A View from London: Initial Public Offering (IPO) Update from London
Significant momentum in European markets and London
The European IPO market has enjoyed the most successful first quarter in seven years. According to PwC’s “IPO Watch Europe Survey Q1 2014,” €11.4bn of cash was raised; this exceeded the aggregate Q1 proceeds in the previous four years. There were 32 IPOs in London raising €5.9bn (or 52 percent of the total European IPO proceeds). Five of the top 10 IPOs were on the London Stock Exchange, with the remainder spread between Euronext, NASDAQ OMX Nordic and the Spanish BME. The retail and real estate sectors dominated the quarter, raising in aggregate €5.2bn (45 percent of total European IPO proceeds) and accounted for seven of the top 10 IPOs in the quarter. Five of the top 10 IPOs were private equity backed.
Neither the U.S. nor Hong Kong markets have been able to match the European markets in the first quarter (US: €8.0bn; Hong Kong: €4.3bn).
The London Stock Exchange is divided between the main market and AIM. There were 14 IPOs in the quarter on the main market raising €4.6bn and 18 IPOs on AIM raising €1.3bn. In the year to date, our London office has advised on over 10 percent of all London main market IPOs.
New rules in London to protect minority shareholders
Against the backdrop in 2011 and 2012 of high profile debates about the quality of the listing regime in London, triggered in large part by the bitter shareholder battles at mining companies Bumi and ENRC, the UK regulator (the FCA) introduced new rules to better protect minority shareholders in May of this year.
The new rules only apply to those companies on the main market of the London Stock Exchange with a premium listing. These companies already face higher standards of regulation than those with a standard listing. The new rules require companies with a controlling shareholder to have a relationship agreement and set out the minimum standards required. The aim is to ensure that companies can operate independently from the controlling shareholder (essentially someone who, individually or with others, controls 30 percent or more of a company’s voting rights). Companies must report in their annual financial report as to whether or not the independence provisions have been complied with. Any breach means that any transaction between the company and the controlling shareholder, regardless of size, must be first approved by the independent shareholders until such time as the company can give a clean independence statement in its annual financial report.
The FCA has also introduced a dual voting structure for the appointment (and re-election) of independent directors for companies with a controlling shareholder. Such appointments will need to be approved not only by the shareholders as a whole, but also by the independent shareholders. Further voting is required if the appointment is not approved by both and the company still wishes to proceed with the appointment.
In the FCA’s view, they have come up with a package that will not impose any increased regulatory burden on companies which comply with the expected standards of behaviour, but will have a very significant impact where this is not the case. The Association of British Insurers does not think the rules have gone far enough and would like to see controlling shareholders punished for breaches. They are also concerned about the pressure the new rules put on independent directors.