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Considerations of listing in London
PwC Israel
28 May 2014
Ronen Berkovich,Partner, PwC Israel
PwC Israel
Overview of equity markets and global trends
Capital raising considerations •
PwC Israel 3
Key markets IPO activity 2011 - Q1 2014
USA Hong Kong London
S&P 500: +28.0% since 2013 Shenzhen +18.5%, Hang Seng -5.0 % since 2013
FTSE 100: +9.5% since 2013
$18
$8
$16
$13
0
15
30
45
60
75
$0
$4
$8
$12
$16
$20
Q1 2011 Q1 2012 Q1 2013 Q1 2014
Money raised ($m) Number of IPOs
$2 $1 $1
$6
0
15
30
45
60
75
$0
$4
$8
$12
$16
$20
Q1 2011 Q1 2012 Q1 2013 Q1 2014
Money raised ($m) Number of IPOs
$2 $1
$3
$9
0
15
30
45
60
75
$0
$4
$8
$12
$16
$20
Q1 2011 Q1 2012 Q1 2013 Q1 2014
Money raised ($m) Number of IPOs
80%
90%
100%
110%
120%
130%
80%
90%
100%
110%
120%
130%
Shenzhen Composite Index
Hang Seng Index
80%
90%
100%
110%
120%
130%
PwC Israel
4
0
5
10
15
20
25
30
35
40
-
2
4
6
8
10
12
14
16
-פבר 12-ינו12
-מרץ12
-אפר12
-ספט 12-אוג 12-יול 12-יונ 12-מאי12
-דצמ 12-נוב 12-אוק12
-פבר 13-ינו13
-מרץ13
-אפר13
-ספט 13-אוג 13-יול 13-יונ 13-מאי13
-דצמ 13-נוב 13-אוק13
-פבר 14-ינו14
-מרץ14
VS
TO
XX
in
de
x
Mo
ne
y ra
ise
d (
€b
n)
Volatility compared to IPO proceeds
Money raised (€bn) VSTOXX
IPO of Talanx, Telefónica Deutschland and Direct line
IPO of MegaFon, Alior Bank and Kcell
IPO OF Ziggo and DKSH Holdings\
Greek and Spanish bailouts and downturn in global economic growth
IPO of bpost and Partnership Assurance
IPO of Royal Mail, Riverstone Energy, and TCS Group
IPO of ISS, Pets at Home, Poundland and Hispania Activos Inmobiliarios
Volatility remained low and market indices continued to strengthen despite events such as the geopolitical turmoil in Ukraine
-10%
0%
10%
20%
30%
מרץ פבר ינו דצמ נוב אוק ספט אוג יול יונ מאי אפר מרץ פבר ינו
% c
han
ge s
ince
1 Ja
n 2
01
3
Historical performance of major market indices since January 2013
CAC 40 DAX 30 FTSE 100
Source: Thomson Reuters
PwC
European IPO proceeds, excluding over-allotments, reached €11.4bn in Q1 2014, marking the strongest first quarter performance since 2007
Long term European IPO activity by value and volume
*Excludes IPOs on Borsa Istanbul and Bucharest
Sustained momentum across European equity markets supported the most successful first quarter in seven years. The €11.4bn of cash raised, excluding over-allotments, from IPOs in first quarter of 2014 surpassed the aggregate Q1 proceeds raised in the previous four years. The first quarter was characterised by IPOs in the Retail and Real Estate sectors with 18 IPOs raising €5.2bn. The UK retail sector saw the IPOs of Lenta, Pets at Home, AO.com and Poundland. Hispania Activos Inmobiliarios SA and Lar Espana Real Estate Socimi SA demonstrated a reinvigorated Spanish real estate sector.
12.3 2.0 0.0 1.8 3.2 2.4 3.3 11.4
141
63
16
77
102
61 45 68
0
20
40
60
80
100
120
140
160
0
2
4
6
8
10
12
14
Q12007*
Q12008*
Q12009*
Q12010*
Q12011
Q12012
Q12013
Q12014
Vo
lum
e o
f IP
Os
Va
lue
of
IPO
s (€
bn
)
Value Greenshoe Number of IPOs
PwC Q1 2014 IPO Watch Europe Survey
3.2 13.6 9.4 0.9 2.4 0.8 0.4 7.7 3.3 5.4 3.0 14.8 11.4
102
149
126
82
61
93
60 74
45
76
52
106
68
-
20
40
60
80
100
120
140
160
- 2
4
6
8
10
12
14
16
18
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2011 2012 2013 2014
Vo
lum
e o
f IP
Os
Va
lue
by
qu
art
er
(€b
n)
Value Greenshoe Number of IPOs
PwC Israel
London listing requirements
Capital raising considerations •
PwC Israel 7
Listing requirements – overview
Eligibility conditions in London Premium Standard AIM
Appointment of a sponsor/nominated advisor x
Clean three year IFRS track record (>75% of business) x
If exists, must present 3 years
x
If exists, must present 3 years
Control of the majority of assets (>50%) x x
Audited numbers must not be more than 6 months old x x
Reviewed interims if document dated > 9 months after end of last audited year
n/a
Adequate controls to meet continuing obligations
Adequate financial reporting procedures declaration x (a)
Sufficient working capital for at least 12 months from date of prospectus - shares x – GDRs (a)
Reporting Accountant’s due diligence reports x (a)
At least 25% shares in public hands x
Shareholder approval of significant and related party transactions x x
(a) Market practice in London currently evolving, FRP and working capital reports sometimes requested for GDRs. For standard share listing, level of diligence similar to premium listing expected.
Fin
ancial
Diligen
ce
PwC Israel
Key factors for a successful capital raising
Capital raising considerations •
PwC Israel 9
What are investors looking for?
Corporate governance
Robust capital structure
Strong management
Strong market position
Cash generation
Sustainable and visible growth
• Reasonable leverage levels at IPO
• Capacity to fund organic growth in the business
• Selective M&A headroom (on the basis of proven track record)
• Sustainable growth drivers: attractive end market dynamic with secular growth trends
• Earnings visibility: quality and breadth of customer relationships
• Established track record of growth across economic cycles
• Margin growth
• Strong and/or growing return on invested capital
• Management focus on optimising cash generation
• Right balance of independent directors on the board
• Effective risk management and internal controls
• Dynamic, ambitious, focused team
• Experience in the sector
• Management interests aligned with shareholders
• Leadership positions in core markets
• Established brand within the industry – clear ‘go to’ position
• Quality and breadth of customer relationships
PwC Israel 10 Capital raising considerations •
Section 4 – Key factors for a successful capital raising
Principal valuation drivers
Company specific factors
Financial factors
External factors
Compelling equity story
Liquidity
Shareholders and management
Corporate governance
Risks
Transparency
Equity market conditions
Sentiment towards country of origin
Familiarity and sentiment towards the sector
Competing offerings
Historic financial results
Industry trends/fundamentals
Investment programme
Balance sheet Peer performance
Time in cycle
Financial projections
Capital structure/leverage
PwC Israel 11
Related party transactions – key area of focus
PwC Israel
Getting ready
Capital raising considerations •
PwC Israel 13
Two key early decisions for a London listing
Market
Premium
Standard
AIM Size
FTSE Index inclusion
Level of due diligence
Eligibility
Tax considerations
FTSE Index inclusion
Due diligence
Corporate governance
Continuing obligations
Valuation
Valuation
GAAP reporting standards
Location of list Co.
UK
EU/EEA
Non EEA
Market
PwC Israel 14
Key decisions on the road to an IPO
Strategy and equity story, which businesses/assets to float
Tax and legal structuring, holding company location
Choice of market and timing
People and resources, key management
Appointment of advisors
Financial reporting and track record audit requirements
Management information systems
Transparency and corporate governance
Board composition
Start of preparation
IPO launch
PwC Israel 15
London IPO – financial reporting and due diligence requirements
Financial requirements Due diligence by reporting
accountant
Historical financial information Long form report
Interim financial information Working capital report
Pro forma Financial position and prospects report
Profit forecast/estimate Comfort letters
Sometimes required Always required
PwC Israel 16
Key components of Corporate Governance
Independence
Delegation of authority
Corporate secretary
Size and composition of the Board
Balance of Executive
directors and INEDs
Matters reserved
to the Board
Risk management and internal
control
Corporate functions,
including IR
Ownership structure and
influence
Transparency and
information disclosure
Board committees
Relationship agreement
PwC Israel 17
How ready are you?
• Readiness assessment
We highlight critical areas where current processes and structures fall short of regulatory requirements and/or best practice
Planning
Readiness assessment
Capital raising considerations •
Section 7 – Getting ready
PwC Israel 18 Capital raising considerations •
Section 7 – Getting ready
IPO windows are tight - being well prepared ensures deadlines can be met
Summary
Be realistic and talk to investors early in the listing process
PwC Services:
IPO Readiness
Which Market?
Governance, organisation
design
Reporting Accountant
Tax structuring
Prioritise corporate governance issues
©2014 Kesselman & Kesselman. All rights reserved. In this document, “PwC Israel” refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Please see www.pwc.com/structure for further details. PwC Israel helps organisations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more than 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/il
Thank you!
Tel: 04-8605000
Ronen Berkovich,Partner, PwC Israel
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