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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?
Most initial public offerings (IPOs) are carried out through a bookbuilding process, where the share price may be either fixed or within a price range. Further, the shares may be newly issued, already existing, or a mixture of the two. The advantage of using a bookbuilding process is that it reveals the relevant demand in the shares at a certain price level. This can be used as a basis for the allocation of shares and bookbuilding is therefore often a prerequisite for a functioning aftermarket.
Procedure and timeframe
What is the procedure and typical timeframe for launching an IPO?
It typically takes four to six months between the initiation of an IPO procedure and the consummation thereof. The timeline is, however, to some extent dependent upon the choice of marketplace on which the shares of the issuer are to be listed. Nasdaq Stockholm provides a fast-track alternative for companies that are very well prepared. Such fast-track process typically takes five weeks in total.
When an IPO process is initiated, the issuer usually begins the process by retaining a number of advisers, including, for instance, financial and legal advisers, auditors, and public relations advisers. The issuer typically signs engagement letters with the advisers.
The preparatory phase of an IPO on a regulated market will include contacts with the relevant stock exchange, which will appoint an exchange auditor for the purpose of assessing whether it would be appropriate to list and admit the securities in question to trading. In addition, in many cases (regardless of the choice of marketplace) a pre-audit is performed by a separate auditor.
Further, the preparatory stage of an IPO will include the carrying out of due diligence exercises (legal, financial, business and tax). The legal and tax due diligence is mandatory with respect to companies looking to get their shares admitted to trading on a regulated market. The nature of the review is somewhat more limited than a due diligence performed in connection with a private M&A transaction.
The preparatory phase of an IPO also includes, for instance, prospectus drafting and preparation of other transaction documents (eg, research guidelines, publicity guidelines, placing agreement and lock-up undertakings).
When the prospectus is more or less finalised, it is to be submitted to the Swedish Financial Supervisory Authority for review and approval. Provided that the issuer’s securities have not previously been offered to the public or been admitted to trading on a regulated market, the authority shall, pursuant to the Swedish Financial Instruments Trading Act (1991:980), decide upon approval of the prospectus within 20 business days of the submission of the application.
An IPO process will also involve analyst education and pre-marketing activities primarily involving the issuer and the financial advisers appointed. Such activities include, for instance, analyst presentations, Q&A sessions, early-look investor meetings, pilot fishing and roadshows. Further, research reports will be prepared by the research analysts involved. The management of the issuer is normally expected to comment on drafts of such reports.
The issuer is also required to submit a formal application for admission to trading or listing to the relevant marketplace, the approval of which may be subject to several conditions, such as the prospectus being approved by the Swedish Financial Supervisory Authority and the issuer fulfilling the applicable free float requirements (which, however, normally cannot be determined prior to the allocation of shares).
Once the issuer feels confident that it will proceed with the IPO, the issuer often publishes an intention to float announcement (ITF). At this time, the research reports prepared by the involved research analysts will typically be published.
At quite an early stage in the IPO process, the issuer’s financial advisers usually provide an indicative valuation of the issuer. At a later point in time, before the commencement of the application period, a price range or a fixed price will be determined.
The application period may not begin prior to the prospectus being approved by the Swedish Financial Supervisory Authority and published. Thus, the application period is typically initiated when the IPO is publicly launched – that is, when the prospectus is made public together with a press release containing, for instance, the price range, or a fixed fee, and size of the offer. The application period is often a couple of weeks.
The decision on the IPO price (if a price range is used), allocation and signing of the placing agreement (and lock-up undertakings) normally occur the day before the first day of trading. Then, on the first day of trading, pricing is announced through a press release. During the period from the first day of trading until the settlement date (typically two business days), trading in the issuer’s shares is normally made possible through share loans from main shareholders. At the settlement date, trading becomes unconditional, meaning that the investors become the legal owners of the shares in question.
What due diligence is required and advised in the IPO process?
Generally, the preparatory stage of an IPO will include the carrying out of legal, financial, business and tax due diligence exercises. The legal and tax due diligence is mandatory with respect to companies looking to get their shares admitted to trading on a regulated market. However, the nature of the legal review is somewhat more limited than a due diligence performed in connection with a private M&A transaction.
Pricing and allocation
What rules and standards govern share pricing and allocation in the context of an IPO?
The Swedish Securities Dealers Association, a self-regulatory body, issues rules that are applicable in the context of listing of shares. The association is currently reviewing its rules regarding share allocation but has currently no applicable rules in this respect.
The Prospectus Regulation (Commission Regulation 809/2004) contains rules regarding both share pricing and allocation of shares. The prospectus is to contain information regarding, among other things, how the different tranches of the issue are allocated between institutional investors, non-professional investors, employees within the company and possible other tranches.
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