Some Questions and Answers about Company Flotations - FAQs
What is a New Issue or IPO ? - Overview
A new company that applies for and achieves listing on a stock exchange and invites investors to buy shares in the company - as a new listed company is offering to investors an Initial Public Offering (IPO).
If the company raises capital in the stock market for the first time as a public company then the company is referred to as 'going public' and shares become available as New Issues.
Company's are able to apply for listing on world stock markets in accordance with the particular stock market rules and investors are able to apply for New Issue's, Initial Public Offering's (IPO).
In UK these markets include UK Stock Exchange full market, Aim and Ofex markets.
How can I take part in a New Issue ?
Institutional only placings do not allow private investors to take part in the first issue of shares on stock market. Private investors normally have to wait for the shares to be made available to the public by resale into the market.
In some cases, shares are made available to the public who should subscribe for the shares via nominated broker. Whether these are public or private offerings will be indicated with other information when it becomes available through the media or broker.
How can I buy shares in a New Issue ?
The public can subscribe for the shares via nominated broker. The sunday news papers normally given details of up and coming flotations as does Investors Chronicle.
Can I place more than one order for new issues ?
It depends on the terms of the offer. You'll find out what these are at the beginning of the offer period.
What is a maximum order size for New Issues ?
There is a limit to the maximum amount of shares that each private investors may purchase. Determined by the anticipated enthusiam for the IPO. In popular cases, investors may only be able to buy a small quantity of shares. Where the interest in a stock is very high, the issue may become over-subcribed.
Are order sizes the same for all New Issues ?
No. Every New Issue can have a different order size. You'll find out what the order size is at the beginning of the offer.
How will I know my order has been accepted ?
The company that you are dealing through will let you know that your order has been accepted but this is normally after the offer has closed.
Will I be charged commission ?
You are not normally charged commission when buying shares in a New Issue because the seller has added an agreed margin to offer price. It is nevertheless important to check for any charges.
When do I pay for my New Issue shares ?
You must pay for all your New Issue purchases before the settlement date. This information will be sent to you when you apply for the offer.
How do I pay for my New Issue shares ?
The company that you are dealing through will let you know how you should pay for new share issues.
How are New Issues shares allocated ?
The shares are allocated by the lead underwriter and the issuer. You usually are sent details of the companies allocation policy when the shares are allocated to you.
Will I get my full order or will funds be returned to me ?
It depends on the allocation criteria, which are set by the lead underwriter and the issuer. It then also depends level of interest. In some cases the issue will be oversubscribed. In this case, you will then receive a lesser number of shares than you applied for and some of your investment back will be returned to you.
When will I know how many shares I have purchased and how much I have paid for them ?
The lead underwriter and issuer will tell us how all the shares where allocated and at what price. The information will be sent to you either by post or online. Sometimes you can find all the allocation and pricing information in the financial press.
When can I trade my shares ?
You can trade your shares as soon as they come to the market.
How will I receive my shares ?
Depending on the type of offer and how you choose to hold your shares, you'll either receive a share certificate or they will be transferred straight into your nominee account.
What is a IPO company prospectus ?
A prospectus is a legal document issued by the company making the offering. It tells you all about the offering and will help you decide whether to invest in the company.
What's the difference between a mini prospectus and a full prospectus ?
A mini prospectus is a summary of the full prospectus. If you are sent a mini prospectus you should be able to get the full prospectus on application.
Which market to float company on ?
OFEX - JP Jenkins
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aimed at smaller companies wanting to raise up to £10m
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regulated but requirements are not as stringent as those of AIM or the Main Market
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flotation and ongoing costs are lower than AIM or the Main Market
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pool of investors somewhat limited. Mainly a vehicle for investment by private investors, although this may change
AIM - Alternative Investment Market
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no prior trading record required
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higher profile than OFEX, with more interest from the investment community
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part of London Stock Exchange, but with more flexible regulatory environment than the Main Market
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AIM-listed companies are attractive to a wide range of investors, including institutional investors
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no minimum percentage of shares needs to be made available
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nominated adviser required at all times
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if trading for less than two years, existing shareholders can't sell their shares until at least one year after flotation
Stock Exchange Main Market - Full listing shares
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only suitable for the largest companies
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the company needs to have been trading for at least three years
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minimum of 25 per cent of the company's equity must be floated
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widest possible audience of potential investors
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professional fees and costs much higher than for flotations on OFEX or AIM
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stringent regulatory requirements
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shareholder approval needed for some transactions
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admission documents need to be pre-vetted by the UK Listing Authority
Who to contact to initiate flotation of company on UK stock exchange ?
IRG Capita
What to consider when floating company on stock market
The flotation process
A typical flotation will take at least three months to complete, but could take as long as a year. For this reason, it is important to ensure that you do not let the flotation distract you from the day-to-day business of running and growing the company.
When undertaking a flotation, you should:
- Choose the right advisers to guide you through the process.
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Make sure your accounts and legal structure comply with the rules and regulations of the market you're joining.
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Nominate someone in the company - typically the finance director - to take responsibility for the process.
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Decide what type of flotation you want. An introduction is the easiest and cheapest option, and is used if enough of a company is already in public hands - perhaps for a move from AIM to the Main Market, for example. In a private placement your shares are offered to selected institutional investors. This allows you to raise capital with lower costs - but the reduced shareholder base could mean a reduced market in your shares further down the line. In an initial public offer (IPO) shares are offered to the public and investing institutions. This can help you raise more capital but is the most expensive route to market.
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Prepare a prospectus which will contain the key information about the company and the share offering. Remember that you're legally responsible for the accuracy of any information within this document.
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