If you run a growing, dynamic company you may be considering an initial public offering (more commonly known as an “IPO” or a “listing”) for your company i.e. floating your company on the stock market. This is the second of a three part series about IPOs.
The first summarises the advantages and disadvantages of doing an IPO. The second outlines which of the several UK markets you could consider. The third is perhaps the most important, as it gives some guidance about what you should be aware of before you start.
1. What will it depend upon?
A company often selects the market on which to list based on the advice of the company’s brokers. This usually reflects the likely view of investors, particularly the institutional investors, on the merits of the various markets.
It also depends on any internal rules of prospective investors that may prevent them from holding shares on particular markets.
2. What are the choices of exchange?
The London Stock Exchange (LSE) is one of the world's oldest and largest stock exchanges. It has two principal markets - the Main Market and AIM.
In addition, there is a further stock exchange called NEX Exchange (NEX), which is not run by the LSE.
1. Premium or standard listing?
The Main Market has a two tier structure - “premium” and “standard”.
There is more prestige for a company to be premium listed than to be standard listed.
A premium listing is a prerequisite for admission to the FTSE indices.
2. What are the requirements?
Some of the requirements for obtaining a premium listing and a standard listing are the same. They include:
a minimum market capitalisation on listing of £700,000; and
a minimum 25% of shares being in public hands.
The listing process involves the preparation of a prospectus, which has to be agreed with the Financial Conduct Authority (FCA).
3. Requirements for obtaining a premium listing
In other respects, the requirements for obtaining a premium listing are more onerous than for a standard listing. For example, a company applying for a premium listing must:
involve a broker acting as “sponsor” during the listing process; and
demonstrate that it will continue to be an independent business as its main activity, in particular, that the company’s business, operations and finances are independent of any controlling shareholder.
4. Ongoing requirements
The ongoing requirements (i.e. the requirements once the company is listed) are certainly more onerous for a premium listed company than for a standard listed company.
This is particularly so in relation to the requirements concerning:
transactions which are deemed to be large by reference to the size of the company;
transactions between the company and parties which are deemed under the Listing Rules to be “related parties”; and
the need to have a broker acting as “sponsor” at all times.
Because of the extra requirements, the cost of maintaining a premium listing is likely to be more than maintaining a standard listing.
5. Standard listing
Because the process of obtaining a standard listing also involves the preparation of a prospectus, which has to be agreed with the FCA, the time and cost of obtaining a standard listing is likely to be broadly similar to obtaining a primary listing.
However, importantly, it is not necessary for a standard listed company to have a three year track record, which means that a standard listing is suitable for younger companies.
There is no need for a sponsor to be involved in the listing process and it is therefore usually possible to obtain a standard listing with fewer professional advisers than for a premium listing.
As mentioned above, once a company has achieved a standard listing, its ongoing obligations under the Listing Rules will be less than if it were a premium listed company.
1. Who is AIM aimed at?
The LSE launched AIM (known originally as the Alternative Investment Market) in 1995.
AIM was developed to meet the needs of smaller, growing companies from any sector or country which might not meet the full criteria for a listing on the Main Market, or for whom a more flexible regulatory environment is more appropriate.
The entry criteria for AIM make it possible to gain admission:
without a trading record (unlike for a premium listing on the Main Market); and
there is no minimum size;
unlike for a premium or standard listing on the Main Market, there is no formal requirement for a minimum percentage of shares to be in public hands (although a percentage which is significantly below 25% is likely to be criticised after admission to AIM by the LSE).
AIM can act as a stepping stone for those that may aspire to the Main Market.
2. How is AIM regulated?
AIM is regulated in a different way from the Main Market, in that the LSE has, in effect, delegated its powers to (pre-approved) financial advisers who are known as nominated advisers (nomads).
In order to be admitted to trading on AIM an admission document must be completed. The information that must be included in an admission document is less than the information which must be included in a prospectus.
The admission document is agreed with the nomad (and is not vetted by the FCA).
It is therefore sometimes said that the advantage of AIM is that it offers the benefits of trading on a public market but within a regulatory environment specifically for smaller companies, although there is some debate as to whether the regulatory environment for smaller companies is better on AIM or with a standard listing.
1. What is NEX?
Like the LSE, the NEX also has two primary market segments i.e. the NEX Main Board and the NEX Growth Market.
Companies joining the NEX Main Board will (because the joining requirements are similar) also join the Main Market of the LSE and so this article does not examine the NEX Main Board.
2. How is NEX regulated?
The NEX Growth Market is broadly similar to AIM, with the role of the nomad being taken by a firm called a “corporate adviser”.
There are some differences relating to obtaining admission. These include a requirement that:
a minimum of 10% of shares in public hands at admission; and
once completed, the admission document is submitted for approval to NEX before admission can take place.
Fladgate is an advanced, commercially astute international law firm serving a wide range of corporate, institutional and private clients.
We are experts in assisting companies in raising new equity, either through admission to the London Stock Exchange’s (LSE) Main Market, the AIM Market (AIM) or through a dual quotation if the company is already listed overseas.
With a significant proportion of our clients being fast-growing and entrepreneurial businesses, we have developed wide-ranging experience of AIM and are regularly ranked by the independent legal directories as one of the leading law firms for AIM-related matters. We act for both domestic and overseas companies, as well as for nominated advisers and brokers on a range of flotations, reverse takeovers and secondary fundraisings across multiple sectors.
“Fladgate is increasingly regarded as a draw for AIM flotations and related transactions…with a wealth of experience to offer domestic and international clients.”
- Chambers UK