This article was co-written by Lorraine Rees, IR-Connect and Julian Macedo, The Deal Team and first published in the Investor Relations Society Magazine, Spring 2019 edition.
The UK Main Market IPO process underwent significant change on 1 July 2018. The FCA wanted to restore the primacy of the prospectus to the IPO process, which affected the documentation and disclosure requirements. They also introduced changes to protect the independence of research analysts who are members of the IPO syndicate, as well as requiring engagement with unconnected research analysts. Having worked on one of the first IPOs to go through the new process, Lorraine Rees and Julian Macedo share their experience.
For those who are less familiar with the changes, here is a quick recap:
- A formal registration document is published at the start of the IPO process and the approved prospectus (or securities note) is then published at the beginning of the bookbuilding process. These are formally approved and publicly available, instead of the previous practice of publishing an Intention to Float (ITF) and the draft “pathfinder” prospectuses being sent only to selected institutional investors.
- All analysts, whether connected to the IPO or unconnected, must have access to the same information. This has three key implications: (i) a data room is required to share the documentation, (ii) unconnected analysts have to go through a verification process, and (iii) analyst meetings impact both the length of the IPO process and the timing of publication of analyst research.
- The connected and unconnected analyst meetings can be at the same time, or separately. This decision will impact the IPO timetable and communications, however in practice all IPOs to date under the new regime have used separate analyst meetings.
- Issuers and independent advisors may not interact with research analysts during a pitch process.
- Issuers are reminded that the analyst presentation may contain inside information under the Market Abuse Regulation (relevant if the issuer has other listed securities).
Documentation timeline
The IPO execution process may appear longer since the old prospectus is now published as an FCA-approved Registration Document (no offering information) and a subsequent Securities Note or combined Prospectus. However, previous practice was to obtain “approval in principle” and clear all outstanding regulation comments prior to the launch of the IPO, so the total execution time is theoretically relatively unchanged. Anecdotally, from the IPOs to date under the new regime, it appears this requirement may have extended some execution periods.
Data room
The data room to provide the analysts with information is clearly useful, however, it does require careful project management to ensure access is controlled, and that every key piece of information is logged and uploaded with full input from the banks and lawyers.
To fulfil the equal disclosure obligations to all analysts, the IPOs to date have all transcribed their Q&A sessions, which can be an expensive process to put in place especially with the tight turnarounds required. We understand IPO-knowledgeable suppliers are developing conference call recording with integrated machine transcription, to address this specific issue.
Analyst meetings
Turning to the analyst meeting, the company can choose to host one meeting for all analysts, in which case any analyst can publish on the ITF announcement which will be the day after the registration document. However, if separate meetings are held, the unconnected analyst (UA) meeting takes place after the registration document publication, in which case both may only publish at least 7 days after the registration statement. In the latter case, the ITF may take place only after the seven days are elapsed from the registration document publication. Effectively, option i) is still a four week public IPO timetable, while option ii) becomes an up to 5 week IPO timetable.
Simultaneous or separate analyst presentations?
While these appear at first glance to have balanced pros and cons, the concerns over deal confidentiality and difficulty in subjective judgements on which unconnected analysts to invite have caused IPOs launched so far to prefer option ii), with separate connected and unconnected analyst presentations. This is also the preferred route from independent research houses who have indicated a desire to absorb the issuer information in the registration document before the management meeting.
If option ii) is chosen, an additional decision needs to be made on whether to do an in-person management presentation to UAs, or a “docs-only” release. From a company/ IR perspective, it is worth considering the appetite for research coverage for smaller companies when assessing which format to use. The FCA has collated the data on UA engagement, but this has not yet been made public.
Website requirements
The Registration Document, Prospectus, IPO announcements, and UA registration forms, are now are required to be publicly accessible, usually on the company’s website, and behind legal “gatepost” screening pages. These cannot go public before the launch date, but they must work seamlessly. Writing and testing new web pages confidentially, and setting up new internal email addresses at a time of maximum distraction for senior management, always takes time. Issuers are advised to prepare early, and not leave these execution items to the final week or two before the first announcement.
The UA engagement process starts with one email being sent to a central mailing list maintained by Euro IRP, and a public invitation in the launch announcement to unconnected independent research analysts to request access. Interested analysts then request access via a form on the website, and the registration form is directed to a responsible internal email address monitored by an individual intimately involved with the IPO process, usually IR if appointed at that stage. The responsible person must then pass all requests to the bank who will advise the analyst/ IR whether approval is granted. This process generally must be concluded in no more than 24 hours.
As well as the practical implications outlined above, there is an important take-away for companies and IRs: Understanding the research analyst landscape will be harder
The rules now require that an issuer never sees or speaks to the connected research analysts until the analyst presentation or until the banks’ roles are communicated in writing by the issuer. There is a carveout here, when the research analyst is unaware there is an IPO pitch process ongoing, but the compliance issues mean we believe it’s unlikely to be used. There are also restrictions on approaching unconnected analysts. Issuers wishing to understand the analyst landscape as part of their IR preparedness for an IPO will need to rely on professional IR and related advisors.
Overall, these regulatory changes have made the IPO process more complex for issuers. While the FCA has not yet published the summary of unconnected research published under the new regulations, anecdotally we understand many UK Main Market IPOs since September have seen only a few – or no – unconnected research reports published. Nevertheless we would conclude that as the new regulations are mandatory, informed issuers have an opportunity to take advantage of this early engagement with the research community and get a headstart on building their sell-side relationships for their post-IPO world.
From an IR perspective, this is likely to lead to IR advisors playing a bigger role during the IPO, and/ or an IR appointment being made earlier than in the past. If you are considering an IPO in the next eighteen months and would like a preliminary discussion on the investor relations implications, please contact Lorraine at IR-connect.
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