UK IPOs: are you ready for change?
The UK IPO process changed on 1 July 2018, with the introduction of the FCA’s IPO process reforms. The reforms respond to long-standing calls from the buy-side community for a wider range of information on the issuer to be available earlier in the IPO process. The reforms apply to in-scope IPOs on the London Stock Exchange Main Market but not AIM.
There are three elements to the FCA’s reforms:
- Mandatory early publication of a registration document before the publication of connected research.
- A requirement to offer unconnected research analysts an opportunity to cover the issuer on an equal footing to connected analysts.
- Prohibiting contact between the issuer and connected research analysts when an investment bank is in the pitch phase and before syndicate roles are confirmed in writing by the issuer.
A new deal timetable
The new rules envisage two models for deal timetables going forward. The first assumes that unconnected analysts will be given access to issuer management on equal terms with connected analysts. A minimum one-day separation is required between publication of the prospectus/registration document and publication of syndicate research. Under the second model, unconnected analysts are given access to management separately. Publication of syndicate research is not permitted until seven days after publication of the prospectus/registration document.
We have included an indicative timetable for in-scope IPOs following the new process below. This assumes that issuers will follow the second model, which is our expectation from discussions with clients.
Independence of research
The FCA is introducing guidance clarifying that it regards “participating in pitches for new business” to include situations where an analyst interacts with an issuer or its representatives before the point at which: (a) the firm has accepted a mandate to carry out underwriting or placing services for the issuer; and the firm’s position in the syndicate has been confirmed in writing.
This will potentially have a significant impact on the ability of issuers and their advisers to vet research analysts ahead of syndicate selection.
The new regime, which has been worked on by the FCA for a number of years, is innovative and reflects its willingness to engage with a broad range of market participants. The FCA’s policy objective is to ensure the effectiveness of its primary markets with an eye to consumer protection, effective competition and market integrity. The changes are largely responsive to buy-side demands and underscore the value placed on connected research by some market participants.
The steps taken by the FCA to encourage unconnected coverage are similar to existing market practice in France and have the objective of ensuring that issuer and connected analyst views are open to public challenge. These changes and the brightline rules on access to connected analysts are viewed by many as tilting the playing field towards the buy-side, whilst imposing significant new challenges on issuers, their owners and advisers. In their view, the new rules will make syndicate selection more difficult and introduce the risk of deals being disrupted by adverse unconnected analyst coverage.