Structure of an Initial Public Offering on AIM

There are six phases to every successful initial public offering (IPO) on AIM. The first three are preparatory phases which required to get the company is a position so it is ready to be listed on AIM. The final three phases are carried out in order to float the company.

Preparatory steps

Phase 1 – Strategic review

The first step in preparing for an IPO is for the company to address a number of fundamental questions about its future. Such questions should include:

• What are the company’s short-term and long-term objectives?

• Will the company’s current infrastructure, management, resources and profile enable it to meet these objectives?

• What resources are required in the short and medium term? Consider the company’s capital, talent, USP, access to customers and scale? What form will such resources take and on what scale?

• Could an IPO enable the company to reach its objectives?

• Is the company attractive to investors?

• What changes will be required for the company to be suitable for the public market and how easily can the company adapt?

These questions should be discussed between the Company’s senior management team and will form the foundation of every phase which follows. The Company should openly correspond with Nomads, brokers, legal and other advisers who will all be able to provide assistance.

Phase 2 – Preparing an investment case and financial track record

Once a company has established that it wants to pursue an IPO, the second preparatory phase begins. The company needs to prepare the investment case that will be presented to prospective Nomads and, at a later stage, investors. The stronger the investment case, the more compelling a reason there will be to invest in the company.

This should be summarised in a short presentation, but backed by a detailed and robust financial model. It is essential that this information is accurate and realistic, as credibility is a key factor which investors will be considering. Investors will expect to see the following things covered:

• Market opportunity, including market size, trends and drivers;

• Positioning, in terms of products and services, customers and competition;

• Team, including the directors and the track record of the management team;

• Strategy and consideration of areas of growth and capital requirements for such areas to be explored;

• Financial information including an historic track record, deliverable short – term forecasts and cashflows; and

• Information on shareholders and capital structure, such as control and liquidity, competition, transparency and simplicity.

Any issues that have been identified do not need to be fully resolved in full in time for admission.

Phase 3 – Validation

The final preparatory phase involves obtaining validation for the investment case and confirmation that the company’s objectives are achievable. The confirmation will first come from a Nomad, followed by potential investors. A Nomad will present the company with a balanced and informed view of the appetite for the company in the market, along with the potential risks and an initial view on a valuation.

At the end of this phase the company should have sufficient confidence that the IPO has a strong chance of success.

At this stage, engagements with the company’s legal advisers and reporting accountants should be formalised, in anticipation of phase 4.

The IPO process

Phase 4 – Due diligence

The company’s lawyers and reporting accountants, working in conjunction with the Nomad, will carry out an in – depth review of every aspect of the company and its business. This will result in a due diligence report being prepared, which will form the foundation of the Admission Document. The Admission Document is the key regulatory document and the main marketing document for the IPO. The directors of the company are legally responsible for its contents.

The legal and financial due diligence are carried out in parallel. As such, this puts a substantial demand on management’s time. Arrangements must be made to commit the necessary time to the process, while continuing to run the business.

Once the due diligence report has been prepared, the Nomad will lead discussion of the findings with the management team and the company’s advisers to ensure the findings are addressed ahead of the IPO and appropriately disclosed in the Admission Document.

Phase 5 – Documentation

The Admission Document is the main transaction document. The AIM Rules set out specific requirements for the Admission Document, the main areas being;

• Overview of the business;

• Risks associated with the company and its shares;

• Historical financial information; and

• Legal disclosures including, but not limited to, a description of the company’s material contracts, intellectual property rights, employment contracts and the history of its share capital.

With the assistance of the advisers, all information contained in the Admission Document is verified by management, either through source material or, where statements of belief are concerned, through discussions with management and directors.

Phase 6 – Marketing

The Nomad is responsible for the marketing strategy for the IPO, including preparing IPO research, pre – marketing (if any) and the structure of the marketing roadshow.

The broker will present the IPO research note to prospective investors ahead of meetings with management. It presents the broker’s view on the company and sets the scene for the roadshow. There is a regulatory requirement for a clear period of time between the distribution of research and the beginning of the roadshow.

The marketing roadshow will often involve full days of presentations, followed by a stressful period of waiting for orders from investors to come in. However, all the work put into the previous phases comes together here. From this point onwards, the company can start reaping the rewards of solid preparation and enjoying life as a public company.

If you would like further information on any of these phases, please do not hesitate to contact David Anderson.

January 2018