Obtaining a premium or standard listing
on the London Stock Exchange
1. Introduction ...1
2. Listing in London...1
3. Why list and why in London?...1
4. Premium listing ...1
5. Listing requirements for the main market – premium vs standard and US comparison ...2
6. Further listing requirements – premium vs standard listing...2
7. Common obligations for a premium listing and a standard listing ...3
8. Corporate governance issues for a company with a premium listing?...3
9. Advisers on a premium listing...4
10. Preparing the way for a listing ...5
11. Review of corporate structure and financial reporting ...5
12. Due Diligence ...5
14. Contents of the Prospectus ...6
15. Corporate Governance ...7
16. The Timetable for a premium or standard listing...7
17. Conclusion ...8
This note is intended as a general guide to assist a company (the ‘Company’) which may be considering an IPO on the main market of the London Stock Exchange (the ‘Exchange’), to identify what steps should be taken towards achieving that aim. This note also provides a checklist of some of the key considerations that should be borne in mind when deciding whether or not an IPO is right for the Company and/or its shareholders.
2. Listing in London
The main market is the London Stock Exchange’s principal market for listed companies from the UK and overseas and over 1,200 companies are listed on the main market with an average market capitalisation of £3.1bn. In 2014 there were 57 IPOs on the main market raising £11.8bn. 3. Why list and why in London?
The main reasons most companies give for obtaining a listing are to:
provide access to capital for growth encourage employee commitment
create a market for their shares increase a company’s ability to make acquisitions obtain an objective market value create a heightened public profile
enhance status with customers and suppliers A London listing has a number of attractions:
The Exchange is the largest stock exchange in Europe and the world’s most internationally focused.
London is a global financial centre – all the major banks have offices in London. The great majority of all IPOs on Western European exchanges take place in London. London is well known for its high standards of regulation.
4. Premium listing
A company with an anticipated market capitalisation of £500m or more is likely to be looking at obtaining a premium listing or possibly a standard listing rather than an AIM listing assuming London is its first choice listing location.
2 5. Listing requirements for the main market
The table below compares the key differences for obtaining a premium listing as opposed to a standard listing.
London Main Market (premium listing)
London Main Market (standard listing)
Latest 3 years audited accounts (a dispensation is available for mineral and scientific research companies)
Latest 3 years audited accounts (or such shorter period that the issuer has been in operation)
Recognised accounting standards
IFRS or equivalent IFRS or equivalent
Market capitalisation £700,000
(in reality £100-£200m or more)
(in reality £100-£200m or more) Shares in public
6. Further listing requirements
The requirements for a premium listing in London are more stringent than those for a standard listing and the table below sets out the key criteria for a premium listing in addition to those set out above:
Premium Listing Standard Listing Key conditions for
a premium listing
At least 75% of the Company’s business must be supported by a historic revenue earning record covering the last 3 financial years which must put investors in a position to make an informed assessment of the business
The Company’s shares must be freely transferable and eligible for electronic settlement
Required in practice
The company must be carrying on an independent business as its main activity
Not applicable The total of all warrants or options to subscribe
for equity shares must not exceed 20% of the company’s issued equity share capital
Premium Listing Standard Listing Working Capital Clean working capital statement covering 12
months following Admission
Working capital statement covering 12 months following Admission but in theory can be qualified
Shareholder approval for transactions
Class tests require shareholder approval for a Class 1 acquisition (broadly speaking
acquiring or disposing of a company or assets worth more than a quarter of the company’s value) or on a reverse takeover
No class transaction tests (although market practice is to voluntarily abide by them)
Primary adviser A sponsor must be appointed No adviser required. Pre-emption rights Shareholders must have pre-emption rights on
new issues for cash
7. Common obligations for a premium listing and a standard listing
Cost of listing Typically 7-10% of funds raised for smaller companies
Ongoing costs Higher fees for auditors, lawyers and non-executive directors in view of greater continuing obligations
Typically at least six months Announce half year
Within 2 months of the end of the first six month period of the financial year Publication of full
Within 4 months of the end of the financial year (including a management report and responsibility statement)
8. Corporate governance issues for a company with a premium listing?
In considering a premium listing, a Company should be aware of a number of key obligations: Relationship Agreements – controlling shareholder(s) who exercise or control, on their own or
together with any person with whom they are acting in concert, 30% or more of the company's voting rights must enter into a relationship agreement.
Retirement of Directors – normally the Company’s articles will require one-third of the board to retire by rotation each year, and in FTSE 350 companies, directors would be expected to offer themselves for re-election annually.
4 Length of service of non-executive directors - annual shareholder approval should be
obtained for any non-executive director who has served on the board for more than nine years.
Non-pre-emptive share issues for cash should be limited to 5% of the company’s shares in one year and 7.5% in any rolling three year period.
For larger companies, a majority of the board (excluding the Chairman) should be comprised of non-executive directors. For smaller companies, the number of non-executive directors should be at least 21.
Restrictions on dealing - no dealing in the two months prior to publication of half year and full year results and insider dealing and market abuse rules apply.
An overseas company should also be aware that if it is seeking to be included in a FTSE UK Index, it should have a premium listing and a free float of not less than 50%.
The majority of the above corporate governance issues derive from the UK Corporate Governance Code and best practice would be to follow this although it is possible to instead explain the Company’s non-compliance.
9. Advisers on a premium listing
The Company will need to appoint the following:
Investment bank - the investment bank or bookrunner will manage the IPO process and co-ordinate the listing with the other advisors. Often, it will also act as financial adviser, sponsor (a supervisory role required by the Financial Conduct Authority) and underwriter. Normally, the lead bank acts as global co-ordinator and one or more further banks may also be appointed as bookrunners.
Lawyers – lawyers will be required to advise the Company itself, as well as any shareholder who is selling all or part of its stake as part of the IPO. The sponsor/bookrunners will also require lawyers. The Company’s lawyers will be responsible for drafting the ‘back end’ of the prospectus which contains all legal information relating to the company including share capital, material contracts and litigation. They will also manage the legal due diligence and ‘verification’ process, which seeks to ensure that the prospectus is not misleading in any way.
Reporting accountants - the reporting accountants are responsible for reviewing the Company’s financial records and internal systems. They will prepare the long form report, the short form report (which is published in the prospectus) and the working capital report. PR Consultants – the PR consultants will help to generate positive publicity and interest in
Others – the Company will need to appoint registrars and any other advisers that may be required in relation to its specific business.
10. Preparing the way for a listing
Careful consideration should be given to the following issues in preparing for a listing:
Deciding on the method of listing, e.g. a placing to institutional investors, an introduction to the market or a public offer.
Identifying any necessary changes to the board and/or its operations. If the shareholders have identified changes which need be made to the board or the shape of the business these should be made as early as possible.
Ensuring the Company has sufficient internal resources to dedicate to the IPO. 11. Review of corporate structure and financial reporting
The Company and its lawyers will need to consider how best to approach the listing in terms of the Company’s corporate structure and financial reporting history.
Key issues will include:
Whether the Company itself should be listed or should a holding company be created for the purposes of the listing? Local law securities offering restrictions may require a new holding company to be established.
Reviewing and amending, as necessary, the Company’s constitutional documents. Have the Company’s accounts been prepared in accordance with IFRS?
Should the Company be seeking a premium listing or a standard listing? 12. Due diligence
As regards legal and financial due diligence for the IPO, this will be a time consuming process. Early preparation particularly as regards collating and centralising material contracts is important.
If the Company needs to be reorganised as part of a review of the corporate structure then any tax impact will need to be considered well ahead of time to ensure that any necessary tax clearances from the relevant fiscal authority can be obtained.
Individual shareholders who are disposing of all or part of their stake as part of the IPO will need to consider their own tax position and obtain appropriate advice.
14. Contents of the prospectus
The following information will have to be included in the prospectus for a premium or standard listing:
Details of the Company’s group structure and its subsidiaries. History of the Company and its share capital.
The Company’s business and future plans.
Information about the sector in which the Company operates and its main competitors. Financial information for the last three years.
Any regulatory regimes to which the Company is subject.
A statement of the Company’s compliance with the UK corporate governance code. Directors’ interests in the Company and their remuneration.
Details of the Company’s constitution.
Details of any share option schemes either in place or proposed. Any ongoing litigation of a material value.
Material contracts – these will include all contracts with advisors in relation to the IPO, as well as any key contracts the termination of which would have a material impact on the Company’s business, and any other contracts that are not in the ordinary course of business. Details of how the proceeds of the listing will be applied.
15. Corporate Governance
The Company will have to be aware of and generally satisfy the ‘best practice’ guidelines applicable to public companies contained in the Corporate Governance Code which regulate corporate governance. Disclosure is required in the Company’s report and accounts outlining to what extent they comply with the Corporate Governance Code.
Among the more prominent issues raised in the Corporate Governance Code are the separation of the role of chairman and chief executive, the need for independent non-executive directors and effective internal controls.
16. The Timetable for a premium or standard listing
It is difficult to be precise on the length of time for a listing since the process is influenced by so many variables being the size, sector and structure of the Company, the method of flotation being used and the degree and complexity of due diligence which has to be conducted. Most flotations take approximately 6 to 9 months from the time that the decision is made to admission.
The process is complex and time-consuming and identifying a small team within the Company to commit their time and energies to driving the listing may be worth considering as it may be less disruptive than having all the directors continually interrupted during the course of their normal work. However, either approach will still require all the directors at some stage or another to provide documentation and information and review the listing documentation.
The following is an example timetable for a premium listing on the Exchange (I-DAY refers to ‘Impact Day’ – the day on which the company’s prospectus will approved by the United Kingdom Listing Authority (‘UKLA’) and published):
18 weeks before I-DAY Board to approve listing in principle Company to appoint advisers
Agree timetable for the listing, including the date for any necessary meetings and I-DAY itself
Agree documents list for the listing
Company’s lawyers to review the Company’s constitution to assess any internal steps to be taken in relation to the listing Other considerations such as tax clearances
14 weeks before I-DAY Circulate first draft of prospectus and hold first drafting meetings Accountants to complete first draft of long-form report
Company lawyers to finalise any necessary changes to Company’s constitution
8 Company lawyers to apply for tax clearances, if necessary 8 weeks before I-DAY Drafting meetings on prospectus continues
Receive tax clearances, if necessary
Hold first meeting on underwriting agreement
Accountants to begin preparing statement of indebtedness and working capital report
6 weeks before I-DAY Drafting meetings on prospectus continue
Draft prospectus submitted to UKLA at least 20 clear business days before publication
Commence marketing and publicity for IPO, make public announcement of intention to list
Accountants complete long form and working capital reports Company lawyers prepare first draft of verification notes 4 weeks before I-DAY Drafting meetings on prospectus continues
Accountants finalise short form report to be inserted into prospectus and statement of indebtedness
Negotiations on underwriting agreement continue 3 weeks before I-DAY Drafting meetings on prospectus continues
All documents to be substantially agreed with UKLA Verification meeting to finalise verification notes 2 weeks before I-DAY Finalise underwriting agreement
Prospectus in pathfinder form Presentations to potential investors 2/3 days before I-DAY Close application lists for investors
Application for admission submitted to UKLA Completion board meeting
I-DAY Admission to official list and CREST
Listing a company on any stock exchange is a complex and time consuming process. Choosing the right advisers together with early and careful planning will help ensure that the process proceeds smoothly.
Our Corporate Finance team
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This memorandum is intended as an outline guide only. It is not intended to be exhaustive and reliance should not be placed upon it without seeking more detailed advice in the light of your own circumstances. The memorandum is based on English law and United Kingdom tax law and practice in force at the date it was prepared. As tax and legal provisions change frequently any comment in this memorandum should be reconfirmed before any action is taken.
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