of putting the business in front of potential investors and that the business is ready for life as a listed company.
Appointing experienced advisers that have taken companies through an IPO process is key – there are no substitutes for advisers with a great track record. On an AIM IPO, this includes choosing the right nominated adviser (NOMAD) and broker, auditors and/or reporting accountants, financial PR consultants, and of course, lawyers.
It also means building a strong, experienced management team, appointing independent directors who can add value in the boardroom and a strong chairman to steer the business in the right direction. Key customer contracts must also be in place and be robust, alongside regulatory consents and approval processes, with key staff on proper contracts and intellectual property protected.
Financially, the IPO process will include a detailed review of historic accounts and conversion to International Financial Reporting Standards. Preparation for this should ensure that the accounts will withstand such scrutiny and pass the test, with your accounting systems robust enough to survive life as a plc. Time well spent in the preparation phase can be time saved when the pressure is really on in the three to four months of an IPO timetable.
At Gateley plc, we have a unique and personal perspective on this experience, having become the first publicly quoted UK law firm in June 2015. We have lived through the commercial and practical challenges that companies face, and the stresses that it can place on resource and key management, first-hand.
Experiencing the process from the inside gives us a unique insight; not only have we worked with both clients and financial advisers on IPOs for many years, we have gone through this ourselves. No other law firm can add that practical, commercial experience to the legal advice it gives to its clients. As such, our capital markets team is perfectly placed to help companies navigate these waters, providing legal advice delivered from the perspective of first-hand practical experience.
The team has been very active in recent months, advising on two of the first IPOs to complete after the Brexit vote last June, and is mandated on several other IPOs at present, working with a number of different NOMADs and brokers. There is no doubt that despite the uncertainties around Brexit and the global economy, the UK capital markets are open and investors have an appetite to support the right businesses. Is now the right time for your business to consider this step?