HOW TO MAKE THE IPO PROCESS WORK Adam Fenner, Partner.

HOW TO MAKE THE IPO PROCESS WORK

Adam Fenner, Partner

www.olswang.com2

OLSWANG

• Leading business law firm, headquartered in London

• 4 European offices

• 25 affiliate offices in USA

• More than 50 LSE / AIM quoted clients

• 2006 / 2007: 120 deals

> $30 billion

• Dedicated Israel team: technology, media, telecoms, healthcare, real estate

www.olswang.com3

Agenda

1 Timetable

2 10 key IPO challenge areas

3 Opportunities in challenging markets

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IPO Process and Timetable

Stage 1 Negotiation of agreements for the engagement of the nominated adviser and broker, reporting accountant and registrars

Stage 2 Review corporate structure with key advisers

Stage 3 Legal accounting and due diligence

Stage 4 Preparation of the admission document

Stage 5 Senior executive and employment arrangements and terms of appointment for non-executive directors

Stage 6 Negotiation of placing agreement

Stage 7 Verification

Stage 8 Advising on directors' responsibilities and potential liabilities, corporate governance and continuing obligations

Stage 9 Pathfinder board meeting

Stage 10 Marketing roadshow

Stage 11 Impact board meeting

Stage 12 Admission

Proposed impact date

Flo

tation

pro

ces

s an

d tim

es

cales

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10 Key IPO Challenge Areas

• “Quoted Companies Alliance” Corporate Governance Guidelines: “London IPOs – A Practical Guide for International Companies”

• International Working Group

• Market professionals

• Non-executive directors

• Exchange representatives

• Best practice: IPO process and post IPO

: 30 guidance principles

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LENGTHEN

CANCEL

UNDERMINE

X

X

X

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ASSIST

PROTECT

ENHANCE


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IPO Process

• Timing

• Resource, due diligence and documentation *

• Marketing the IPO *

• Dialogue with advisers *

• Board structure *

• Capital structure *

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Resource, Due Diligence and Documentation

Management Resource:

• Decision taking

• Valuation

• Reorganisation

• Negotiations

• Documentation

• High quality team

• Quality documents

• Advance Preparation/ Homework

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Dialogue with Advisers

• Open, co-operative, responsive

• Consensus

• Anticipate

• Material contracts

• Debt arrangements

• Negotiations

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Capital Structure

• Keep it simple

• One class

• Anti-dilution protection

• 10% limit on options

• No option discounts on IPO

• Special/veto rights = red flag to new investors

• Takeover tag along

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Board Structure

• Effective, committed, experienced management team with CEO and CFO

• Combined Code on Corporate Governance/QCA corporate governance guidelines

• Two independent non-executive directors

• Early appointment

• Terms for executives’ employment contracts

• notice periods

• options

“Without an effective board, the best business will remain unfunded by sophisticated investors”

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Post IPO

• Corporate governance and the role of and relationship with non-executive directors *

• Continuing obligations and dialogue with advisers *

• Managing market expectations/communicating with the market *

• Role of CFO *

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Corporate Governance and Non-Executive Directors

• Good corporate governance practices are key

• Combined Code/QCA guidance

• Not merely box ticking

• Independent non-executive directors

• Audit, nomination and remuneration committees

• Attend all board meetings

• Access to board papers

• Annual refresh session

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Continuing Obligations and Dialogue with Advisers

• Notify market of price sensitive information:

• Financial condition

• Sphere of activity

• Business expectation of its performance

• Don’t sit on bad (or good!) news

• Primary point of contact with advisers to discuss all proposals and developments

• Other continuing obligations including dealing restrictions and substantial transactions

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Managing Market Expectations

• Prospectus

• Research note – discuss post IPO coverage with broker

• “Under promise, over deliver”

• Commit to strategy

• Develop annual programme of market contact - six monthly reporting calendar and AGM

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Role of CFO

• Long form/short form reports

• Financial model

• Project manager in the company

• Detailed knowledge of income streams

• Test projections and assumptions from a business perspective

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Opportunities in Challenging Markets

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• Low valuations = opportunities for cash buyers and strategic acquisitions

• M&A roll ups

• Takeovers / Take-Privates

• Reverse Mergers

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Opportunities in Challenging Markets• M&A

• no shareholder consent on AIM

• no new prospectus

• paper acquisitions

• Takeovers / Take-Privates

• City Code on Takeovers and Mergers

• 6 General Principles

• 38 Rules

• 29.9% maximum control stake otherwise mandatory offer (Rule 9)

• Regulated offer timetable: 65 to 120 days

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Opportunities in Challenging Markets• Takeovers / Take-Privates (cont.)

General Principles

• Equivalent treatment for target shareholders

• Shareholders must have sufficient time to consider bid

• Target directors must act fairly

• False markets / artificial distortion

• Only announce when financing is in place

• Target must not be distracted beyond prescribed timetable

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Opportunities in Challenging Markets• Reverse Mergers

• Acquiring control of a publicly traded company

• City Code on Takeovers and Mergers – exemption from Rule 9

• New prospectus / admission document required

• Access to existing shareholder base

• Access to cash resources with no fundraising

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Wrap Up

1 Timetable

2 10 key IPO challenges areas

3 Opportunities in tricky markets

Thank you for your attention

For more informationplease contact:

Adam Fenner+44 (0)20 7067 3352

[email protected]

[2908623]

HOW TO MAKE THE IPO PROCESS WORK Adam Fenner, Partner.

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