The IPO Process in Australia

Posted by Paul Hardie on 28 December 2009 | 2 Comments

Tags: IPO, ASX

What is the IPO Process?
The IPO (or initial public offering) process is the process of taking a privately owned company and making the transition to a publicly owned entity whose securities can be traded on a securities exchange such as ASX.

There are many reasons why a private company would want to undertake an IPO, including:

• greater access to capital markets to fund acquisitions and/or assist with the growth of the company’s business;
  
• exposure to retail and institutional investors; and
  
• to provide an exit strategy for founders and other early stage investors.
  

The IPO process can be a complicated and time-consuming distraction for directors and senior management. It also contains numerous pitfalls for the unwary. Understanding the IPO process and how to manage it effectively can help avoid some of these pitfalls.

What Steps are Involved?

The importance of effective planning and transaction management should not be underestimated when undertaking an IPO. Detailed preparatory work undertaken by senior management and advisers can ultimately lead to significant cost savings in terms of both time and money. When preparing for an IPO there are a number of structuring matters that need to be considered, including reviewing the composition of the Board, determining the ideal legal structure for the public float, and identifying the assets and/or businesses within the group that will be included or not included in the IPO.

The IPO process typically involves the following steps:

1. Appointment of Advisers

The company needs to consider the appointment of various professional advisers to assist with the listing process, including:

• lawyers;
  
• corporate advisers;
  
• accountants;
  
• underwriters and stockbrokers; and
  
• other experts as required (for example, independent geologists, valuation experts, share registries and investor relations consultants).

The importance of choosing quality professional advisers (preferably with experience in IPO’s) should not be underestimated. Moreover, it is critical to the success of a company’s listing on ASX that the advisers take the time to understand the company’s business and the direction the Board want to take the business post IPO.

2. Discussions with ASX

There are numerous regulatory issues that companies need to be aware of prior to listing, including with respect to constituent documents, listing timetables, escrow of securities, and related party transactions to name a few. In conjunction with its advisers, companies should endeavour to discuss these matters with ASX at the earliest opportunity.

3. Preparation of Prospectus and Due Diligence

In most cases, a prospectus or similar disclosure document is required to be issued before a company can list on ASX. A prospectus must contain all of the information that investors and their advisers would reasonably require and expect in order to make an informed decision about whether or not to participate in the IPO. The due diligence process is integral to the preparation of the prospectus and usually involves an all encompassing examination of the company, including detailed verification of the information to be disclosed in the prospectus. Given the importance of proper disclosure and the potential liabilities for directors and others involved in the preparation of a prospectus if they get it wrong, it is vital that appropriate professional advice is obtained in connection with the preparation of the IPO prospectus and the due diligence process. A properly conducted due diligence process may also provide a statutory defence against potential liability in certain circumstances.

4. Lodgement of Prospectus and Listing Application

The prospectus must be lodged with ASIC. After lodgement of the prospectus, the company cannot accept subscriptions for a period of 7 days. ASIC may extend this period to 14 days during which time it can require the company to make amendments to the prospectus. A listing application must also be lodged with ASX within 7 days of the prospectus being lodged with ASIC.

5. Offer Period

Once the prospectus has been lodged with ASIC, the offer opens to the public. It is common during this period for the company to undertake roadshow presentations to garner investment support for the listing. Prior to lodgement of the prospectus, there are restrictions on advertising and publicity in relation to the IPO, and companies should seek specific legal advice about such matters.

6. Admission to Official List of ASX

Once the listing application has been lodged with ASX, additional information may be required to ensure that investors have sufficient information to make an informed decision about whether or not to invest. Usually ASX will grant admission to the Official List subject to the satisfaction of certain conditions, including completion of the IPO capital raising.

7. Commencement of Trading on ASX

Once all conditions have been satisfied (including the issue of holding statements to all shareholders), official quotation of the company’s securities on ASX commences.

How Long does the IPO Process Take?

The timetable for listing on ASX depends on the complexity and scale of the transaction, how quickly the listing can be prepared and the time it takes to receive the funds from investors. If managed properly, the IPO process can be completed in 3-5 months. If not managed properly, the process can be a time-consuming and arduous task which has the potential to drag on and become a distraction for the Board and senior management.

Obviously, the longer the IPO process takes the more expensive it will be, so it is important for a company to have an adviser with ASX listing experience to manage the IPO process on its behalf to ensure that the process is streamlined as much as possible.

Conclusion

In summary, an IPO can provide significant benefits for a company. However, if the company gets it wrong, the potential liabilities for directors and others involved in the process, and the opportunity costs for the company, are high.

If you would like further information on the above, or if you wish to discuss the contents of this article in more detail, please contact us.

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