A flotation is a complicated process, but any good law firm should help smooth the route to market.
It is useful to involve lawyers as soon as you start to think about the possibilities of flotation. You will want to discuss market requirements and the merits of each market for your company. We’ve worked with most of the advisers – particularly nominated advisers and brokers – and can make appropriate introductions if needed.
It’s also a good idea to take an early look for issues which may need more time to sort out, for example, regularising formal title to overseas assets, obtaining regulatory consents, or settling an ongoing dispute without the pressures imposed by the flotation timetable. The flotation process makes heavier demands upon management time and resources than most companies expect. Time spent with advisers up front can make a real difference in smoothing the progress of a flotation and allowing management to keep focused on growing the business, which is the keystone of investor support.
To start we review advisers’ engagement letters, because these can contain limitations on liability, or onerous provisions as to termination, which should not be agreed ‘by default’. We also review and advise on the overall transaction structure to identify critical path issues and the best approach to take. The company may not yet have ‘public company’ status, and will either need a general meeting of shareholders to convert the existing company, or a new holding company can be created. Any special arrangements with existing shareholders will need to be brought to an end, for example, a company with venture capital investors will need to review their agreements and may need to negotiate specific exit arrangements.
One of our first substantive tasks is to undertake the legal aspects of due diligence, ensuring it is appropriately scoped with the nominated adviser. An early ‘heads up’ discussion with the company and the nominated adviser will identify any actions required to clarify or resolve issues before flotation. We liaise with other advisers as needed, including (more frequently in recent years) overseas advisers.
We take care of all the contractual arrangements associated with a flotation, including the placing agreement, nominated adviser agreement, and lock-in and orderly market agreements. Internal matters that may need addressing include new service agreements, appointment letters for non-executive directors and the adoption of appropriate employee incentive schemes.
The new ‘AIM Rules for Nominated Advisers’ will require nominated advisers to head up the project management function and lead the preparation of the narrative sections of the admission document or prospectus. Nevertheless, our previous experience in fulfilling these functions will still see us taking an active interest in all aspects of the flotation as it progresses. We bring our experience of similar transactions in the company’s industry sector to the admission document as a whole, and prepare the detailed disclosures of background information (share capital details, share scheme summary, details of material contracts, litigation, etc) for the company’s admission document.
With the company’s assistance, we compile the supporting materials that verify each of the statements in the admission document or prospectus. Verification is a painstakingly tedious but necessary part of flotation which protects directors against later claims that any statement in the admission document was incorrectly made. The institutional presentation to investors (the most important fundraising document) must conform to the admission document, and is also verified.
We advise directors on their responsibilities on flotation and afterwards. We also advise on corporate governance, which is an important area for investors. Even smaller companies are expected to comply with the principles of the main market’s corporate governance regime. Guidance on this is available from the Quoted Companies Alliance.
The company will adopt a code regulating dealings by directors and other employees in the company’s shares, which we prepare. Several board committees may also be created, and we advise on their terms of reference.
Finally, we prepare formal board minutes to approve all the elements of the flotation, from corporate housekeeping matters to final sign-off of the admission document and allotment of shares to the company’s new shareholders. The growth of the company’s business then returns fully to centre stage, but don’t throw away those verification materials – you’ll be back for the next deal before you know it.