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2
IPO – not an end in itself…..
Is an IPO the right strategy to pursue? Staff / business / customers / exit
What are the key drivers? Capital / liquidity / new investors / profile / other
Is my business plan robust? Achievable / Level of
predictability / Competitive positioning
What steps do I need to take to prepare? Systems / governance / structure / diligence
3
IPO scorecard
-’s
Capital
Acquisition currency
Liquidity
Incentivisation (…act like owners)
Profile
Impact for customers / partners
Maintain control of direction
New markets
Credibility with Banks etc
Attract / retain talent
+’s
Volatility of share price
Lock-ins
Regulatory obligations
Valuation only known at end of process
Management commitment
Increased disclosure / scrutiny
Control?
By the way…..all external stakeholders require a time commitment
Strong Growth
Recovery
Structural / disruptive
Old school delivery
4
IPOable - Which box do you fit in?
Long term demand characteristics (food /
resources)
Technology driven
Operate outside general GDP dynamics
Clear competitive positioning
Strong differentiators
Size / time to maturity
Track record
Solid / seasoned management
Steady progress with profits
Dividend potential
Potentially old economy
Pure play on Irish recovery
Property, recruitment, retail, hotels…
…of course, Facebook, pharma can break the rules…
Scale / origin of revenues (at least €15m+)
Strong growth trajectory
Business model – predictability of earnings
Track record of deliverability (in terms of growth and profits)
Strong management team (with bandwidth to grow and no over-reliance on one individual)
Good market position (the moat)
Dividend potential (and growing at that..!!)
Clean history
Good corporate governance (Board, remuneration, incentivisation etc)
Defensible / acceptable / market friendly IPO structure – free-float, liquidity, sell down vs new equity, pricing
Stable market conditions
Robust internal financial reporting systems
5
You don’t have to be a €100m revenue company to float!
Ticking the IPO boxes
6
What drives a successful IPO?
2%
7%
9%
29%
35%
57%
65%
91%
Listing venue selection
Reputation of the banking syndicate
Size of transaction
Good corporate governance
Right timing
Confidence in management
Compelling equity story
Attractive pricing
Source: Ernst & Young, Institutional Investor Survey. Note: % represents the number of respondents that chose the particular factor as one of their top three choices.
Source: Bloomberg 7
IPO activity
IPO activity has recovered from 2009 lows
IPO activity in Europe
IPO activity on AIM
60.0 67.9
81.2
19.5 7.7
29.0
41.8
12.9 18.3
13.1
0
100
200
300
400
500
600
€0bn
€25bn
€50bn
€75bn
€100bn
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014YTD
Value Deal Count
70.6
89.7 94.7
20.2 8.4
39.0 45.7
17.1
30.0
21.9
0
100
200
300
400
500
600
700
€0bn
€25bn
€50bn
€75bn
€100bn
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014YTD
Value Deal Count
Strong investor appetite for European IPOs in the first four months of 2014
Year-to-date, 119 European IPOs have raised €22bn. €30bn was raised by 265 companies throughout 2013
Recent Irish entrants to ESM and AIM include Mincon and Game Account
Commentary
Demand has been similarly strong for AIM listed IPOs
Year-to-date, 28 companies have raised €1.3bn on AIM. €1.1bn was raised by 52 companies throughout 2013
0.50
0.60
0.70
0.80
0.90
1.00
Price IPO price
1.50
1.60
1.70
1.80
1.90
2.00
Price IPO price
Source: Factset 8
Strong appetite for AIM IPOs…
…although post IPO performance has been mixed
Venture Life Group 4D Pharma
Koovs CityFibre Infrastructure Fund
1.00
1.03
1.06
1.09
1.12
1.15
28-Mar 04-Apr 11-Apr 18-Apr 25-Apr 02-May 09-May
Price IPO price
£m
Mkt cap at IPO 26.1
Money raised 5.4
% change since IPO +1.9%
£m
Mkt cap at IPO 63.0
Money raised 16.6
% change since IPO +4.3%
1.00
1.40
1.80
2.20
2.60
10-Mar 17-Mar 24-Mar 31-Mar 07-Apr 14-Apr 21-Apr 28-Apr 05-May
Price IPO price
£m
Mkt cap at IPO 44.4
Money raised 22.0
% change since IPO -11.4%
£m
Mkt cap at IPO 34.3
Money raised 16.6
% change since IPO 22.9%
9
IPO ready ?
Prep Phase
Finance / Operations Management
Governance Structure
Management Execution of Strategy Communication Ability to juggle competing
priorities (results vs. corporate transactions)
Alignment of interests with shareholders (incentivisation)
Business Plan Robust Deliverable Defensible
Financials Rigorous management
information systems Timely Accurate
Board Experience Perspective Composition Independence Willingness to challenge the status quo
Related Party Must pass the sniff test
Organisation Optimal group structure Location Domicile Tax Memo & Arts Shareholder register
10
Building credibility…..avoiding pitfalls
Restatements – Health check accounting policies
“We made an error in how we accounted for unbilled receivables”
Over promising and under-delivering
“One large contract has slipped into Q1 – just a timing issue”
Taxation holes
“Revenue are questioning
our treatment of…”
Related Party Transactions
“I own the building and my contracting business looks
after the FM”
Late disclosure
“We were not aware that you had been notified by the Regulator in relation to…”
Aggressive accounting
“We booked a portion of revenue prior to commencing service delivery”
Pension
“The scheme is in deficit but we have a plan to fix it…”
Management - CVs
“We weren’t aware that your CFO had done a spell with X…”
Litigation
“We were sued in 2010 and are advised that
we have a very strong case…”
Over-reliance on key suppliers/customers
“Our largest customer represents 40% of revenues…”
2 m
on
ths
pre I
PO
3
-4 m
on
ths
pre I
PO
Flexibility to adapt to changing market conditions
The process itself…from kick off to trading A
s s
oo
n a
s
po
ssib
le
Business plan IPO objectives Identify key issues Evaluate executive management
Po
st
IP
O
1 m
on
th
pre I
PO
1
-2 m
on
ths
pre I
PO
Advisers Legal DD Financial IPO venue Share option schemes Prospectus / admission doc
Audit DD Develop sales pitch Finalise Board Analyst research Verification of prosp/admission doc
Publish analyst research Pre-marketing Address stockex issues Prepare roadshow pres
Research blackout Finalise prosp/admission doc Finalise roadshow pres Begin institutional meetings Build order book
Investor relations Market making Research
Preparation Marketing
11
12
IPO costs
Capital Raise €7.5m
€000s
€15m €000s
€50m €000s
Lawyers 125 175 325
Accountants 75 150 225
Tax 15 20 50
PR 10 25 50
Listing Fees 5 10 20
Listing Documentation 125 200 300
Capital Raising (3-5%) 375 600 1500
Registrars 5 7 10
Total cost 570 1,192 2,455
% of Capital Raise 9.8% 7.9% 4.9%
Average costs of listing on AIM have increased from 6% to 11% (as a % of funds
raised) since 2007 – primarily due to the lower average size of funds raised
14
Preparing to launch
Offer size / shape – use of proceeds vs sell-down
Freefloat / liquidity
Structure Marketing Pricing
Research
Target investors – retail, institutional, sector specialists, hedge, geographics
Roadshow
Investor education
Publicity
Bookbuilding
Pricing
Aftermarket
14
15
Building the investment case
Pillars
Business Proposition (Creating the
Investment Strapline)
Size of addressable market (third party verification is best)
Growth characteristics of Market (third party again!)
Competitive advantage
History of Delivery (Credibility factor)
Predictability of financial performance
Institutional investors
Our clients and your future shareholders will most likely be international institutions
Institutional Investors (Goodbody Clients)
Union Investment Mgt Irish small companies listed
on the ISE have the most internationalised share registers within Europe
Typical Share Register
Irish Institutions: 5-10% Founders, Management & private shareholders: 30-40% Overseas Institutional Inv.: 50-60%
16
17
Importance of ongoing Investor Relations Programme
After-market
Why? Continuity of communication with investors is key to strong share price
- Maximising public valuation gives ready access to ‘tap’ fresh capital - Strong share price protects against unwanted approaches
How? Two major periods of communication - Full Year and Half Year results
- Two meetings a year sufficient for majority of institutional shareholders - Well prepared presentations have long shelf life
Year round contact with sell- side analysts will keep market updated
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Closed period
Results Preparation
Closed period
Closed period
Closed period
AGM & Interim
Mgt Statement
Interim Mgt
Statement
Results and
Roadshow
Results and
Roadshow
18
IR diary
February
1
Talk to Goodbody about road show planning
2 3 4 5 6 7
8 9 10 11 12 13 14
15
First draft of results announcement
16 17 18
First draft of presentation
19 20
Second draft of results announcement
21
22
Second draft of presentation
23 24 25 26 27
Board meeting to sign off on results
28
Announce results Press briefing Conference call for analysts and investors Present to Goodbody sale team
March
1
Dublin IR
2
London IR
3
London IR
4
Edinburgh IR
5
Paris IR
6 7
8
Boston IR
9
NR IR
10 11 12 13 14
15 16 17 18
19 20 21
22 23 24 25 26 27 28
29 30 31
Goodbody Small Cap Conference
Equity markets are always open for companies that are “market ready”
Advantages and disadvantages need to be weighed against alternatives
Preparation is a long term investment in your business
Life as a public company imposes value enhancing discipline
19
To sum up…..
20
THE SOLE PURPOSE OF THIS PRESENTATION IS TO ASSIST THE RECIPIENT IN DECIDING WHETHER IT WISHES TO PROCEED WITH A FURTHER INVESTIGATION OF THE IDEAS AND CONCEPTS PRESENTED HEREIN. THIS PRESENTATION IS NOT INTENDED TO FORM THE BASIS OF A DECISION TO PURCHASE OR SELL SECURITIES OR ANY OTHER INVESTMENT DECISION AND DOES NOT CONSTITUTE AN OFFER, INVITATION OR RECOMMENDATION FOR THE SALE OR PURCHASE OF SECURITIES. NEITHER THE INFORMATION CONTAINED IN THIS PRESENTATION NOR ANY FURTHER INFORMATION MADE AVAILABLE IN CONNECTION WITH THE SUBJECT MATTER CONTAINED HEREIN WILL FORM THE BASIS OF ANY CONTRACT. THE INFORMATION CONTAINED HEREIN IS BASED ON PUBLICLY AVAILABLE INFORMATION AND SOURCES, WHICH WE BELIEVE TO BE RELIABLE, BUT WE DO NOT REPRESENT TO BE ACCURATE OR COMPLETE. THE RECIPIENT OF THIS PRESENTATION MUST MAKE ITS OWN INVESTIGATION AND ASSESSMENT OF THE IDEAS AND CONCEPTS PRESENTED HEREIN. NO REPRESENTATION, WARRANTY OR UNDERTAKING, EXPRESS OR IMPLIED, IS OR WILL BE MADE OR GIVEN AND NO RESPONSIBILITY OR LIABILITY IS OR WILL BE ACCEPTED BY GOODBODY STOCKBROKERS OR GOODBODY CORPORATE FINANCE (“GOODBODY”) OR BY ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR ADVISORS, IN RELATION TO THE ACCURACY OR COMPLETENESS OF THIS PRESENTATION OR ANY OTHER WRITTEN OR ORAL INFORMATION MADE AVAILABLE IN CONNECTION WITH THE IDEAS AND CONCEPTS PRESENTED HEREIN. ANY RESPONSIBILITY OR LIABILITY FOR ANY SUCH INFORMATION IS EXPRESSLY DISCLAIMED. THIS PRESENTATION IS PRIVATE AND CONFIDENTIAL AND IS BEING MADE AVAILABLE TO THE RECIPIENT ON THE EXPRESS UNDERSTANDING THAT IT WILL BE KEPT CONFIDENTIAL AND THAT THE RECIPIENT SHALL NOT COPY, REPRODUCE, DISTRIBUTE OR PASS TO THIRD PARTIES THIS PRESENTATION IN WHOLE OR IN PART AT ANY TIME. THIS PRESENTATION IS THE PROPERTY OF GOODBODY AND THE RECIPIENT AGREES THAT IT WILL, ON REQUEST, PROMPTLY RETURN THIS PRESENTATION AND ALL OTHER INFORMATION SUPPLIED IN CONNECTION WITH THE IDEAS AND CONCEPTS PRESENTED HEREIN, WITHOUT RETAINING ANY COPIES. GOODBODY STOCKBROKERS, TRADING AS GOODBODY, IS REGULATED BY THE CENTRAL BANK OF IRELAND. GOODBODY IS A MEMBER OF THE IRISH STOCK EXCHANGE AND THE LONDON STOCK EXCHANGE. GOODBODY CORPORATE FINANCE IS REGULATED BY THE CENTRAL BANK OF IRELAND. GOODBODY IS A MEMBER OF THE FEXCO GROUP OF COMPANIES.