Markets and Companies Law. Securities Offering and IPOs 2016/2017

Transcription

1 Markets and Companies Law Securities Offering and IPOs 2016/2017

2 Securities offerings - equity In any offer of equity securities (e.g. shares) the relevant financial instruments may be offered to investors in a market through: 1. an offer to subscribe newly issued securities (tipically through an increase of the company s sharecapital); or 2. a sale of existing shares by existing shareholder(s) Primary vs. secondary market 2 2

3 Securities offerings - equity Primary market Shareholders rights? Rights issue as the default rule exclusions Secondary market Securities offerings vs. ordinary trading Securities offerings vs. private placement ABBs 3 3

4 Securities offerings - debt In an offer of debt securities (e.g. bonds) a corporation or a public body (e.g. governments) may offer for subscription to investors in a market the securities representing the entitlement to the repayment of the relevant principal debt amount and certain other rights (e.g. receiving payment of interest) Other securities (e.g. hybrid) may be the object of an offering (e.g. warrants) Primary/secondary market? 4 4

5 Common features of securities offerings Any securities offering to potential investors in a market constitutes a solicitation of such investors which triggers the application of certain rules aiming principally at protecting individuals and the proper functioning of markets in general The securities offering aimed at placing shares of a company to investors with a view at obtaining the listing in a regulated market is called an Initial Public Offering (IPO), and marks the point when a company ceases to be privately held and becomes a publicly traded (public) company 5 5

6 Areas of regulation that affect IPOs Which areas of regulation affect IPOs? Issuers companies structure and organization rules regarding the offer and listing of shares disclosure obligations and obligations to shareholders (equal treatment) Intermediaries (financial advisors, sponsors, bookrunners/underwriters) Market regulations 6 6

7 Role of Financial Institutions in IPOs Offerings of shares, and IPOs in particular, require the involvement of financial institutions who have the role of arranging the successful placement of the shares with individual and institutional investors Global coordinator, financial advisor, sponsor, bookrunners, underwriters Financial institutions may underwrite any unallocated securities Placement with customers Are there agency issues? Inevitable conflicts of interest with company and investors 7 7

8 Legal consequences of IPOs The issuer, its management and its shareholders and stakeholders are subject to the rules of financial markets The concept of going public : public interest vs. private interest Public companies are subject to: (i) public rules, no longer only private discipline (e.g. by-laws); and (ii) supervisory powers of public authorities. 8 8

9 Main purposes of listing Securities offering are carried out for many reasons, however primarily for the following purposes: (i) Financing growth (ii) Increasing competitivity (iii) Increasing the business value 9 9

10 Benefits of listing Financing growth Financial resources used to implement business plans aimed at increasing the size of the business (acquisitions, strengthening of manufacturing and/or commercial structure ). Diversifications of financing sources, with reduced dependence on the banking system. Highly qualified human resources. Increasing competitivity Media return Potential hiring of highly qualified managers. Higher visibility and transparency of targets and results. Increasing the business value Objective and transparent valuation of the company, also aimed at using the exchange of shares for acquisitions and/or strategic alliances. Liquidity of the shares and transparency make it easier to attract new shareholders to invest in the company

11 Requirements for listing Formal requirements Examples of formal requirements: (1) financial statements for recent years (2) compliance of by-laws with free transferability principle and governance of listed companies (3) offering document prepared in accordance with standards and regulations (4) certain level of minimum capitalization (5) certain minimum level of floating capital Free transferability of the shares and floating stocks at least at 25% of the capital

12 Substantial requirements Clear strategic vision Ability to generate value, i.e. an adequate return on shareholders investment Consolidated competitive position Excellent management Efficient and effective internal management systems Communication and transparency towards external stakeholders Corporate management in line with international best practices Substantial requirements based on real growth perspectives and business management 12 12

13 Structure of the offering The structure of an IPO is the combination of certain fundamental factors: Listing market(s) (domestic/international, dual listings) Size/amount of the offering (fixed/variable) Structure of the offering (i.e. capital increase vs. sale of existing shares, purpose) Addressees of the offer (i.e. public offering and offer made to qualified investors) 13 13

14 The players in the IPO process Issuer Sponsors Business due diligence Coordination of the transaction Legal advisor Legal due diligence Drafting of prospectus Financial advisor (Global coordinator, bookrunner) Cooperation to listing (underwriting) Accountants Financial statements certification 14 14

15 The listing process - preliminary activities Reorganization of the group/company (if needed) Corporate governance structure (compliance with code etc ) Management, adequate board structure Shareholders approval of the listing Appointments of Advisors/Sponsors Preparation of business/industrial plan Appointment of the IPO team 15 15

16 The listing process: offering activities Publication of the offering document Roadshow Pre-marketing (so called grey market) and booking activities Pricing Underwriting arrangements Offering Closing of the offering and settlement Results and start of negotiations 16 16

17 The listing process: post offering activities Lock up undertakings Stabilization activities 17 17

18 Main IPO documents Issuer Prospectus/Offering document Business/industrial plan Offered shares Evaluation document Financials Recent financial statements audit Sponsor/advisor Sponsors certification 18 18

19 Offering document and its content Explaining the offering Risk warnings Description of company (management, risks) Description of business (including competitive position, opportunities/challenges, risks, strategies, forward looking statements) Financial statements (historical performance) Drafting techniques 19 19

20 Requirements of the industrial plan Financial sustainability Coherence Trustworthiness Equilibrium between cash flow, working capital and capex of maintenance and substitution Recourse to own capital (IPO and/or capital increase) and to indebtedness only for growth investments Recourse to debt vs indebtedness capability and company s solvency Prudence in evaluating the revenues of the IPO Internal requirement Coherence between strategy and Action Plan Coherence between strategy, Action Plan, hypothesis and economic-financial projections Feasibility of the Action Plan vis-à-vis resources and timing Compatibility with competition dynamics Comparability with historical trends Transparency of the current data and orders 20 20

21 The role of supervisory and market authorities Assuring/enforcing investor protection Supervisory authority approves offering document what type of review/control on disclosure? insider dealing and market manipulation Market authority governs the admission process ensures proper trading and immediate information supervises price sensitive information flow and share price movement 21 21

22 The MTA example: the role of Borsa Italiana and Consob Manages the admission procedure Guarantees corporate information(avvisi di Borsa) Controls price sensitivity of information Manages the solicitation to investment (prospectus) Controls corporate transparency Intervenes in case of insider trading and price manipulation 22 22