The Float Guide How to float a company on the Vienna Stock Exchange

Transcription

1 The Float Guide How to float a company on the Vienna Stock Exchange Contact: Florian Khol Austria khol@bindergroesswang.at

2 INTRODUCTION This guide gives an overview of what is involved in listing an Austrian company on the Vienna Stock Exchange (Wiener Börse AG). It is a practical manual covering all aspects of a float from prerequisites through to life after the float. Since the first version of the Austrian chapter to IBA s Float Guide was published in 2011, the equity capital market in Austria has continued to follow the negative trend. The Vienna Stock Exchange (VSE) faced an extremely harsh market environment, where turnover of shares and capitalization decreased. Two IPOs (volume 605m) in the prime market and 24 capital increases (aggregate volume 6,605 billions) have successfully completed in the years During this period, 28 companies exited from the VSE, mainly by being taken over and consequently delisted. In 2011 the annual trading volume on the VSE amounted to EUR 60,1m and the annual trading volume per share to EUR 4,2m. During the following years there were up-and-down movements. In 2015 the annual trading volume amounted to EUR 58,3m and the annual trading volume per share EUR 4,4m.

3 CONTENTS INTRODUCTION... 1 EXECUTIVE SUMMARY PREREQUISITES TO FLOATING FLOAT TEAM GETTING THE COMPANY READY THE PROSPECTUS DUE DILIGENCE PRICING MARKETING THE FLOAT DEALING WITH THE REGULATORS OFFER PERIOD BEEING PUBLIC CONCLUSION

4 EXECUTIVE SUMMARY Why float? Floating a company allows: the company itself to raise new capital with relative ease; and existing shareholders to sell and trade their holdings in the market. Does my company qualify? Only companies having the legal form of a stock corporation (Aktiengesellschaft AG) or a European stock corporation (Societas Europaea SE) can be floated. Before a company can be floated on the Vienna Stock Exchange (VSE) it must satisfy Austrian Stock Exchange Act (ASEA, Börsegesetz ) and VSE requirements relating to the value and free float of shares as well as the period of existence and financial statements of the company. It must also ensure that its structure and constitution are consistent with the listing rules of the VSE. Further it must check its readiness on the basis of several general economic criteria as to the company s development, its management structure and corporate communication. What will it cost? Usually the total costs of floating the company amount to 4% - 8% of the gross proceeds. How long will it take? An average float usually takes about 5-6 months. Who is on the float team? Before starting the float process, the company will need to assemble its float team. A key factor for the success of an IPO is the selection of a professional team of advisors. The float team may include a financial adviser who may act as underwriter, accountants and auditors, lawyers, notaries public and others including public relations consultants and other consultants. What goes in the prospectus? The company will need to draw up and publish a prospectus before it can be floated. A prospectus must contain all the information that is needed in order to enable investors to make an informed assessment of the financial situation of the company, in particular on its assets and liabilities, profit and losses, prospects of the company and rights attaching to the securities to be offered. In particular, the prospectus for issuance of shares must contain minimum information provided for in the EU Prospectus Regulation. What is due diligence? Due diligence includes a thorough analysis of the company from the legal, financial and organisational point of view. As a result the company gets information about its own strengths and weaknesses and is able to evaluate the plausibility of its planning documentation. There are different types of due diligence (commercial, financial, legal etc). 2

5 Due to the complexity of issues involved in the due diligence examination, it is usually conducted by external consultants specialising in IPOs such as auditors, lawyers and investment banks as well as other specialists, if necessary. Each consultant is assigned responsibility for a certain area in the due diligence. The company as well as the investment bank retains their own set of advisers to ensure independent and objective results to be reflected in the prospectus. Pricing of the float? There are a number of possible methods of issue of the shares offered under the float. The company may make either a fixed price offer or, in large floats, an open price offer of its shares. How will the float be marketed? The process of marketing the float begins with marketing to institutions. Once the prospectus is approved and published, brokers will commence marketing to their private clients and marketing to retail investors generally begins. What else is involved - Regulatory Requirements? The company will need to liaise with the VSE and Austrian Financial Market Authority ( FMA ) during the float process to make sure that it satisfies their requirements. The requisite applications should be identified early on so that any potential delays are avoided. The prospectus must be approved by the FMA which reviews and comments the prospectus with regard to its completeness, coherence and comprehensibility. Will existing shareholders be able to sell? Depending of the structure of the offering, existing shareholders will be able to sell both at the time of the IPO and thereafter. 3

6 1. PREREQUISITES TO FLOATING Before a company can be floated on the Vienna Stock Exchange (VSE) it must satisfy ASEA and VSE requirements relating to the value and free float of shares as well as the period of existence and financial statements of the company. It must also ensure that its structure and constitution are consistent with the listing rules of the VSE. Generally, a company seeking listing must prepare and issue a prospectus relating to the shares in the company being offered. The timing of the float is also important to its success Legal requirements Stock corporation In order to be listed on a stock exchange the company must be organized in a form of a stock corporation (AG) or a European stock corporation (SE). Most of the listed companies are stock corporations. In case the company is not a stock corporation/ European stock corporation it must be reorganized prior to be floated. Shareholders meeting approving the reorganisation into a stock corporation/european stock corporation must also define the name of the company, appoint members of the managing and supervisory board and adopt articles of incorporation of the company Resolution on floating The decision to float the company must be approved by existing shareholders on a shareholders meeting especially in case the float is structured by a capital increase of the company International accounting standards To be listed on the official market of the VSE a company must have audited (consolidated) financial statements for the three preceding full business years (drawn up in accordance with International Accounting Standards (IFRS/IAS). For other markets, the three year period does not apply (see below) Requirements for admission to listing on the Vienna Stock Exchange (stock exchange requirements) To be traded on the VSE the shares must be admitted to listing on one of the VSE markets: the Official Market, the Second Regulated Market (both called regulated markets ) or the Third Market (the multilateral trading floor - MTF) Criteria for admission to listing on a regulated market The admission to listing on the Official Market and the Second Regulated Market is governed by the ASEA. The Official Market and the Second Regulated Market differ mainly as regards to admission criteria. 4

7 Total nominal value of shares Regulated Markets Official Market At least EUR 2.9 million (or at least EUR 1 million of nonvoting preferred shares if ordinary shares of the company are not admitted on the Official Market) Second Regulated Market At least EUR 725,000 Free float nominal value At least EUR 725,000 (par value shares) At least EUR 181,250 Free float in no. of shares Period of existence of the company At least 10,000 no-par-value shares At least 3 years At least 2,500 no-par-value shares At least 1 year Financial statements For three preceding full business years For the preceding full business year Prospectus Yes Yes Transferable securities : For the purpose of market efficiency financial instruments to be admitted to listing must be freely transferable. Transferable securities are considered freely negotiable if they can be traded between the parties of a transaction and subsequently transferred without restriction, and if all securities within the same class as the security in question are fungible. Transferable securities that are subject to a restriction on transfer shall not be considered as freely negotiable unless that restriction is not likely to disturb the market. Third-country companies: For an admission to listing on the VSE a company with seat in a third country has to show evidence that a listing in its home country has not failed because of investor protection matters Criteria for admission to trading on the Third Market In addition to the possibility of admission to listing on the Official Market or Second Regulated Market, shares may also be admitted to trading on the Third Market operated as a multilateral trading floor (MTF). The admission of shares to trading on the MTF is regulated by separate General Terms and Conditions of Business of VSE ( Rules for the Operation of the Third Market ). All financial instruments with the exception of options and (financial) futures contracts may be traded on the Third Market. Neither the requirements for admission to a regulated market under the ASEA nor other provisions of the ASEA regarding financial instruments admitted to trading on a regulated market, in particular, the obligations imposed on issuers, apply to financial instruments traded on the Third Market. However the ASEA, respectively the Market Abuse Regulation (No 596/2014 of 16 April 2014) provisions on market abuse (the ban of insider dealings and market manipulation) apply also on the Third Market as well as limited ad-hoc publication requirements. The latter only in case the issuer who has approved the listing on the Third Market. 5

8 Requirements for admission to trading on the Third Market: Extract from the Companies Register (or an equivalent document) that is not older than four weeks; The bylaws or articles of association of the issuer in their valid versions; The financial statements including the notes and report of the management board including the confirmation of the auditor of the last full financial year; in the case of special purpose vehicles additionally the financial statements including the notes and management report with the audit opinion for the last full business year of the parent company; Approval documents when the establishment of the issuer, the exercise of its business or the issuance of financial instruments requires a permit from government bodies; Evidence of the legal status required for the issuance of financial instruments; Evidence for the entry of the issue into a register if this is required for the issue to be legally valid; The approved prospectus if required according to the Capital Market Act pursuant to 8a Capital Market Act or approved pursuant to Directive 2003/71/EC including a confirmation of the FMA on the notification pursuant to 8b Capital Market Act; Alternative if no prospectus is available: an information memorandum that contains the information about the issuer, company structure, object of business, financial figures, purpose of the use of the issuing proceeds, description of risk and business plans for the coming year if no financial figures are available Prospectus For public offering or admission of financial instruments to trading on VSE the company must prepare and publish a prospectus. Prior to being published the prospectus has to be approved by the FMA. The main purpose of a prospectus is to demonstrate the company s readiness for listing and inform potential investors about the company. There are several exemptions from the obligation to draw up and publish a prospectus, for example, if the application for admission to listing is made for (i) (ii) (iii) (iv) (v) (vi) shares that account for less than 10% of the number of shares of the same category over a period of 12 months and which have already been admitted to listing on the same regulated market; shares issued in exchange for shares of the same category already listed on the same market, as long as this share issue is not related to any capital increase by the company; securities offered within the scope of a takeover as an offer to exchange shares; securities offered or allotted within the scope of a merger as an offer to exchange shares, or which are planned to be allotted; shares that over a period of 12 months represent less than 250,000 Euro shares for an employee participation when the company has a seat in the EU or thirdcountry company that is listed in the EU or an equivalent third-country market 1 6

9 (vii) securities already admitted to trading on another regulated market under certain conditions; Some exemptions only apply as long as a document has been published containing information that is accepted by the FMA to be equivalent to the information contained in a prospectus Costs of floating The expenses of initial public offering are made up primarily of the costs of reorganising the company into a stock corporation/european stock corporation, the costs of a capital increase, the fees for allocation of the shares and the costs of financial communication activities. The largest expense is the commission charged by the bank acting as an underwriter for allocation of the shares. Usually the total costs of floating the company amount to 4% to 8% of the gross proceeds of the offering Timing An average good organised float usually takes at least 5-6 months. More complex floats might take longer especially if the company must be restructured to be ready for a floating and depending on the type of transactions involved, scope of marketing activities, the current situation on the stock exchange and the commitment of the shareholders and of the management. Although a large team of external consultants usually prepares the float, within the process several decisions need to be taken by the company s management and owners. Thus, the management and the owners must be prepared to allocate sufficient working time for the float, especially in the weeks prior to the approval of the prospectus and during the offer period for marketing the offer. 1 Equivalent third-country markets need a resolution of the EU Commission and are published on the EU Homepage. 7

10 2. FLOAT TEAM Before starting the float process, the company will need to assemble its float team. A key factor for the success of an IPO is the selection of a professional team of advisors. The float team may include a financial adviser who may act as underwriter, accountants and auditors, lawyers, notaries public and others including public relations consultants and other consultants Accountants / auditors Generally a prospectus must include audited historical financial information for the last 3 years as well as the audited report in respect of each year. Accountants / auditors: assist the company in accounting; advise on financial and tax aspects of the IPO and in connection with the reorganization of the company into a stock corporation as well as generally on financial and tax issues; conduct the financial and tax due diligence on the company; advise the company on profit forecasts and estimates contained in the prospectus and prepare a report on profit forecasts and estimates; Investment banks may appoint their own auditors to examine the documents of the potential issuer as to their plausibility. Usually a separate due diligence is also conducted in such cases Lawyers Lawyers usually: advise on legal issues generally in relation to the prospectus, conduct the legal examination of the prospectus; advise on legal issues in connection with the reorganization of the company; conduct the legal due diligence on the company; and generally prepare most of the "additional information" section of the prospectus, as well as section material contracts ; register the capital increase with the Companies Register; The lawyers will also generally be involved in drafting and negotiating the underwriting agreement with the underwriter and drafting the other documents required for the float, including the new constitution for the company, any employee share ownership plan and any service contracts required with key employees. Each of the company and investment banks may appoint their own lawyers Financial marketing consultants / PR consultants A company may also engage a public relations consultant to assist the company in publicising and marketing the float. This is particularly the case in large or potentially controversial floats. The role of the public relations consultant is to ensure the company gets appropriate press coverage and to liaise with members of the media. 8

11 PR consultants are usually responsible for: organization of press conferences, presentations of the company, experts meetings, roadshows, etc; preparation of documentation for press communication and advertisement campaigns; design of publications and financial reports; advice on investor relations issues; 2.4. Investment bank / lead manager The main tasks of an investment bank (lead manager) are: preparation of a time plan and organization of the IPO, preparation of the company s analysis and assessment, forming a bank syndicate for allocation of the shares, bookbuilding, underwriting guarantee, structuring the issue, advice on pricing, coordination of shares allocation, support after admission to trading on the stock exchange. The tasks of the Lead Manager usually also include: conducting of commercial and management due diligence and preparation of the risk analysis, support of the company in preparation of a listing prospectus as well as in organisation of investor meetings, advice of the icompany on selection of the exchange market and market segment and other tasks. 9

12 3. GETTING THE COMPANY READY In addition to complying with the float prerequisites, the company will need to review its structure and corporate governance procedures as well as take other preparatory steps before floating Structure (Stock corporation) In case the company is not an Austrian Stock Corporation (AG) it must be reorganized. Shareholders meeting approving the reorganisation into a stock corporation must also define the name of the company, appoint members of the management and supervisory board and adopt articles of incorporation of the company. The share capital must amount to at least EUR ,--. The articles must at least contain the provisions regarding: The name and registered office The object of the business The amount of the share capital and and whether bearer shares or name shares are issued Whether the share capital is divided into par value shares or no-par value shares, the nominal amount (par value shares) or the number of shares (for no-par value shares), the classes of shares if any The composition of the management board The form of publications of the company Alternatively, the company can be reorganized as a European Stock Corporation (SE). The share capital of a SE must amount to at least EUR ,--. There is no general statutory obligation for a listed company to comply with any corporate governance requirements. However the company may voluntarily commit itself to adhere to the Austrian Corporate Governance Code (last updated in January 2015) covering the standards of good corporate management common in international business practice as well as the most important provisions of Austrian corporation law that are of relevance in this context. If the company decides to adhere to the Austrian Corporate Governance Code the company will need to put in place appropriate corporate governance procedures. A declaration of commitment to the Austrian Corporate Governance Code is mandatory for Austrian companies that want to be admitted to the Prime Market of the VSE Beauty Contest / selection of an investment bank The next step is the selection of the underwriting bank, which is usually done after a so-called beauty contest at which banks and underwriters present their proposals for the IPO of the company. One of the main criteria for selection of an investment bank is the bank s experience in public offerings on the relevant market as well as in a specific sector as such experience is useful for preparing an investment story and defining realistic company value. After choosing the investment bank on the beauty contest, the rest of the team is set up consisting of lawyers, auditors, other advisors and PR/IR communication agencies. For details as to the float team see Section 2. 10

13 3.3. Kick-Off-Meeting On the Kick-Off-Meeting the company and all involved consultants meet for the first time in order to arrange tasks and responsibilities and to agree on the detailed time-plan Issuance concept and strategy The issuance concept and strategy are the key criteria of any public offering. The issuance concept involves the following steps: Project planning and timing; Issuance volume / origin of the stocks (capital increase, ownership by existing shareholders (so called Reallocation) or a combination of these two measures) Admission to a certain market and a market segment; Placement and allocation strategies; Prior to float the company must also disclose the information on how the funds obtained as a result of the float will be used. The company must implement this concept for example acquisitions, internalisation strategy, development of the production capacity of the company etc as soon as possible after the float Categories of shares The company must decide which category of shares will be issued and which rights these shares will have. Ordinary shares have all usual rights (voting rights, participation in profit distribution, etc); preference shares are preferred as to the distribution of profit but may be limited in voting rights. There are some restrictions as to the admission of the shares to trading depending on the market segment. Preference shares cannot be admitted to trading on the prime market and on the mid market of the VSE. See also Attachment./1. There are also bearer notes and name shares (shares registered in the name of a certain holder). Since shares subject to admission to trading on the VSE must be transferrable, only bearer notes and name shares endorsed in blank can be listed. Name shares cannot be admitted to trading if their transferability is restricted (i.e. bound to the approval of the company). The company can also choose between par value shares and no-par value shares. The company may not have both types of shares at the same time. Par value shares must be denominated in a value of at least one euro or a multiple thereof. No-par value shares have no nominal amount. Usually, listed companies issued bearer notes with no par value since this provides the most flexibility for share transfers and capital increases First contact with Vienna Stock Exchange and the Financial Market Authority After preparing a general concept for the initial public offering, the next step is to make an appointment for a personal meeting with VSE. The company presents its plans and the stock exchange presents the opportunities it offers for the company achieving a successful IPO. It is also advisable to contact the FMA at an early stage and discuss the envisaged time table for the prospectus approval, i.e. the date of the envisaged first filing of the draft prospectus, the subsequent update filings and the envisaged date of approval. This to allow the FMA to allocate internal resources to support the timely IPO. 11

14 3.7. Due Diligence Due Diligence is conducted together with an underwriting bank and represents an examination of the company from the legal, financial and organisational point of view. For details see Section Prospectus The listing prospectus is drafted jointly by the advisers of the company and external consultants, if any, in conjunction with the underwriters and their advisors. The content of the prospectus is described in Section Employee share ownership plan - Stock Options-Programs Unlike in other countries, employee share ownership plans for the company s employees are not common in Austria. However, an alternate structure for such plans is to issue options over unissued shares to employees. The options are usually issued for free but have an exercise price which is payable when they are exercised. The exercise price is usually set at the share price on the date the option is issued. Generally, such options are granted to executive and general employees of a certain career level. They are a common component of mid-term to long-term incentive programs for the management. Design of appropriate offer terms is critical to meet legal requirements, corporate governance and investor expectations. However, the company may offer its employees in the prospectus an allocation preference and a discount for the purchase of shares. 12

15 4. THE PROSPECTUS For public offering or admission of financial instruments to trading on VSE the company must prepare and publish a prospectus. Prior to being published the prospectus has to be approved by the FMA. The prospectus must contain all the information that is needed in order to enable investors to make an informed assessment of the financial situation of the issuer, in particular on its assets and liabilities, profit and losses, prospects of the company and rights attaching to the securities to be offered Prospectus requirements Prospectus content The prospectus must contain information concerning the issuer and the securities to be offered to the public or to be admitted to trading on a regulated market. A prospectus has to contain information stipulated by Prospectus Regulation (Commission Regulation (EC) No 809/2004 of 29 April 2004) and described in a certain Annex to the Prospectus Regulation depending on the type of the issuer and securities involved. In particular, the prospectus for issuance of shares must contain the following minimum information: Summary of the prospectus Risk factors associated with the shares to be offered/ admitted to trading Risk factors associated with the issuer Information on persons who are responsible for the prospectus as well as on auditors of the financial statements General information on the issuer and the capital of the issuer Information on the business of the issuer Information on the assets, financial and earnings situation of the issuer Information on the administration, management and supervision of the company Information on recent business developments and the business prospects of the issuer Information on the shares and their admission to a specific market Other information Minimum information: Even if the prospectus contains all the information items required in the Prospectus Regulation and the relevant Annex it might sometimes be insufficient for an investor to make an informed assessment of the financial situation of the issuer. Therefore the information items required in the Prospectus Regulation represent only minimum information to be included in the prospectus. FMA may request that the information provided by the issuer be amended for each of the information items, on a case-by-case basis. 13

16 Summary The summary of the prospectus should be a key source of information for retail investors. The structure of the summary follows the content of the prospectus. It should be a self- contained part of the prospectus and should be short, simple, clear and easy for targeted investors to understand. It should focus on key information that investors need in order to be able to decide which offers and admissions of securities to consider further. In case a key information is not to be filled, the summary has to contain an explanation why not relevant. Such key information should convey the essential characteristics of, and risks associated with, the issuer, any guarantor, and the securities offered or admitted to trading on a regulated market. It should also provide the general terms of the offer, including estimated expenses charged to the investor by the issuer, and indicate the total estimated expenses. It should also inform the investor of any rights attaching to the securities and of the risks associated with an investment in the relevant security. The summary has to be written in the same language as the prospectus itself. References to other parts of the prospectus are not allowed. The maximum format of the summary is 7% of the prospectus or 15 pages Language The prospectus for public offers in Austria or admission to trading on an Austrian stock exchange must be prepared and published in German or English. It is admissible to draw up some parts of the prospectus in both languages German and English, which is in practice used for the summary. Contrary to other jurisdiction in Europe, in which the summary must be drawn up in the language of the relevant jurisdiction, the summary must not be drawn up in German but usually the prospectus for retail offers provide for an English summary and a German translation thereof Profit forecasts and estimates If an issuer chooses to include a profit forecast or a profit estimate the prospectus must contain the following information: A statement setting out the principal assumptions upon which the issuer has based its forecast or estimate. A report prepared by independent accountants or auditors stating that in their opinion the forecast or estimate has been properly compiled on the basis stated and that the basis of accounting used for the profit forecast or estimate is consistent with the accounting policies of the issuer. The profit forecast or estimate must be prepared on a basis comparable with the historical financial information (financial statements). If a profit forecast in a prospectus has been published which is still outstanding, then provide a statement setting out whether or not that forecast is still correct as at the time of the registration document, and an explanation of why such forecast is no longer valid if that is the case Approval Prior to being published the prospectus has to be approved by the FMA. The process of approval takes usually 2-3 month from the filing of the first (incomplete) draft until the final (approval) version. The company must lodge the approved prospectus with the Notification Office of the Oesterreichische Kontrollbank AG (OeKB) as soon as possible, at the latest on the day of the publication of the prospectus. See also Section 8. 14

17 Publication Once approved, the prospectus must be published as soon as practicable, but in any case not later than one banking day prior to the beginning of the public offer or one banking day prior to the admission of the securities to trading. Besides, in the case of an IPO of a class of shares not already admitted to trading on a regulated market and to be admitted to trading for the first time, the prospectus must be published at least six bank working days prior to the end of the offer Supplements Every significant new factor, material mistake or inaccuracy relating to the information included in the prospectus which is capable of affecting the assessment of the securities must be mentioned in a supplement to the prospectus if it occurs in the period between the approval of the prospectus and the final closing of the offer to the public or the beginning of the trading on a regulated market. The supplement must be immediately published and lodged (with OeKB) with at least the same arrangements as were applied when the original prospectus was published and lodged. At the same time the supplement must be submitted to the FMA for approval. Investors who have already agreed to purchase or subscribe to the shares before the occurrence of an event, incorrectness or inaccuracy but prior to the publication of the relevant supplement have the right to withdraw their acceptance, exercisable within a period of two working days (or 7 working days if they are consumers) after the publication of the supplement Liability for the Content of the Prospectus The Capital Markets Act provides for special joint and several liability of persons responsible for correctness and completeness of the prospectus. These persons are the issuer, the Vienna Stock Exchange (liable for incorrect or incomplete information included in its statement, see Section 8.2), auditors of financial statements (if they knew that the information of the prospectus is incorrect or incomplete and knew that the financial statements confirmed by them will be included in the prospectus), persons who accept the investors contract statements and brokers (provided that these persons sell securities on a professional basis and that they knew or due to gross negligence did not know - that the information is incorrect or incomplete) and other persons as stipulated in the Capital Markets Act. Investors are entitled to claim damages arising out of relying upon the correctness or completeness of the information contained in the prospectus or supplement to the prospectus that is relevant for assessing securities. Thus an investor is entitled to the claim if the investor s decision to subscribe for offered securities was based on incorrect, incomplete or misleading information of the prospectus. In particular, the incorrect assessment of the company s capital assets, non-disclosure of the material owners of the company or of a material syndicate agreement, or presentation of excessive income prospects based on an incomprehensible calculation can constitute a prospectus inaccuracy leading to liability. Compensation for damages may not be derived from the fact that securities or investments were not acquired due to incorrect or incomplete information contained in the prospectus. If the damaging action was done unintentionally, the amount of the liability towards each individual investor is limited to the purchasing price paid plus fees and interest as of the date of purchase. Liability arising out of violations of other legal provisions (e.g. under the Austrian Stock Corporations Act or the Austrian Act against the unfair competition) or out of the breach of contractual obligations remain unaffected by the liability under the Capital Markets Act Criminal liability Anyone who in connection with a public offering of securities, which is subject to the obligation to publish a prospectus, 15

18 offers securities for which no approved prospectus or supplement to the prospectus has been published in a timely manner; or gives incorrect advantageous information on substantial circumstances or conceals adverse facts in a published prospectus or a published supplement with respect to the facts material for the decision to acquire shares is punishable by a prison sentence of up to 2 years or by a fine of up to 360 times the daily fine rate as set by the court. 16

19 5. DUE DILIGENCE Due diligence includes a thorough analysis of the company from the legal, financial and organisational point of view. As a result the company gets information about its own strengths and weaknesses and is able to evaluate the plausibility of its planning documentation. The results of the due diligence influence the content of the prospectus as well as the representations and warranties section of the underwriting agreement 5.1. General Due to the complexity of issues involved in the due diligence examination, it is usually conducted by external consultants specialising in IPOs such as auditors, lawyers and investment banks as well as other specialists, if necessary. Each consultant is assigned responsibility for a certain area in the due diligence. For the purpose of examination of documents relevant for due diligence a special data room is usually made available for the due diligence team. The prospectus is prepared simultaneously with the due diligence investigations and is amended to reflect the findings of the reports and further investigations. On the end of the due diligence consultants confirm accuracy and completeness of the documents examined by them and provide the company / investment bank with confirmations, such as legal opinion (issued by lawyers) and comfort letter (issued by auditors) Why is due diligence necessary? One of the reasons for due diligence is to ensure that the prospectus contains all the information that is needed in order to enable investors to make an informed assessment of the financial situation of the company, in particular on its assets and liabilities, profit and losses, prospects of the company and rights attaching to the securities to be offered. An investor is entitled to claim damages if the investor s decision to subscribe for offered securities were based on incorrect, incomplete or misleading information of the prospectus. There is also criminal liability for incorrect information included in the prospectus as described in Section 4.3. The persons responsible for conducting the due diligence and preparation of a prospectus such as the company, the investment bank, lawyers, auditors etc, are liable for the accuracy and completeness of the published information in the areas examined by them, such liability covering the absence of incorrect, incomplete and misleading information in the relevant documentation Types of due diligence Types of due diligence: Commercial due diligence Financial due diligence Legal due diligence Human resources due diligence Environmental due diligence Technical due diligence 17

20 The commercial due diligence includes an analysis and assessment of individual fields of business, market position, development strategies and organization, management, planning and reporting system of the company. The financial due diligence examines the present financial and profit situation of the company and analyses risk management and planning of the company. Its aim is to show risks that could influence the future financial and profit situation of the company. The legal due diligence includes an examination of the company s major contracts, liabilities, patents and other legal facts. The aim of the legal due diligence is generally to find out whether the company complies with relevant legal requirements and its material contractual obligations. It is necessary to show risks resulting from any missing licences (e.g. under the trade, copyright or patent law), contractual relations or any breach of legal provisions. The tax due diligence examines possible tax risks and provides an indication for tax optimisation of the transaction structure and implementation. The human resources due diligence includes analysis of possible risks or hidden burdens resulting from special obligations towards the employees and the management of the company as well as identification of the key personnel. The environmental due diligence includes analysis of possible environmental risks and any potential future burdens resulting from that risks Scope of the due diligence The due diligence should always cover all aspects which are to be described in the prospectus and which are, or could be, important or crucial for the company. Practically, the involved parties agree on certain thresholds relevant for the company and its business to focus and limit the due diligence efforts Performing the due diligence The due diligence is usually performed by examination of relevant documents made available by the company in a physical or electronic special data room. In addition, the float team can interview the management, key personnel or consultants of the company and conduct site visits. As the prospectus is prepared simultaneously with the due diligence, it has to be continuously amended to reflect the findings of the reports and further investigations. The due diligence ends on the day of approval of the prospectus with a so-called bring down call with the top management of the company in which the management confirms that the prospectus contains all relevant information that is needed in order to enable investors to make an informed assessment of the financial situation of the company. 18

21 6. PRICING The underwriter/investment bank will generally agree on appropriate offer price with the company. There are a number of possible methods of issue of the shares offered under the float. The company may make either a fixed price offer or, in large floats, an open price offer of its shares Pricing method Which method should be chosen depends especially on the type of investors. The most common approach for smaller offers is the fixed price offer combined with a hard underwriting by one or more investment banks. Alternatively, the book-building method can be chosen. To ascertain the best achievable price for the offered shares, the investment banks undertake a market sounding/pilot fishing. Market sounding/pilot fishing is a communication of information, prior to the announcement of a transaction, in order to gauge the interest of potential investors in a possible transaction it s the conditions such as its potential size, interest or pricing, to one or more potential investors. Market sounding is permitted provided the relevant requirements set forth in the EU Market Abuse Regulation are observed Fixed price offer A fixed price is agreed between the company and an investment bank (underwriter) based on the results of the market sounding/pilot fishing. The price must be published in the prospectus. Fixed price offers are usually underwritten. Thus the advantage of this type of the offer price is that the company gets the fixed cash inflow and the risk of placement stays with the underwriter who usually is compensated for the hard underwriting Book build The Book build method is usually chosen in order to achieve an issuance price and volume in line with market conditions. It is more common for larger floats for a "book building" process to be used instead of a "traditional" underwriting. Usually, a price range will be agreed between the investment banks and the company prior to launch of the offer based on the results of market sounding/pilot fishing. During the book building process investors get the chance, prior to the actual pricing and allocation of the shares, to place their price/amount indications within the price range. The final pricing and allocation to investors is conducted on the basis of an order book in which the demand of all investors is recorded. Once determined the final price has to be published in the same way as the prospectus has been published. 19

22 7. MARKETING THE FLOAT The right approach to marketing the float is critical to its success. Generally, the marketing strategy is dealt with by the investment bank, but in some floats it might be appropriate to involve marketing consultants. The Capital Markets Act provides for restrictions on advertising. There are some restrictions on advertising stipulated by the Capital Markets Act. Every type of advertising that refers to a public offering of shares or admission to trading on a regulated market must comply with the following principles (applicable if the company is subject to the obligation to publish a prospectus): advertising must indicate that a prospectus has been published or will be published and where the said prospectus is available to investors, advertisements must be clearly recognizable as such. The information contained in an advertisement must not be inaccurate or misleading. This information must also be consistent with the information contained in the prospectus, all information concerning the offer to the public or the admission to trading on a regulated market disclosed in an oral or written form, even if not for advertising purposes, must be consistent with that contained in the prospectus, When no prospectus is required, material information provided by the company to qualified investors or special categories of investors, shall be disclosed to all qualified investors or special categories of investors to whom the offer is exclusively addressed. 20

23 8. DEALING WITH THE REGULATORS The company will need to liaise with the VSE and FMA during the float process to make sure that it satisfies their requirements. The requisite applications should be identified early on so that any potential delays are avoided Vienna Stock Exchange During the process The company will need to liaise regularly with the VSE during the float process to make sure that it is aware of the progress of the float and to ensure that the VSE is able to comply with the timing requirements of the company Application for admission to a regulated market on the VSE The admission application must be submitted in writing by the company and must be co-signed by an exchange member (usually an issuing bank). The company must attach to the application the current excerpt from the companies register, the current articles of incorporation of the company, the company s compliance guidelines and an approved or notified prospectus in two counterparts and other documents as stipulated in the ASEA. VSE decides on the admission to the Official Market or Second Regulated Market by issuing an official notice. After allocation of the shares to the Official Market and Second Regulated Market pursuant to the ASEA or to the Third Market (MTF) pursuant to the General Terms and Conditions of Business of the VSE, the shares are included in the market segments. The criteria used for the allocation include transparency and disclosure requirements as well as type of financial instrument, type of market making (specialists, market makers, liquidity provided in auction trading) and the different trading systems (Xetra, Eurex ) or trading procedures (continuous trading, one-time intraday auction). For more detailed information regarding key requirements and ongoing obligations existing on different market segments please see Attachment./1 of this float guide Application for admission to the Third Market on the VSE The VSE management board decides on admission to the Third Market on the basis of a written application signed by an exchange member. The application must be accompanied by a current excerpt from the companies register, the current articles of association of the company and in case of a public offering an approved prospectus pursuant to the Capital Markets Act and other documents as stipulated in the Rules for the Operation of the Third Market Prospectus approval by the FMA If Austria is the home Member State of the issuer a prospectus must be approved by the Austrian Financial Market Authority (FMA). If a prospectus was approved by a foreign authority the FMA must be notified of the approval of the prospectus. In this case the confirmation on notification issued by the FMA must be attached to the admission application in addition to the prospectus. When approving prospectus applications for securities that are to be admitted to trading on VSE, the FMA has the right to obtain a statement of the VSE prior to the approval, unless such a statement has already been attached to the approval application (it is usual practice for issuers to obtain a statement of the VSE prior to submission of the prospectus to the FMA for approval). 21

24 The FMA approves a prospectus submitted for approval if it is complete, coherent and comprehensible and complies with other conditions under the Capital Markets Act. The FMA neither examines the accuracy of the information included in the prospectus nor does it assess the financial situation of the issuer. The process of approval takes usually 2-3 month from the filing of the first (incomplete) draft until the final (approval) version. During this process, the FMA provides their comments to the filed drafts in writing to the lawyers of the company. The float team discusses the comments and amends the draft prospectus accordingly for the next filing. This process lasts until the prospectus is accepted by the FMA and ready for filing of the final prospectus which will be approved. The company must lodge the approved prospectus with the Notification Office of the Oesterreichische Kontrollbank AG (OeKB) as soon as possible, at the latest on the day of the publication of the prospectus. Any supplements to the prospectus must also be submitted to the FMA for approval as well as be published and lodged with OeKB immediately. The FMA has to approve the supplement within seven bank working days and send an official copy of the approval to the Notification Office of OeKB. 22

25 9. OFFER PERIOD The offer period in Austria is generally 3 or 4 weeks. It starts once the prospectus is approved and made available to the public. The company is not allowed to offer or sell the shares to the public before the prospectus is approved and made available to the public No public offer without an approved prospectus Once the prospectus is finalised, it is should be submitted to the FMA for approval. After the approval, the prospectus must be immediately made available to the public. The public offer of shares is only permitted if the approved prospectus was made available to the public not later than one banking day prior to the commencement offer. Besides, in the case of an IPO of a class of shares not already admitted to trading on a regulated market and to be admitted to trading for the first time, the prospectus must be published at least six bank working days prior to the end of the offer. The public offer of securities for which no approved prospectus or supplement to the prospectus have been published in a timely manner is punishable by a prison sentence of up to 2 years or by a fine of up to 360 times the daily fine rate as set by the court Offer Period The offer period for IPOs in Austria generally runs from 3 to 4 weeks. During the offer period, the investment bank/underwriter and the compan market the float to institutional and retail investors and monitor the level of interest in the float. If the IPO provides for a capital increase of the issuer with subscription right for existing shareholders, the minimum offer period is two weeks Supplements, Right to Withdraw Every significant new factor, material mistake or inaccuracy relating to the information included in the prospectus which is capable of affecting the assessment of the securities must be mentioned in a supplement to the prospectus if it occurs in the period between the approval of the prospectus and the final closing of the offer to the public or the beginning of the trading on a regulated market (see Section 4.1.7). Investors who have already agreed to purchase or subscribe to the securities before the occurrence of an event, incorrectness or inaccuracy but prior to the publication of the relevant supplement have the right to withdraw their acceptance, exercisable within a period of two working days (or 7 working days if they are consumers) after the publication of the supplement. 23