Listing in London
What are the key characteristics of a UK IPO?
For entrepreneurs considering an IPO, the London Stock Exchange (LSE) offers a whole range of options. It operates four markets in total, with equity IPOs concentrated on the Main Market and AIM (formerly the Alternative Investment Market).
The Main Market is subdivided into two segments: Premium for commercial company equity only and Standard for equity, debt and Global Depository Receipts (GDRs).
Regulation for the Main Market is provided by the Financial Conduct Authority, also known in this role as the UK Listing Authority (UKLA).
AIM is owned and operated by the LSE in its capacity as a regulated investment exchange. It is designed for smaller, faster-growing companies, but a broad range of businesses now choose to list on it. Its rules are based on similar principles to those of the Main Market, and it is subject to Financial Services and Markets legislation.
The UKLA listing framework underpins London’s reputation for balanced and globally respected standards of regulation and corporate governance. Regulatory requirements in London are principles-based, and provide an appropriate balance of investor protection, practitioner certainty and flexibility.
This framework is a combination of European law and the London Listing Rules, many of which are super equivalent (additional) to European minimum requirements, which principally apply to those companies seeking a premium listing. These additional requirements include substantive eligibility requirements, such as the need for a three-year track record, the class tests whereby transactions over a certain size require shareholder approval, and related-party regimes.
The listing process
The listing process in London requires more detailed financial due diligence than some other markets. The scope of this is partly set by regulation and partly by custom and practice.
In addition to the financial information in the prospectus (typically a three-year track record and pro forma statement), a number of private reports are typically prepared in support of a London IPO:
- The long-form report: a detailed due diligence report on all aspects of the business being listed
- The working capital report: a report on the sufficiency of cash and funding for the business for at least 18 months post-IPO, which supports a statement made by the directors in the prospectus
- Financial position and prospects: a report detailing the systems and controls, reporting and budgeting, and corporate governance practices within the applicant’s business
Sponsor and nomad roles
One of the key roles in a Premium IPO is that of the sponsor, a role carried out by one of the banks involved in the transaction. The sponsor ensures the company’s directors have received advice and guidance about their obligations, and issues opinions to the UKLA on the applicant’s readiness to be listed. The role is distinct from any underwriting or book-running role the bank may have.
Each company applying to the AIM must appoint and retain a nominated advisor (nomad) to guide it through the admission process and its subsequent life as a public company. Nomads are full-time corporate finance advisors approved by the exchange. They have a similar role to the sponsor, but also act in a regulatory role.
If you are considering a London IPO with its many benefits, it is vital you ensure you have a team of advisors that understands not only the IPO process, but also the unique aspects of a London IPO.
Scott McCubbin is an EY Transaction Services partner and the IPO Leader for the UK and Ireland.
He has delivered a number of major capital market transactions, including the privatization of Royal Mail and the IPO of International Airlines Group.
He is a qualified member of the Institute of Chartered Accountants of Scotland and a member of the London Stock Exchange Primary Markets Group.