CITY LAW IN PRACTICE: AIM floats

Larger companies are now looking at AIM rather than the Official List. Husnara Begum highlights the attractions

Maurice and Charles Saatchi, the UK advertising titans, returned to the stock market in July, after M&C Saatchi, the company they founded in 1995, completed an IPO on the Alternative Investment Market (AIM).

The timing of M&C Saatchi’s AIM debut was significant because it occurred just a few weeks after the junior market celebrated its ninth birthday and at a time when it has continued to outperform its main market older brother.

AIM v Official List
An initial public offering (IPO), also known as a flotation, is an offer of shares or other securities by a company coming to the market for the first time. Companies can either float on AIM or on the main market also known as the UK Listing Authority (UKLA) Official List. (See Lawyer 2B, May 2003, City Law in Practice IPOs.)

Traditionally, AIM was favoured by emerging or smaller companies, to which greater investment risks are attached. In contrast, their bigger and more established cousins historically preferred to seek IPOs on the main market. This is because the regulatory environment in which AIM companies operate is less rigorous and the timetable is shorter and more flexible (see box).

But recently, AIM is attracting an increasing number of bigger companies such as Lawyer 2B publisher Centaur Holdings, Dealogic and M&C Saatchi, which have all chosen to float on AIM rather than on the main market.

M&C Saatchis AIM float
There are a number of benefits in obtaining a listing, including providing the company with greater access to capital and gaining a higher profile. Additionally, listing can be used by a companys existing shareholders to turn their investment into cash.

M&C Saatchis selling shareholders, which comprised the Saatchi brothers and three other executives, pocketed 25m by selling 19,631,715 ordinary shares. Meanwhile, the company raised 10m by placing 8,429,972 new ordinary shares.

Although the process M&C Saatchi went through to obtain an AIM listing is described as an IPO, there was no retail offer (ie none of the company’s shares were issued or sold to the public). This is because IPO is often used synonymously with flotation. It is always important, then, to double-check exactly how the deal is structured.

The nominated adviser
The AIM rules require any company seeking a listing to appoint a nominated adviser (Nomad) in relation to the IPO. M&C Saatchi appointed investment bank Lehman Brothers as its Nomad. The Nomad is in effect the London Stock Exchanges (LSE) agent and is responsible for ensuring that the company complies with AIM rules.

Lehman also acted as M&C Saatchis broker and bookrunner on the IPO. Bookrunners market the companys shares to institutional investors (eg pension funds).

The lawyers role
Throughout the IPO M&C Saatchi received legal advice from Holborn-based firm Olswang. A team of lawyers led by the firm’s chief operating officer Jonathan Goldstein and corporate partner Tony Leifer prepared a lengthy due diligence report on the company. The report, which is addressed to M&C Saatchi and its Nomad, highlights issues that may affect the company’s suitability for listing.

Olswang also drafted and negotiated a number of other legal documents, including the underwriting agreement entered into between M&C Saatchi, its directors and Lehman.

The firm also worked alongside Lehman’s legal adviser Lovells to draft the admission document, which is a 100-page document setting out the purpose of the IPO, facts about M&C Saatchi’s business and detailed financial information prepared by the company’s reporting accountants BDO Stoy Hayward.

The AIM rules and the Public Offer of Securities (POS) Regulations 1995 set out the disclosures that must be included in the admission document. The disclosures are necessary to enable investors to determine the health and future prospects of the company. In order to ensure that the contents of the admission document were accurate and not misleading, Olswang verified the contents.

Charlotte Dewson, an Olswang trainee who assisted on the due diligence and verification, describes the exercises as a huge process. But she says that, prior to working on the deal, she did not know much about IPOs as this was her first corporate seat. However, Dewson says that by the end she had learnt a great deal.

The final stages
Although the timetable for AIM listings is fairly flexible, there are still a number of key dates that are worth noting. A draft admission document, commonly referred to as a pathfinder, was published on 28 June. Then M&C Saatchis directors went on roadshows to promote the IPO. The final offer price for the shares was determined by the level of investor demand on 9
July and the pathfinder admission document was finalised.

On the same day Lehman filed a declaration with the LSE that the company has complied with Schedule 6 of the AIM rules. Because the onus rests with the Nomad to ensure the contents of the admission document comply with the AIM rules and POS Regulations, Lovells and Olswang gave Lehman comfort letters stating that as far as they were aware the documents satisfied all the necessary requirements. At the same time, the underwriting agreement was also signed.

M&C Saatchis IPO completed on 14 July and on the same day the companys shares were admitted to AIM.

Main market v AIM: the differences
Main market
  • At least 25 per cent of the company’s shares must be in public hands.
  • The company must have a three-year revenue earnings record and a market capitalisation (ie the number of company’s shares in issue multiplied by the share price) of a minimum of 70,000.
  • Company must seek shareholder approval for large transactions.
  • Listing documents must be checked by the UKLA.
  • The company needs to appoint a sponsor for certain transactions.
AIM
  • No minimum shares to be in public hands.
  • The company does not need an earnings record or minimum market capitalisation.
  • The company does not need shareholder approvalfor transactions, except for reverse takeovers.
  • There is no need for listed documents to be checked by the UKLA, resulting in a shorter IPO timetable.
  • The company must have a Nomad at all times.