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Initial public offerings
What are the most common structures used for IPOs in your jurisdiction, and what are the advantages and disadvantages of each?
In most cases, an IPO is structured as an offer to subscribe for new shares or an offer to purchase existing shares.
IPOs in Ireland are frequently run in conjunction with a dual listing process in the United Kingdom.
Cornerstone investments are becoming a common feature of the Irish IPO market. This is where one or more investors, usually a large institutional or sovereign investor, agree to subscribe for a fixed monetary amount of shares (generally 5% or greater) in an IPO. This definitive commitment is usually given shortly before the IPO price range is announced and the prospectus is published. A cornerstone investor will invest usually at the IPO price, or a price determined by reference to it.
Procedure and timeframe
What is the procedure and typical timeframe for launching an IPO?
The timetable for an IPO will vary depending on the company involved. In the simplest case, a minimum of three months should be allowed from initiation to completion. The typical timeline is six months for a listing on the Main Securities Market (MSM), with a slightly shorter period for listing on the Enterprise Securities Market (ESM), depending on complexity and the availability of the fast-track procedure.
Common factors which can affect the timetable include:
- corporate reorganisations;
- issues arising on due diligence;
- changing market conditions; and
- the preparation of a three-year record for the business.
The first step is instruction of professional advisers. For a company to be listed on the MSM, a sponsor and an underwriter will be required. Equity sponsors are vetted by Euronext Dublin and a list of those approved for the MSM and ESM is published on the Irish Stock Exchange website.
The listing process involves:
- due diligence by lawyers and accountants;
- preparation of the company and its directors for transition to a listed company status;
- drafting, verification and regulatory review of the prospectus;
- preparation of underwriting agreement and supporting opinion/comfort letters;
- finalisation of any cornerstone subscription agreements;
- work on accountants’ supporting reports (eg, working capital, financial reporting procedures, long/short-form reports);
- satisfying Euronext Dublin’s listing requirements;
- investor roadshow/bookbuilding;
- final share pricing and allocation; and
- publication of prospectus and submission of formal application to Euronext Dublin.
What due diligence is required and advised in the IPO process?
The purpose of due diligence procedures is to:
- identify any legal issues concerning the company, its business or its industry or concerning the directors, proposed directors or senior management which may need to be reflected in the prospectus. Identification and disclosure of such issues will minimise the risk of those persons responsible for the prospectus incurring civil or criminal liability;
- assist in the drafting of the prospectus, helping the company to ensure that all material information is included and that the prospectus is accurate, complete and not misleading; and
- collect information on the company and its business in preparation for the formal verification exercise.
Although the legal review may take different forms, some or all of the following procedures may be involved:
- The reporting accountants will be commissioned to conduct an investigation and produce a long-form report on the company for the benefit of the directors of the company and the sponsor. Additional work may be needed to support the company’s statements in the prospectus on working capital and any profit forecasts; and
- The legal advisers to the company, together with other specialists, will conduct a review of important corporate records and organisational documents, including:
- minutes of meetings of shareholders, the board of directors or key committees of the board of directors;
- significant contracts with lenders, customers or other persons;
- material leases; and
- important pending litigation or threatened legal disputes with others, including government agencies.
Where the company operates in a heavily regulated industry, the legal review is also likely to encompass a review of the regulatory environment.
The due diligence investigation will normally be conducted by:
- the sponsor and other participants in the fundraising;
- the legal advisers to the company; and
- the legal advisers to the sponsor.
These parties will conduct interviews with the company’s management and undertake documentary due diligence. There is no prescribed routine or checklist for such an investigation. The elements are usually agreed on in advance in light of the issuer’s business and the type of issue.
Pricing and allocation
What rules and standards govern share pricing and allocation in the context of an IPO?
There are few rules regarding pricing and allocation in the context of IPOs as more commonly implemented in Ireland (eg, by means of a private bookbuilding exercise) other than the general restrictions set out in the Market Abuse Regulation (596/2014) regarding market soundings.
The EU regime on market soundings governs the communication of inside information as part of a process to gauge the interest of potential investors.
The bookbuilding process can take place in different forms, which can include auction and non-auction processes at fixed or variable prices. There is no Irish equivalent to the Myners Review of the bookbuilding process in the United Kingdom, but Irish regulators are likely to pay close attention to the outcome of the UK reform process and may require a simple auction process if that standard is established in UK markets.