The Float Guide How to float a company on the Irish Stock Exchange - Arthur Cox
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The Float Guide
How to float a company on the Irish Stock
Exchange
Contact: Maura McLaughlin
Arthur Cox, Ireland
maura.mclaughlin@arthurcox.com
www.linkedin.com/in/mauramclaughlin/
Golda Hession
Arthur Cox, Ireland
golda.hession@arthurcox.com
ARTHUR COXINTRODUCTION This guide gives an overview of what is involved in listing an Irish company on the Irish Stock Exchange (ISE). It is a practical manual covering all aspects of a float from prerequisites through to life after the float. ARTHUR COX
Contents
Executive Summary……………………........ 1
Main Market / Enterprise Securities
Market/ Atlantic Securities Market –
A Comparison……………………………….. 4
Prerequisites to Floating……………………. 6
Float Team…………………………………... 10
Getting the Company Ready……………….. 12
The Prospectus / Admission Document......... 16
Due Diligence, Verification and Liability for
Offer Documents…………….......................... 20
Pricing………………………………………... 23
Marketing the Float…………………………. 24
Dealing with the Regulators……………....... 25
Life after the Float…………………………... 26
Conclusion…………………………………… 31
Float Timetable……………………………… 34
ARTHUR COXI. EXECUTIVE SUMMARY
1. Why float?
The principal reasons why companies float are:
1.1 the company wants to have access to a greater range of investors for future
fundraisings;
1.2 the liquidity provided by a public market in a company’s shares is attractive to:
(a) existing shareholders who want to trade their holdings;
(b) third parties who may accept listed shares as consideration for acquisitions;
and
(c) to employees who are offered shares in the company as part of an incentive
scheme; and
1.3 listed companies tend to have a higher profile than unlisted companies.
2. Does my company qualify?
The conditions for listing depend on the market that the company selects – the principal
differences between the Main Securities Market (MSM), the Enterprise Securities Market
(ESM), and the Atlantic Securities Market (ASM) of the Irish Stock Exchange (ISE) are set out
in Part II of this document, while the prerequisites for listing on these markets are set out in
Part III.
In short, the ESM has minimal requirements for listing and is more suitable for small and
growing companies who are looking to access a wider pool of investors and raise their profile.
The MSM’s conditions for listing and ongoing obligations are more onerous, and this market
is more suited to a mature company with a proven track record that will be able to comply with
the highest standards of compliance and corporate governance.
The ASM is aimed at US-listed companies and its regulatory regime is consistent with the
requirements of the US Securities Exchange Commission (SEC).
3. How long will it take?
A well-run, reasonably simple float for an ESM listing can be completed in three months.
Larger, more complex floats and MSM floats can take six months or longer. The timeline for
an ASM float will largely be dictated by the US listing process, or should take a couple of
months if the company is already listed in the United States.
4. Who is on the float team?
The float team will include an underwriter or lead manager (who may also act as financial
adviser), accountants, lawyers and others – including the share registrar, PR consultants and
other experts who may be commissioned to produce special reports for the prospectus (e.g. for
mining companies, prospectivity reports).
ARTHUR COX 15. Is my company ready?
Before floating, a company will need to review its:
5.1 strategy, business plan and operations – the float process will result in a high level
of scrutiny of all aspects of the company's business;
5.2 structure – the company must be a public limited company and adopt a share structure
and constitution that comply with ISE requirements;
5.3 board – the board must include sufficient independent non-executive directors, and
each member must have appropriate expertise in order to comply with applicable
corporate governance standards; and
5.4 internal governance procedures – the standards of disclosure, accountability and
governance required of a listed company are high, and putting in place appropriate
procedures to comply with these standards can be a lengthy process (e.g. board
committees, internal audit, share dealing restrictions, etc.).
6. What goes in the prospectus?
A company listing on the MSM will require, and a company listing on the ESM or ASM may
require, a prospectus.
The prospectus must contain all the information about the company and the securities offered
that is necessary to enable investors to make an informed assessment of:
6.1 the assets and liabilities, financial position and performance, profits and losses, and
prospects of the company; and
6.2 the rights and liabilities attaching to the company´s shares offered.
In addition, there are extensive specific content requirements for a prospectus set out in the
relevant legislation.
Unless a company seeking a listing on ESM or ASM is also making an “offer of securities to
the public” within the meaning of Irish prospectus law, it is not necessary for the applicant to
prepare and publish a prospectus. Instead an Admission Document is required, which has less
extensive content requirements than a prospectus, and may, in the case of the ASM, be satisfied
by a US registration document.
7. What liabilities may arise in relation to the prospectus, and how are these managed?
Significant liability can result for a company and its directors and advisers if a prospectus or
Admission Document or related documentation (an “Offer Document”) is inaccurate or
misleading or omits material information. To manage this risk, two processes are undertaken:
7.1 Due diligence: the company’s business, operations and financial condition are
investigated to ascertain whether it is suitable for listing and identify matters that must
be disclosed in Offer Documents.
7.2 Verification: the information in each Offer Document is checked to ensure that it is
accurate and not misleading as it is presented in that document.
In undertaking due diligence and verification, it is essential that the focus is on matters that will
be significant to investors in making their decision to invest, and/or matters that could
materially affect the value or reputation of the company.
ARTHUR COX 28. How will the float be marketed?
An “offer of securities to the public” must not be made until a prospectus has been prepared,
approved by the Central Bank of Ireland and published in accordance with the requirements of
Irish law. Selective pre-marketing may breach market abuse legislation.
All “advertisements” (i.e. just about any marketing communication) in connection with a float
must be consistent with the prospectus, and must be clearly identifiable as advertisements.
ARTHUR COX 3II. MAIN SECURITIES MARKET / ENTERPRISE
SECURITIES MARKET / ATLANTIC SECURITIES
MARKET – A COMPARISON
Companies considering listing their shares on the Irish Stock Exchange (ISE) have a choice of three
markets:
the Main Securities Market (MSM), which is a regulated market as defined by the Markets in
Financial Instruments Directive (MiFID);
the Enterprise Securities Market (ESM), which is designed for smaller companies who may not
be able or wish to satisfy all of the requirements of a MSM listing. The ESM is an exchange-
regulated market and multi-lateral trading facility for the purposes of MiFID; or
the Atlantic Securities Market (ASM), which is designed for companies seeking a dual
quotation on the New York Stock Exchange (NYSE) or NASDAQ, with both US dollar and
euro trading. The ASM is also an exchange-regulated market and multi-lateral trading facility
for the purposes of MiFID.
As the MSM is a “regulated market” within the meaning of MiFID, it has more onerous admission
requirements and continuing obligations for listed companies than the ESM or ASM. The main
differences between the MSM, ESM and ASM can be summarised as follows:
MSM ESM ASM
Detailed requirements must be The only admission The applicant must be listed or
satisfied to obtain admission requirement is that the seeking listing on the NYSE
to listing applicant must have a or NASDAQ and have a
minimum market minimum market
capitalisation of EUR5 million capitalisation of at least
USD100,000,000
A 3-year trading record is No trading record required A 3-year trading record is
normally required normally required
25% of shares must be in No minimum number of 15% of shares must be in
public hands shares to be held in public public hands
hands
Prior shareholder approval Shareholder approval not Shareholder approval not
required for substantial required for acquisitions or required for acquisitions or
acquisitions and disposals disposals unless they disposals (including reverse
constitute a reverse takeover takeovers) or the cancellation
or fundamental change of of a company’s quotation on
business the ASM.
Prior shareholder approval No shareholder approval No shareholder approval
required for significant related required for related party required for related party
party transactions transactions transactions
ARTHUR COX 4Pre-approval by the ISE of Shareholder documents only Shareholder documents only
some shareholder circulars require the approval of the require the approval of the
required company's ESM Adviser company's ASM Adviser
The Listing Rules of the ISE relating to the MSM, and the ESM Rules are largely equivalent to the
Listing Rules of the United Kingdom Listing Authority and the AIM Rules of the London Stock
Exchange respectively. Due to this similarity, it is common for companies listed on the ISE to also be
listed on the equivalent market in London.
The MSM has two types of listing: primary and secondary. A primary listing requires the listed company
to comply with the Listing Rules (including their corporate governance requirements) in full. An Irish
company with a primary listing elsewhere, or an overseas company, may instead seek a secondary
listing, which only requires the company to comply with minimum standards specified in certain
European Union directives1. As the subject of this document is the listing of Irish companies on the
ISE, and such companies can currently obtain a secondary listing on the ISE only in particular
circumstances, limited information in relation to secondary listings on the MSM is included in this
document and references to listing on the MSM should be construed as references to a primary listing
unless otherwise specified.
1For example, companies with secondary listings are not required to produce shareholder circulars for significant or related
party transactions, or to meet the requirements of the UK Corporate Governance Code and the Irish Corporate Governance
Annex.
ARTHUR COX 5III. PREREQUISITES TO FLOATING
Before a company can be floated on the ISE it must satisfy the admission requirements of the
relevant market, and ensure that it will be able to comply with its continuing obligations post-float
(see “Life after the Float”).
1. ESM
The principal requirements for listing on the ESM are:
1.1 The company must appoint an ESM Adviser. The ESM Adviser’s role is to assess the
appropriateness of an applicant company, and to advise the company on its
responsibilities under the ESM Rules. The company must also appoint a broker.
1.2 The company must prepare an Admission Document disclosing certain specified
information. The content requirements for an Admission Document are less onerous
than for a Prospectus Directive-compliant prospectus, but it should be noted that if a
company listing on the ESM makes an “offer of securities to the public” within the
meaning of Irish prospectus law then, regardless of the fact that it is listing on the ESM
rather than the MSM, it will be required to prepare a Prospectus Directive-compliant
prospectus. To avoid this requirement, offers of securities made by ESM companies are
normally to “qualified investors” and a restricted number of other potential investors.
See Part VI (The Prospectus / Admission Document) for more information.
1.3 The expected aggregate market value of all securities to be admitted to trading must be
at least EUR 5,000,000.
1.4 Generally, the shares to be admitted must be freely transferable, eligible for electronic
settlement and comprise all securities in that class. The shares must also be
unconditionally allotted.
In addition, if a company’s main activity is a business that has not been independent and
revenue-earning for at least 2 years, then related parties and some employees must agree not
to dispose of any interest in the securities they hold for one year from the date of admission.
If a company seeking admission to trading on ESM has as its primary business or objective the
investing of its funds in securities, businesses or assets of any description (an investing
company), then it will be a condition of listing that that company raises a minimum of
EUR5,000,000 in cash on or immediately before admission.
2. ASM
The principal requirements for listing on the ASM are:
2.1 The company must be listed, or seeking a listing on the NYSE or NASDAQ.
2.2 The company must appoint an ASM Adviser, whose role is equivalent to an ESM
Adviser. The company must also appoint a broker.
2.3 The company must prepare an Admission Document disclosing certain specified
information, including all information required for the purposes of a US registration
statement. A US registration statement, and where necessary a supplement containing
any additional disclosures required by the ASM Rules, will together comprise an
Admission Document where the date of the registration document is within 12 months
ARTHUR COX 6of the date of the Admission Document. Companies who have had their securities traded
upon an NYSE or NASDAQ for at least eighteen months (or such shorter period as the
ISE agrees) prior to the date of admission to ASM can apply to be admitted without
having to publish an Admission Document. Companies using the fast track route to
ASM must make a detailed pre-admission announcement.
As outlined at paragraph 1.2 in relation to the ESM, an “offer of securities to the public”
within the meaning of Irish prospectus law will require a Prospectus Directive-
compliant prospectus. See Part VI (The Prospectus / Admission Document) for more
information.
2.4 The expected aggregate market value of all securities to be admitted to trading must be
at least USD 100,000,000.
2.5 At least 15% of the securities of a class must, no later than the time of admission, be
distributed to the public.
2.6 Generally, the shares to be admitted must be freely transferable, eligible for electronic
settlement and comprise all securities in that class. The shares must also be
unconditionally allotted.
2.7 An applicant must satisfy the ISE that it and its subsidiary undertakings have sufficient
working capital available for the group’s requirements for at least the twelve months
from the date of publication of the prospectus for the shares to be admitted.
3. MSM - ALL COMPANIES
All companies making an application for an initial primary or secondary listing of shares on the
MSM must comply with the following conditions:
3.1 The applicant must be duly incorporated or otherwise validly established according to
the relevant laws of its place of incorporation or establishment, and must be operating
in conformity with its constitutional documents.
3.2 If the applicant is incorporated in Ireland, it must not be a private company (i.e. it must
be a public limited company).
3.3 The securities must be admitted to trading pursuant to the Admission to Trading Rules
of the ISE (see section 6 of this Part III).
3.4 The securities to be listed must conform with the law of the applicant’s place of
incorporation, be freely transferable, fully paid and free from all liens or restrictions
on transfer.
3.5 The aggregate market value of all shares (excluding treasury shares) to be listed must
generally be at least EUR 1,000,000.
3.6 The application for listing must relate to all shares of the relevant class that have been
issued or are proposed to be issued.
3.7 Where Irish prospectus law requires a prospectus to be approved and published for the
shares in question, a prospectus must have been approved by a competent authority and
published in accordance with the Prospectus Directive. See Part VI (The Prospectus /
Admission Document) for more information.
ARTHUR COX 7The additional conditions for listing differ depending on whether the application is for a primary
or secondary listing, or a dual primary listing.
4. MSM - PRIMARY LISTING
As indicated in Part II, many companies listed on the MSM also have a premium listing on the
Main Market of the London Stock Exchange (dual primary listing). If a company is seeking a
primary or dual primary listing, in addition to the matters set out in 3.1 to 3.7 above the following
additional requirements apply:
4.1 The applicant must have published or filed audited accounts that: (i) cover at least
three years (with the latest set of published audited accounts being for a period ended
not more than six months before the date of the prospectus); (ii) are consolidated for the
applicant and its subsidiary undertakings; (iii) have been independently audited, in
accordance with the auditing standards applicable in an EEA state or an equivalent
standard; and (iv) have been reported on by the auditors without modification.
4.2 The applicant must take all reasonable steps to ensure that its auditors are independent
of it, and obtain written confirmation from the auditors that they comply with guidelines
on independence issued by their national accountancy and auditing bodies.
4.3 The applicant should be able to demonstrate that at least seventy-five per cent of its
business is supported by a historic revenue earning record which covers the period
for which accounts are required under 4.1, that it controls the majority of its assets
and has done so for the period for which accounts are required under 4.1, and that it will
be carrying on an independent business as its main activity.
4.4 An applicant must satisfy the ISE that it and its subsidiary undertakings have sufficient
working capital available for the group’s requirements for at least the twelve months
from the date of publication of the prospectus for the shares to be admitted.
4.5 A sufficient number of the class of shares (excluding treasury shares) to be listed
must be distributed to the public2 in one or more EEA States; a “sufficient number”
usually being twenty-five per cent of the shares for which the application is made (often
referred to as the “free-float” requirement).
4.6 The securities to be listed must be eligible for electronic settlement.
Modified requirements apply for mineral companies and scientific research based companies.
4.7 The directors and senior management of the company must have appropriate
expertise and experience for the management of the group’s business, and each of the
directors should be free of conflicts of interest.
4.8 An applicant which has a controlling shareholder must be capable at all times of
carrying on its business independently of the controlling shareholder and its associates,
2Shares held directly or indirectly by the directors (or their connected persons) of the applicant or its subsidiaries, or the trustees
of a share scheme or pension fund of the applicant and its subsidiaries, or any person who under an agreement has a right to
nominate a person to the board of directors of the applicant, or persons who have an interest in five per cent or more of the
shares of the relevant class, will not usually be treated as shares in public hands.
ARTHUR COX 8and relationships and transactions between the company and that shareholder (or its
associates) must be at arm’s length and on a normal commercial basis.
4.9 A controlling shareholder will be required to enter into an agreement with the company
containing mandatory independence provisions requiring the appointment of
independent directors to be approved by separate resolutions of (i) the shareholders as
a whole, and (ii) the independent shareholders.
5. MSM - SECONDARY LISTING
An applicant for a secondary listing must comply with the conditions set out at 3.1 to 3.7 above,
as well as the condition set out at 4.5 above.
Note: in relation to the conditions set out in 1 to 5 above, the ISE reserves the right to impose
additional conditions, and is able to modify or dispense with conditions (subject to the
requirements of Irish law), if it chooses to do so.
6. MSM – ADMISSION TO TRADING RULES
The Admission to Trading Rules apply to all applicants seeking admission to listing on the
MSM. The conditions for admission to trading on the MSM pursuant to these Rules are:
6.1 The application for admission to trading must relate to all shares of the relevant class
that have been issued or are proposed to be issued.
6.2 The application must relate only to shares that are proposed to be admitted to listing
by the ISE.
6.3 The applicant must be in compliance with the requirements of any securities
regulator by which it is regulated and/or any stock exchange on which it has securities
admitted to trading.
6.4 The applicant’s shares must be freely negotiable (i.e. tradeable, transferable without
restriction and fungible with other securities of the same class) and capable of being
traded in a fair, orderly and efficient manner.
6.5 The shares in question must also be eligible for electronic settlement and traded in a
currency recognised by the ISE.
ARTHUR COX 9IV. FLOAT TEAM
Before starting the float process, the company will need to assemble its float team. The float team
may include an underwriter (who may also act as financial adviser), accountants, lawyers and
others — including the share registrar, public relations consultants and other consultants who
may be commissioned to produce special reports for the prospectus (e.g. for mining companies,
prospectivity reports).
1. SPONSOR/ESM ADVISER/ASM ADVISER
Every company applying for admission to the MSM must have a sponsor. Sponsors must be
approved by the ISE and must be independent. Their role is to provide guidance and advice to
the company on the application or interpretation of the Listing Rules, to act as a liaison with the
ISE, and to give assurance to the ISE that the company is suitable for listing and in compliance
with all applicable requirements of the Listing Rules.
Every company applying for admission to the ESM or ASM must have an ESM Adviser or
ASM Adviser. ESM and ASM Advisers must be approved by the ISE and must be independent.
The role of the ESM or ASM Adviser is to provide guidance and advice to the company on the
application or interpretation of the ESM Rules or ASM Rules, to act as a liaison with the ISE,
and to give assurance to the ISE that the company is suitable for listing and in compliance with
all applicable requirements of the ESM Rules or ASM Rules.
The Sponsor, ESM Adviser or ASM Adviser will also usually provide general financial advice
to the company.
2. UNDERWRITER
In the case of an “offer of securities” to the public, the underwriter will underwrite the success
of the float by agreeing to subscribe for any shares not taken up by investors. In large offers,
there will normally be an underwriting syndicate, and the underwriters may seek to reduce their
risk by sub-underwriting a portion of the shares they have committed to take up. The company
will enter into an underwriting agreement with the underwriters that will provide for fees and
termination events, and will include a broad indemnity in favour of the underwriters.
It is now usual to “book build” an offer, whereby potential investors can bid for shares before
the size and price of the offer are set and before it is underwritten. This reduces the underwriters’
risk and should also permit the company to place the full amount of the offer at the best price.
3. REPORTING ACCOUNTANT
The reporting accountant will conduct the accounting and tax due diligence on the company
(usually preparing a “long form” and “short form” due diligence report that is critical for the
preparation of the prospectus, as well as preparing the historical financial information and
reports to be included in the prospectus. Usually the company's auditor will act as reporting
accountant, and will also generally advise the company on accounting and tax issues in
connection with the transaction. In addition, the reporting accountant will provide comfort
letters to the company, its sponsors and underwriters in relation to the financial information
included in the prospectus (e.g. working capital, historical financial information, capitalisation
and indebtedness, etc.).
ARTHUR COX 104. COMPANY'S LAWYERS
The company’s lawyers will advise on any restructuring required in anticipation of the float, as
well as the preparation of the prospectus and the company’s legal obligations in relation to and
following the float. Normally the company’s lawyers will “hold the pen” on the prospectus and
will also undertake verification of this and any other public documents. In addition, they will
negotiate the underwriting agreement with the underwriter and its lawyers.
5. UNDERWRITERS' LAWYERS
The underwriters’ lawyers will undertake legal due diligence on the company and will draft the
underwriting agreement. In addition, they will oversee the work done by the company’s lawyers
to assure the underwriters that the company is being properly advised.
6. PR CONSULTANTS
A company will usually engage a public relations consultant to ensure the company gets
appropriate press coverage and to liaise with members of the media in relation to the float.
7. SHARE REGISTRAR
The company will need to appoint a share registrar to handle the receipt and processing of
applications under the float and to maintain the share register after the float. The share registrar
may also help with technical issues relating to the share register and the issue and transfer of
shares during and after the float.
8. OTHER EXPERTS
Depending on the company being floated, other experts may be commissioned to advise the
company or to produce special reports for the prospectus (e.g. for mining or property
companies).
ARTHUR COX 11V. GETTING THE COMPANY READY
In addition to complying with the float prerequisites, the company will need to review its structure,
board and corporate governance procedures before floating. It will also need to decide whether
to put in place an employee incentive plan.
1. WHEN TO FLOAT
A reasonably simple, well managed float can be completed within 3 months. More complex
floats will take longer and may take up to 12 months to plan and complete. There are a number
of factors to take into account when deciding when to launch a float:
1.1 business funding requirements and performance – the most important factor driving
the timetable of any float will be the company’s funding requirements. In order to
maximise the company’s valuation, the timing of the float should coincide with the
achievement of key metrics in the company’s business plan in terms of customers,
earnings, etc.
1.2 market conditions — while there are examples of companies who have floated
successfully in declining markets, the ideal time to float is when the market on which
the company is floating is generally increasing in value. Floats generally take place in
the spring or early autumn to avoid the quiet periods over the summer months and
around Christmas, and companies will seek to avoid being part of a cluster of flotations
in order to maximise the amount of investor funds available to each company.
1.3 resources available for preparation — it is difficult to over-estimate the value of good
preparation and clear strategic thinking in preparing for a float and these will absorb a
huge amount of management time. It is important to plan carefully the resources made
available for the float in order to permit the company’s management team to continue
to optimise the company's performance during this period, itself an essential aspect of
planning for the float.
2. PREPARING FOR THE FLOAT
Set out below are some of the aspects of the company's structure, operations and governance
that will need to be addressed in advance of flotation:
2.1 Business Plan
In putting together the prospectus and selling the float, the company's business plan will
be subjected to a high level of scrutiny. The company must ensure that its strategy is
robust and achievable, and that its financial performance, growth prospects and plans
for the proceeds of the float are sufficiently attractive to investors. In addition, the
company will need to demonstrate that its management team has the knowledge and
experience to deliver the plan as outlined.
2.2 Financial Controls
This is a key issue that the sponsor and potential investors will need to be comfortable
with. Unless the company has adequate controls and financial reporting procedures in
place, investors will be concerned about the fate of the proceeds of the float and the
ARTHUR COX 12company will not be able to comply with its ongoing obligations to provide timely and
accurate disclosure to the financial markets.
2.3 The Board
Corporate governance best practice and, increasingly, statutory and regulatory
intervention imposes high standards on the boards of listed companies. There are a
number of issues in relation to the board which will need to be addressed in the period
leading up to the float:
(a) independent directors – generally a majority of the board, including the
chairperson, must consist of independent directors. All directors who will be in
place at or around the time of the float must be appointed sufficiently in advance
to be comfortable taking responsibility for the contents of any prospectus.
(b) committee structure – at a minimum, remuneration, nomination and audit
committees of the board are required. It is increasingly common to also have a
risk committee, and the composition of each committee must be carefully
considered to ensure that it has sufficient independent directors to perform its
functions.
(c) remuneration and service contracts – the remuneration levels for directors
and management will need to be considered by the board, including any share
or other non-cash incentives to be provided. Service contracts or letters or
appointment must be put in place to adequately protect the company (e.g. with
sufficient notice periods, non-competes, etc.).
(d) D&O insurance / indemnity – given the potential liabilities that the flotation
process exposes the directors to, and their increased exposure as directors of a
listed company, the company will need to obtain adequate directors’ and
officers’ liability insurance and may also need to consider providing
indemnities to directors (although the scope of such indemnities will be limited
by Irish company law).
2.4 Legacy Issues?
The company needs to review the group and its business and consider:
(a) Is a group reorganisation required to streamline the group structure, dispose of
non-performing divisions, or structure the group in a more tax-efficient
fashion?
(b) Are there classes of shares in the company's capital structure that are no longer
needed, and what changes are required to its constitutional documents to make
them suitable for a listed company?
(c) Does the group own, or have continuing access to, the intellectual property,
contractual rights and other assets that are required for its business?
(d) Are the terms of any related party transactions to which the group is a party
arm's length?
(e) If the company has a controlling shareholder, how will it regulate its
relationship with that shareholder post-flotation to ensure that the company is
suitable for listing?
ARTHUR COX 13(f) Does the company have contracts whose change of control provisions would
be triggered by the float?
2.5 Investor Relations
During and after the float, the company will require a clear strategy for communicating
with its investors, analysts and the business media. Its sponsor and PR adviser will
assist with this during the float process, and listed companies usually engage PR
advisers on a continuing basis post-float. In addition, the company must ensure that it
has identified an internal team to deal with and co-ordinate market disclosure and
internal and external communications with shareholders, potential investors,
employees, analysts, business media, etc. following the float.
2.6 Employee Incentives
Most listed companies will have at least one share incentive scheme for senior
management and executive directors, and another scheme available to all (or, at least, a
broad cross-section of) employees. Prior to flotation, the company should consider what
share incentive arrangements it will put in place.
The most common types of schemes are:
(a) share option plans, where employees have the right to buy shares at a specified
price during a future period;
(b) share incentive schemes, which are similar to option plans but grant a right to
buy shares rather than exercise options; and
(c) save-as-you-earn plans, where employees save a specified amount over a period
that is used to buy shares.
The company may also consider putting in place cash long term incentive plans for
specific, hard-to-replace senior employees.
Once a company is listed, share schemes and long term incentive plans will generally
require shareholder approval, so a company may prefer to put these arrangements in
place pre-float.
In determining what type of schemes to put in place, a company must consider a broad
range of issues, including:
(i) the tax and accounting implications for the group;
(ii) the tax implications for participating employees;
(iii) the dilutive impact of the scheme on other shareholders and, in particular, the
guidelines issued by institutional investor committees in relation to employee
incentive schemes and remuneration;
(iv) the impact of the schemes on other corporate objectives, e.g. mergers and
acquisitions, etc.;
(v) whether the performance targets or other criteria for awards vesting are
sufficiently rigorous and serve to align the interests of the participating
employees with those of the broader shareholder base; and
ARTHUR COX 14(vi) whether the scheme will be required to be approved by the Revenue
Commissioners.
ARTHUR COX 15VI. THE PROSPECTUS / ADMISSION DOCUMENT
A prospectus must be prepared and published where there is an “offer of securities to the public”
and/or a company floats on the MSM. Where there is no offer to the public, floating on ESM or
ASM requires the preparation and publication of an Admission Document, which has narrower
content requirements than a prospectus. In certain circumstances floating on the ASM may not
require an Admission Document.
As well as specific content requirements, overall a prospectus must contain all the information
about the company and the securities offered that is necessary to enable investors to make an
informed assessment of:
the assets and liabilities, financial position and performance, profits and losses, and
prospects of the company; and
the rights and liabilities attaching to the company's shares.
1. WHEN IS A PROSPECTUS REQUIRED?
Irish law requires a prospectus to be prepared and published where:
1.1 A company seeks to float on the MSM; and/or
1.2 A company makes an “offer of securities to the public” in Ireland.
An “offer of securities to the public” is broadly defined as a communication to persons in any
form and by any means, presenting sufficient information on the terms of the offer and the
securities to be offered, so as to enable an investor to decide or apply to purchase or subscribe
for those securities. However, there are a number of exemptions to the prospectus requirements
and those most frequently relied on for share offerings are:
Offers of securities to “qualified investors” (effectively, sophisticated investors meeting
the criteria set out in the relevant legislation); and
Offers to fewer than 150 persons other than qualified investors.
Fundraisings by companies floating on the ESM or ASM will generally be structured to come
within the two exemptions listed above, so that the preparation of a prospectus is not required.
2. PROSPECTUS CONTENT REQUIREMENTS
The over-arching requirement is that a prospectus must contain all the information about the
company and the securities offered that is necessary to enable investors to make an informed
assessment of:
the assets and liabilities, financial position and performance, profits and losses, and
prospects of the company; and
the rights and liabilities attaching to the company's shares.
The company and its advisers will need to consider what information is relevant for these
purposes. In doing so, they should consider whether the information is likely to influence an
investor’s decision to buy shares in the company, and/or would have any significant financial
or reputational effect on the company, and/or would be likely to affect the price or value of the
ARTHUR COX 16company’s shares if the company were already listed. On this basis, materiality guidelines for
the inclusion of matters in the prospectus should be agreed, and then used by the company in
preparing the prospectus.
In addition, the prospectus must comply with the specific content requirements set out in the
implementing measures for the Prospectus Directive. These include information about the
company, its business, organisational structure, capital resources, directors and senior
management, employees, major shareholders, related party transactions, litigation and material
contracts. In addition, information concerning the securities being offered, terms and conditions
of the offer, trading and dealing arrangements, selling shareholders (if any), expenses of the
offer and dilution must be included where a float includes a primary or secondary sale of shares.
Generally, the content requirements requiring the greatest volume of work are:
2.1 Risk Factors: the prospectus must include prominent disclosure of risk factors specific
to the company or its industry, or to the securities being offered. This section of the
prospectus can vary significantly in length, with recent Irish prospectuses having as few
as 5 pages or as many as 40 pages describing risk factors.
2.2 Historical Financial Information: 3 years of audited historical financial information is
required to be included, prepared in accordance with International Financial Reporting
Standards (IFRS) or equivalent accounting standards. The last year of audited financial
statements must not be older than 18 months if audited interim accounts are included in
the prospectus, or 15 months if unaudited interim accounts are included. If the
prospectus is published more than 9 months after the end of the last audited financial
year, it must include interim financial information. Frequently, companies coming to
market may need to restate financial information to reflect IFRS, or want to change their
accounting year end and reporting cycle for investor relations reasons, which can
require a huge amount of work by the reporting accountants.
2.3 Operating and Financial Review: in relation to the period covered by the historical
financial information, the prospectus must include a description of the company’s
financial condition, changes in financial condition and results of operations, including
the causes of material changes from year to year to the extent necessary for an
understanding of the company’s business as a whole. This involves analysing the
company’s historical financial information to understand the significant or unusual
factors influencing its financial condition and income from operations, and then
describing these in a section of the prospectus.
2.4 Working Capital: the prospectus must include a statement that the company’s working
capital is sufficient for its present requirements (i.e. at least the next 12 months) or, if
not, how it proposes to obtain the additional working capital required. This statement is
backed up by a huge amount of work by the company on its working capital in various
scenarios. The company’s work is then reviewed and tested by the reporting
accountants, and both the company and its reporting accountant will be required to
provide letters of comfort to the company’s sponsor on this issue.
If a profit forecast or estimate is included in the prospectus, it must be prepared on a basis
comparable with the company's historical financial information and must set out the principal
assumptions on which it is based. In addition, a report must be included from independent
accountants or auditors stating that in their opinion the forecast/estimate has been properly
compiled on the basis stated, and that its basis is consistent with the accounting policies of the
issuer. Given the extra work involved, and the potential liability that can result from making
this type of forward-looking statement, most companies will avoid including profit estimates or
forecasts in a prospectus if possible. However, in the context of an initial public offering
potential investors may require an indication of the company’s likely profitability before
ARTHUR COX 17committing to invest. Any such statement (and, indeed, any forward-looking statement) should
be subject to the highest levels of verification, as failure to achieve the projected position can
be very damaging to a company’s reputation and share price, and can result in regulatory action
or litigation if it is determined that the statement was made without due care and attention.
3. TYPICAL CONTENTS OF PROSPECTUS
A typical float prospectus will contain the following sections:
Part I: Summary – conveys the essential characteristics of, and risks associated with, the
company and its shares, and should not exceed 7 pages or 15% of the total length of the
prospectus, whichever is longer
Part II: Risk Factors – risk factors specific to the company or its industry, or to the securities
being offered
Part III: Directors, Secretary, Registered Office and Advisers
Part IV: Expected Timetable of Principal Events
Part V: Offer Statistics
Part VI: Selected Summary Financial Information – a summary of the historical financial
information can be included
Part VII: Information on the Group – an overview of the company’s history, business, current
trading and prospects
Part VIII: Operating and Financial Review – as described above
Part IX: Regulation – overview of principal sources of regulation applicable to the company and
its business
Part X: Directors, Senior Management and Corporate Governance – includes experience and
background of directors whether executive or non-executive; it also highlights staff who are
important to the business and the company’s corporate governance policies
Part XI: Historical Financial Information – as described above
Part XII: Unaudited Pro Forma Accounts – shows the effects of the transaction on the
company’s historical financial information
Part XIII: The Offer – background and reasons for offer of shares and description of its terms
Part XIV: Additional Information – summaries of material contracts, material litigation, the
constitution of the company and other specific information required by Irish prospectus law
Part XVI: Definitions
4. APPROVAL PROCESS FOR A PROSPECTUS
A prospectus prepared by an Irish company must be approved by the Central Bank of Ireland
(the Central Bank) before it can be published. This process usually takes 4-6 weeks. The
Central Bank will comment on the successive drafts of the prospectus submitted by the company
and the prospectus will not be approved until all of these comments have been reflected in the
ARTHUR COX 18draft prospectus or otherwise addressed. To expedite this process, it is important that the first
draft submitted to the Central Bank is as well-developed as possible.
5. EXTENDING OFFER INTO OTHER JURISDICTIONS
Since the implementation of the Prospectus Directive in the European Union, the contents,
approval and publication requirements for a prospectus have been harmonised across Europe.
One of the advantages of this is that a prospectus, once approved by the Central Bank, can be
“passported” into other EU jurisdictions to permit the company to offer and/or list its shares in
that jurisdiction. This process is largely administrative, although a translation of the summary
(but not the entire prospectus) may be required in order to passport into some jurisdictions. It
is very common for a prospectus prepared by an Irish company to be passported into the United
Kingdom and this procedure can be effected on the same day that a prospectus is approved by
the Central Bank.
6. CONTENTS AND APPROVAL OF ADMISSION DOCUMENT
Where a company is floating on the ESM or ASM and a prospectus is not required, the company
must instead prepare an Admission Document in compliance with the ESM Rules or ASM
Rules.
For an ESM Admission Document the content requirements are a sub-set of those required for
a prospectus (e.g. no Operating and Financial Review is required) with the result that Admission
Documents tend to be substantially shorter than prospectuses (e.g. c. 100 pages rather than 300-
400 pages).
For an ASM Admission Document, the content requirements reflect the disclosures included in
the applicant’s US registration statement. Companies who have had their securities traded upon
an NYSE or NASDAQ for at least eighteen months (or such shorter period as the ISE agrees)
prior to the date of admission to ASM can apply to be admitted without having to publish an
Admission Document. Companies using the fast track route to ASM must make a detailed pre-
admission announcement.
An Admission Document does not require the approval of the Central Bank, and must only be
approved by the company’s ESM Adviser or ASM Adviser prior to its publication. This process
tends to take around 4 weeks and is more flexible that the formal Central Bank approval process
required for a prospectus.
ARTHUR COX 19VII. DUE DILIGENCE, VERIFICATION AND LIABILITY FOR
OFFER DOCUMENTS
Significant liability can result for a company and its directors and advisers if a prospectus or
Admission Document or related documentation (an Offer Document) is inaccurate or misleading
or omits material information. To manage this risk, two processes are undertaken:
Due diligence: the company’s business, operations and financial condition are investigated
to ascertain whether it is suitable for listing and identify matters that must be disclosed in
Offer Documents.
Verification: the information in each Offer Document is checked to ensure that it is
accurate and not misleading as it is presented in that document.
In undertaking due diligence and verification, it is essential that the focus is on matters that will
be significant to investors in making their decision to invest, and/or matters that could materially
affect the value or reputation of the company. Common mistakes are spending disproportionate
amounts of time obtaining or checking relatively inconsequential information, and becoming so
absorbed in the process of collating information that insufficient time is given to evaluating the
significance of that information and the risks it poses to the company and its business.
1. WHO IS RESPONSIBLE FOR THE PROSPECTUS/ADMISSION DOCUMENT?
The company’s directors are required to state in a prospectus or Admission Document that they
accept responsibility for the information contained therein and, that to the best of their
knowledge (having taken reasonable care to ensure that such is the case) the information therein
is in accordance with the facts and does not omit anything likely to affect the import of such
information. The company itself will also be responsible, and advisers who have provided expert
reports for inclusion in the document may also be liable for the contents of those reports.
This responsibility can give rise to civil and criminal penalties for the responsible persons, as
well as extensive reputational damage for all parties involved in the float. The reach of civil
liability claims is wider than that for criminal liability, but in most cases a “due diligence”
defence can defeat or mitigate the claim (e.g. directors prosecuted for inaccuracies or omissions
in a prospectus will not be liable if they can prove that the statement or omission was immaterial
or that they had reasonable grounds to believe, and did believe, up to the time of the issue of the
prospectus that the statement was true (or did not know the information was omitted) or that the
making of the statement or omission ought reasonably to be excused).
The potential consequences of inaccuracies or omissions from a prospectus or Admission
Document make it critical that all reasonable steps are taken to check that the contents of such
documents (and all related publications) are accurate, and that they do not omit material
information. There are two processes employed in every float to this end: due diligence and
verification.
2. DUE DILIGENCE
Due diligence is normally undertaken by the sponsor/underwriter and its legal team. In addition,
the reporting accountant will prepare "long-form and "short-form" due diligence reports on the
company to which the company and its advisers will have access.
ARTHUR COX 20The legal due diligence process usually involves the preparation of a hard-copy or online data
room in response to a due diligence questionnaire. The legal due diligence process will normally
be conducted on the basis of materiality guidelines agreed between the company and the
sponsor/underwriter at the outset. There are no hard and fast rules, as what is material will differ
in respect of each company, but the guidelines will involve both quantitative (e.g. a specified
percentage of turnover) and qualitative (e.g. reputational) factors.
The financial due diligence normally involves the location of a team of accountants on-site at
the company reviewing its records, processes and controls. While the reporting accountant may
be the company's auditor, this work will be performed by a separate team to ensure objectivity.
The scope of a long-form report is extensive, usually including reviews of the business, its
organisation, structure, management and personnel, its financial performance and tax status,
internal controls and information systems, as well as its accounting policies.
In addition, numerous face-to-face sessions will be held with management at which the
accountants and lawyers (both the company’s and the underwriter’s) as well as the sponsors,
underwriters and bookrunners themselves will attend to closely question the company’s
personnel. Depending on the nature of the company, specialists may be employed to undertake
due diligence on particular assets (e.g. property valuations, natural resources reserves, etc.).
Overall, the due diligence process is intended to ensure that the prospectus/Admission
Document includes all the information necessary to enable investors to make an informed
assessment of the assets and liabilities, financial position and performance, profits and losses,
and prospects of the company.
3. VERIFICATION
As the prospectus/Admission Document takes shape but before it is finalised, the document
must be verified. This process is undertaken by the company’s lawyers and involves checking
each material statement of fact or opinion in the document to ensure that it is accurate and,
where possible, collating supporting material for that statement.
The main purpose of verification is to provide a record of certain of the steps which have been
taken to check the accuracy of the information and bases for expressions of opinion given in the
prospectus/Admission Document. In particular, the verification exercise is intended to assist
those responsible for the document in seeking to ensure that:
3.1 incorrect statements are not made because persons concerned in their preparation
believe that some other person has checked them;
3.2 inferences which a reader might reasonably draw from the statements in the document
are correct (it not being sufficient that a statement is itself correct if an inference which
might properly or reasonably be drawn from it is incorrect);
3.3 due consideration has been given to forecasts, estimates and expressions of opinion in
the document;
3.4 nothing has been omitted from the document which makes any statement misleading or
might otherwise be material for disclosure in the context of the proposed marketing of
shares; and
3.5 taken as a whole, the document gives a true, accurate and fair impression of the
company.
ARTHUR COX 21This will assist those responsible for the prospectus/Admission Document in demonstrating that
they have discharged their duty to exercise due care and skill in the performance of their
functions as directors, and to ensure the accuracy and completeness of the prospectus/Admission
Document.
The verification exercise will normally take the form of written questions and answers. While
the directors must take overall responsibility for the contents of the prospectus/Admission
Document, responsibility for particular aspects or sections of the document may be allocated to
senior management or other appropriate persons.
The output from the verification process will be the completed questions and answers and files
of supporting documentation, which should be retained by the company. In undertaking
verification (as with due diligence), it is essential that the focus is on matters that will be
significant to investors in making their decision to invest, and/or matters that could materially
affect the value or reputation of the company. Common mistakes are spending disproportionate
amounts of time obtaining or checking relatively inconsequential information, and becoming so
absorbed in the process of collating information that insufficient time is given to evaluating the
significance of that information and the risks it poses to the company and its business.
4. CONTINUING OBLIGATION
While an offer of securities is in progress, the responsible parties must continue to monitor and
verify all public statements (including verbal statements) relevant to the company, its business,
prospects and the sector in which it operates.
In addition, if a significant new factor or material mistake or inaccuracy relating to information
included in a prospectus/Admission Document arises, then it will be necessary to publish a
supplementary document, which can affect the timetable for, and success of, the float.
ARTHUR COX 22VIII. PRICING
In pricing a float there may be tension between the desire to maximise the float price, and the
requirement to ensure an orderly after-market. The company will need to work closely with its
sponsor/underwriter/bookrunner to manage this process and reach an acceptable outcome.
1. HOW IS THE PRICE DETERMINED?
The pricing process begins with research by the underwriting syndicate’s analysts. The
methodology varies, but may include review against listed peers, discounted cash-flow analysis,
valuation of individual businesses or key assets comprised in the group, etc. This will result in
a valuation range.
It is now relatively unusual for floats to be at a fixed price. Instead, a price range is usually
employed to generate competitive tension between potential investors with the aim of
maximising the issue price. However, given the desire for an orderly after-market, additional
weight may be given to potential investors who are well-known institutions likely to be long-
term holders even if they are not offering the highest price. It is a bookrunner's job to co-ordinate
this process and manage demand for the offering.
At the end of the book-build, the price is set and the shares are allocated on that basis.
2. INCENTIVES TO HOLD SHARES
The price for retail applications will normally be the price determined through the book-build
but, in some cases, a discount or other incentive will be offered to encourage retail investors'
participation in the float. For example, when three-quarters of the Irish Government’s stake in
Aer Lingus was floated in 2006, those acquiring through the intermediaries offer (i.e. the retail
portion) or the employee offer were conditionally allotted one bonus share for every twenty they
acquired in the offer, and the bonus shares were issued to those investors who held their shares
continuously until the first anniversary of the float. However, this is more usual in the case of
privatisations, such as the Aer Lingus transaction.
3. MANAGING THE AFTER-MARKET
There will usually be significant turnover of shareholding in the wake of a float. In order to
ensure an orderly after-market, bookrunners may engage in a process known as “stabilisation”,
whereby shares may be purchased by the bookrunners if they are offered for sale below the float
price during a 30 day period after the float. It should be noted that stabilisation activity
constitutes a limited exemption to the normal rules against market manipulation, and the
circumstances in which it may be undertaken are strictly limited.
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