Overview of Listing Process
Overview of Listing Process
This article is intended to give the reader a short summary of what a company can expect when embarking on the process of seeking admission to AIM. It is not intended to be exhaustive and all transactions are different and have their own characteristics and quirks. There is frequently a significant under estimation by directors of the time required to complete the process, their input into it and strain on a company’s resources when trying to achieve a listing. We hope this article may help when planning the process within the company and in allocating resource appropriately. Readers should also note that key processes will be running in parallel: mainly due diligence, drafting the admission document and negotiating the key transaction documentation.
ONE can help companies prepare for listing to ensure the process is as smooth as possible.
Timetable
Gaining admission to AIM can be a lengthy process. A reasonably quick timetable would take between 12-16 weeks from start to finish but more often than not, it will take longer. The length of the timetable will be determined by a number of factors notably the size and complexity of the group and its arrangements and the speed with which it is able to supply all required information. If the due diligence exercise reveal matters which need to be tidied up or if it is felt that the company needs to achieve certain commercial goals (such as closing a specific contract) prior to float then this can add significantly to the timetable.
Appointing advisers
Once a company has taken a decision to proceed with seeking admission to AIM, the first step is to appoint advisers. A company will need the following advisers at the outset:
a nominated adviser (“Nomad“);
a broker (who may be the same as the Nomad or may be more than one firm);
UK lawyers to the Company;
reporting accountants; and
if it is a resources company and a recent report is not available, a “Competent Person”.
The following advisers will also get involved but possibly a little later in the process:
Nomad’s lawyers;
overseas counsel to the Company (if there are any overseas elements);
overseas counsel to the Nomad (in the event of a proposal to market overseas); and
PR advisers.
The Company will also need to appoint a Registrar to administer the Company’s shares once they are admitted. Companies should be aware that they will be responsible for paying all these advisers, including the Nomad’s counsel and should note that fees and costs will still be payable in the event that the float does not proceed to conclusion (even though abort positions may be agreed with some advisers). Companies should be comfortable that they are able to meet these costs should the transaction be terminated. All advisers are likely to produce an engagement letter and the Company should ask its lawyers to review these.
What the advisers do
Nomad: The Nomad is responsible for guiding the Company through the AIM Rules and admission requirements. They will also have to sign off to the London Stock Exchange (the “Exchange“) that the Company and its securities (i.e. its shares) are suitable to be admitted, which means, among other things, that they will have to investigate the commercial, legal and financial health of the Company and be satisfied with the suitability of its management. They often (but not always) take responsibility for running the Admission Document drafting and help with the Company’s presentation to investors.
Broker: The Broker will place the stock in any fundraising being carried out in conjunction with the admission and advise on marketing strategy. They may also produce research before the marketing commences.
UK lawyers: The UK lawyers for the Company will advise on engagement letters, conduct due diligence on the Company and its group, help the Company remedy any problems, assist in compiling and verifying the Admission Document, negotiate the transaction and post transaction documentation, coordinate foreign legal advice, produce the necessary corporate documentation (e.g. board minutes and filings although this may need to be done by overseas counsel if the listing vehicle is overseas) and advise, if required, on share incentive programmes and service contracts.
Reporting Accountants (“RA”): The RA are required to report on four key workstreams.
(i) The AIM Rules require certain historical financial information (“HFI”), usually three years of annual results, to be included in the Admission Document. The RA effectively “sign off” on the HFI which must be produced by the Company under international financial reporting standards (“IFRS”) and may well result in a change to the company’s previously reported turnover, profit/loss or assets of the Company. This is a key workstream that ONE Advisory performs for the company as the RA is conflicted.
(ii) In addition, the RA will also conduct financial due diligence on the Company and its group and produce a long form report of its findings for the Nomad.
(iii) They will also produce a working capital report on the company (“WCR”) in relation to the working capital statement which is required to be given in the Admission Document i.e. that the Company has enough working capital to see it through the first year. In practice, Nomads will want to see the WCR cover an additional period beyond the first 12 months post admission, typically 18 months to two years in total. The WCR prepared by the RA is based upon an integrated financial forecast prepared by the Company (P&L, Balance Sheet and Cashflow fully integrated) which is required to include downside sensitivities. ONE Advisory is able to assist and advise management on preparation of the WCR and can provide template financial models, as necessary.
(iv) The final document required is the Financial Position and Prospects Procedures memo (“FPPP”), a lengthy and relatively complex document that sets out the Company’s key financial controls and policies, as well we corporate governance and compliance policies required of an AIM Company. The RA will report to the Nomad on the adequacy of the Company’s FPPP, but the RA itself is conflicted from assisting in the drafting of the FPPP. ONE Advisory are experts at drafting FPPP for AIM companies and will draft the document and accompanying appendices from cover to cover on behalf of the company.
Competent Person: For resources companies (mining, oil & gas), a “Competent Person” is required to produce a Competent Person’s Report on the Company’s resources which will be included in the Admission Document.
Nomad’s lawyers: The Nomad’s UK lawyers are primarily responsible for advising the Nomad on its placing, nomad and broker agreements but they will commonly “sit on the shoulder” of the Company’s lawyers overseeing the process, documentation and the due diligence and raising queries and seeking additional comforts where they consider it appropriate given the Nomad’s responsibility for signing off to the Exchange on the Company’s suitability for admission.
Company overseas counsel: If the Company is non-UK and/or has business overseas, then local counsel will be required to feed in to the due diligence and verification processes and provide appropriate legal opinions on, amongst other things, the good standing of overseas incorporated entities and key assets. They may also need to feed into transaction and structuring documentation to ensure that it works within the jurisdiction of the entity entering into it.
Nomad overseas counsel: If marketing is to be conducted overseas, the Nomad will retain counsel to ensure that the offering is being conducted in accordance with local legal requirements and that appropriate disclaimers are included in the documentation. Local counsel will also feed into the placing letters which are eventually sent to overseas placees to ensure that the proper assurances are obtained and local law complied with. Sometimes a Nomad may wish to retain its own counsel to oversee the local counsel acting for the Company on substantive matters.
PR advisers: PR advisers help with getting the Company’s story across and deal with the press.
First steps
We strongly recommend that, before embarking on the listing process, companies take a little time (or at least start the process) to ensure that they can readily access all contracts which are important to the business (wherever they are held in the group structure, including supply contracts, customer contracts, maintenance agreements, consultancy agreements etc whether now or in the last two years), all the company books and records of the group, all licences, certificates and other official documents required to conduct the business, all property documentation, directors’ service agreements, any share option agreements or schemes, any shareholders’ agreements, joint venture agreements, option agreements, employee information, health and safety records, insurance documentation, financing documentation and any litigation information and information on regulatory and tax matters. The Company’s lawyers will provide a due diligence questionnaire which asks for all these things and a lot more, and the more easily and quickly the Company is able to supply the requested documentation (in good shape) and information, the quicker matters will move along. The due diligence phase will often turn up issues that require remedy before the float can take place. For example, there are often problems with the company books, incomplete (unsigned) documents, contracts which require consent to be disclosed and restrictions on activities imposed by loan documentation.
While the lawyers are conducting the legal due diligence, the RA will also be conducting the financial due diligence, reviewing the HFI prepared by the Company (or ONE Advisory), the financial model from which they will be pulling together the working capital report and reviewing the FPPP. Again, these can be very time consuming and involved processes and the accountants in particular will need to spend considerable time with the management. An audit may also be going on for the most recent financial year end. The Company should discuss with the RA how the work should be planned at the outset and agree responsibilities within the team.
The Admission Document
The Admission Document, which is frequently (but not always accurately) referred to as the Prospectus, is the document which the Company is required to draw up in accordance with the requirements of the AIM Rules (and the AIM Guidance for Mining, Oil & Gas Companies if applicable). If the document is also a Prospectus, then there are other requirements but we do not propose to deal with those here as public offers are relatively uncommon on AIM.
The AIM Rules prescribe a set of information for disclosure including financial information, corporate information, substantial shareholders, information on the Directors, material contracts, risk factors applicable to the Company and so on. There is also a general sweeper which states that, in addition to the specific disclosure requirements, a Company must include:
“any other information which it reasonably considers necessary to enable investors to form a full understanding of:
1. the assets and liabilities, financial position, profits and losses, and prospects of the applicant and its securities for which admission is being sought;
2. the rights attaching to those securities; and
3. any other matter contained in the admission document.”
In addition to the Company, each of the Directors of the Company is required to accept responsibility for the information set out in the Admission Document, including responsibility for compliance with the AIM Rules. There is no dispensation for non-executive Directors from this requirement. The Nomad should review the board structure at an initial stage as it is sometimes the case that the non-executive element needs to be strengthened. As any non-exec coming on board in time for the float will need to get comfortable with the Company and the Admission Document given his own responsibility for it, it should be appreciated that they will need proper time to do this.
The Company’s lawyers and Nomad should advise on content requirements and assist the Company with the drafting. Assuming no Competent Person’s Report is required, there are generally four main sections in an Admission Document. These are:
1. information on the Company (and group) – this is the “front end” of the document and where the key messages and story are contained. It will usually also cover some key points of interest such as corporate governance, share option schemes, dividend policy etc. Sometimes a distilled “key information” section is included at the beginning as well. These sections tend to be drafted primarily by the Company with assistance from the Nomad;
2. risk factors – this sets out the risk factors which affect the business which will include generic factors (e.g. natural disaster, pandemics, changes in tax regimes etc) and those specifically relevant to the Company (e.g. specific country risk, supplier risk, dependence on key personnel, IT risks, contracts in progress not being finally signed etc);
3. Historical financial information and accountants’ reports – this information is put together by the Company (or ONE Advisory) and the reporting accountants; and
4. the “back end” – this section contains a lot of the detailed information required under the AIM Rules including the Company’s share structure, corporate information, substantial shareholdings, Directors’ shareholdings and so on. The Company’s lawyers will provide a lot of the assistance required to bring this information together.
Verification
Verification is the process by which the information in the Admission Document is “tested” to help ensure its accuracy and is an important process in helping the Directors to become comfortable for the purpose of taking responsibility for the Admission Document. It is nominally undertaken by the Directors but the Company’s lawyers will assist in compiling the evidence. Essentially this process involves finding independent evidence to back up statements made by the Company in the Admission Document and usually takes the form of a series of questions testing those statements and prepared by the Company’s lawyers. The process will not necessarily manage to identify any material omissions and is not a substitute for a critical review of the document by all the Directors. The process will start only when the Admission Document is nearing its final form and can be time consuming at a time when a lot of other things in the overall process are nearing conclusion and demanding of people’s time.
It is worth bearing in mind the verification process when drafting the original document. Making overblown or optimistic statements about the Company’s prospects as if they are hard facts is not going to get through this test and potentially expose the Directors to additional risk. The golden rule is that the Admission Document should not make any promises that the Company cannot substantiate.
The Presentation
The marketing presentation will generally be put together when the Admission Document is getting into good shape. This is the document that the management will speak to when making their presentations to prospective investors during the marketing roadshow. The key thing to remember when putting this together is – if it is material enough to be in the presentation, it also must be in the Admission Document. It is not acceptable to give potential investors different or supplementary information to the rest of the market.
Directors may be given presentation training by the PR advisers and an opportunity for a “dry run” before the Broker’s sales team.
Transaction and other documentation
While all of the above is going on, there will also be contractual documentation to pull together and agree. This will primarily be the responsibility of the Company’s and Nomad’s lawyers but will require significant input from the Company and the Nomad. In particular, it is worth remembering that the placing agreement and lock-in arrangements will personally affect the Directors so some consideration should be given to key principles at a reasonably early stage. For example, invariably on a float, the Broker will ask for warranties from the Company and each of the Directors in the placing agreement but they may accept a lesser set of warranties from non-execs or varied caps on liabilities from Directors. Unless AIM Rule 7 (mandatory lock-ins) applies, there is also scope for some negotiation of the lock-in period and exceptions. Nomad and Broker agreements for the post-float period will also be required.
Generally, the Directors will also be asked to provide responsibility letters and powers of attorney. New service agreements or appointment letters for the Directors, new share incentive plans and corporate governance committee terms of reference may also be required. If there is any restructuring to be done (e.g. putting in a new holding company) this will also need to be documented properly. Obviously, therefore, there is a lot of paper flying around all at once and some thought should be given to who will liaise with the lawyers to provide instructions, and how the Company and Directors will operate a process at their end to ensure that interested parties are duly consulted.
The company will be required to adopt an appropriate corporate governance code at admission. ONE Advisory can advise the company and its directors on the most appropriate code to adopt, prepare and implement tailored policies for the company. AIM companies have to comply with the Market Abuse Regime (“MAR”) and ONE Advisory can prepare the required policies and procedures to ensure a company is compliant from float as well as advise on compliance with ongoing obligations.
Research
If the Broker is putting out pre-float research, then the Directors should expect to spend time with the analyst who will pull the document together. The Broker will need at least 2 weeks (and very possibly more depending on their in-house policies) between publication of the research and the start of marketing and a month between publication of the research and admission.
Pathfinder
The “Pathfinder” board meeting is the pre-marketing board meeting where all the documentation should be settled and agreed (or at least not have any serious issues outstanding) and the Board will be expected to sign off on the draft documentation, including the Pathfinder Admission Document (which should be the Admission Document in its final form (and fully verified) but with blanks for e.g. the offer price). All the Directors should attend if at all possible. It is also an opportunity to remind the Directors of their responsibilities.
Marketing
Following a successful pathfinder meeting, the marketing can start during which the Directors (or a team of them) will be asked to present the Company to potential investors. Potential investors will also usually be provided with a copy of the Pathfinder Admission Document. Marketing methods may change from country to country depending on local legal requirements. It is likely that the Broker’s sales team will have to book in appointments with prospective investors ahead of pathfinder and so it is important that, when this is being done, the Directors are confident that there should be no reason for the pathfinder to be delayed. Meetings can be rearranged but it can be embarrassing to the process and should be avoided if possible.
During this period, any minor matters which need to be settled on the other documentation can be finalised.
Completion
This is the end of the process. There is another board meeting where, assuming all remains well, the pricing and allocation of stock is finalised and all the documentation is signed up. Then the Admission Document is published, the application is made to the Exchange and all the placing commitments are made firm. The Company will be admitted a few days later and start trading.
And that should be that.
As part of a company’s in-house IPO team, and drawing on the experience of our corporate financiers, ex-nomads, qualified accountants and corporate lawyers, all of whom are vastly experienced with the legal, financial and corporate finance aspects of the IPO process, ONE provides valuable assistance by:
project managing the IPO process from the company’s perspective, including anticipating and responding to, in consultation with the company, issues raised by advisers;
Preparing the HFI under IFRS;
Drafting the FPPP;
Preparing the integrated financial forecast model for the company to enable it to be reported on by the RA;
acting as sounding board for management throughout the IPO process and streamlining communication with advisers;
advising on, drafting and implementing an appropriate corporate governance framework, including adherence to MAR;
responding to questions raised, and obtaining documentation sought, in relation to legal and financial due diligence; and
assisting companies with compiling information for the AIM Admission Document;
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For further information contact Matt Wood on 020 7583 8304 or email to Matt.Wood@oneadvisory.london
ONE Advisory Group does not provide legal advice. This note does not constitute and should not be construed as legal advice. Specific legal or other appropriate professional advice should be taken before acting on any of the topics covered