In uncertain times the question of financing will always come to the fore, whether a company is looking to weather the storm – or forging ahead to capitalise on new opportunities. Invariably, this discussion always starts with the same question: Debt vs Equity. While there are many interesting arguments to be made for both debt (no ownership dilution, tax benefits, simplicity) and equity (PE firms/partnerships provide access to expertise and advice), this article discusses the pinnacle of finance projects: the IPO.
In an increasingly globalised corporate world fuelled by technological innovation, it is no longer a guarantee that a company with its head office in Sydney will list on the Australian Stock Exchange (“ASX”). As our customers and supply chains have expanded internationally, so too has our need for funding.
Many years ago, I worked at a company with its Headquarters in London, whose biggest market was in India, had listed on the New York Stock Exchange (“NYSE”) and a retail bond on the London Stock Exchange (“LSE”) – a situation more and more common today.
So, what needs to be considered when choosing where to list your company?
1. What markets are you in?
As tempting as it may be to go straight to one of the financial capitals of the world (New York, London, Hong Kong), to reduce the risk of a failed IPO - it is important to make sure there is a local element to your listing (an Australian-only manufacturer is less likely to thrive on a New York listing). While the location of your corporate offices or manufacturing hub can be good indicators – often the best place to find a strong market for investors is where you have an existing market for your goods/services.
2. What is the regulatory environment like?
A successful IPO is just the start of a very long journey, so it is imperative that you understand the regulatory and reporting environment before you make your final decision. The most common regulation that companies will point to is the accounting policies; if you list in the US, you will be required to follow US GAAP (or at the very least be prepared to provide US GAAP to IFRS reconciliations). For most other exchanges you would expect to follow the locally applied accounting standards (IFRS). However, accounting policies are just one element and each exchange has their own unique considerations, for example:
NYSE: While foreign companies receive some initial relief, they are still required to be in compliance with key provisions of the Sarbanes Oxley Act (“SOX”), including a very robust internal controls framework (SOX 404);
LSE: Companies must include a statement in their annual reports detailing compliance with the provisions of the UK Corporate Governance Code, a set of guidelines which detail Board independence, risk management and internal control strategy;
Hong Kong Exchange (“HKEx”): The HKEx requires new listees to confirm “management continuity” – the majority of the Board and Senior Management should remain unchanged for the proceeding three fiscal years; and
ASX: Within the annual report to shareholders, the ASX requires companies provide the names of the 20 largest holders of each class of equity securities.
It is vital the Finance and Legal teams go through the requirements of listing (and future requirements of continuous disclosure, regulated transactions etc.) to fully and thoroughly understand the regulatory environment before committing to an exchange.
3. What are the listing/compliance costs?
The cost of listing on one of the major primary markets is often a secondary consideration. In understanding that your company is going to undertake a transformational change (either as part of an exit or growth strategy), it is broadly understood that there will be major costs involved. That being said the costs of each exchange can vary, for example:
*NYSE listing fees are billed for each security listed at the time an issuer first lists on the Exchange. They are based on the number of shares issued and outstanding and are calculated separately for each class of security listed.
Choosing to IPO is an arduous but very exciting time for any company, and requires the full buy-in of the Executive, Legal, Finance, and Operations teams, as well as a number of external consultants, lawyers, bankers, sponsors, and auditors. Even so, you will find few days more satisfying in your career than the day you submit your prospectus, and the day your company lists – regardless of where in the world that may be.
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This guide has been produced by DYLA.
Liability limited by a scheme approved under Professional Standards Legislation.
If your finance team requires assistance or you require more information, please contact: enquiries@dyladvisory.com
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