Where to list: What do boards need to consider for IPO success?

Going public is a significant step in the life of a company, with a key area of focus for the board and senior management being to determine the most appropriate listing venue for the initial public offering (IPO) of its shares. 

Several critical factors will come into play in this context. 

Valuations and ROI

First, the company must consider valuations and the potential returns on invested capital the company might achieve. The depth and sophistication of the investor base in the relevant market is also paramount; a well-developed investor community can offer not only the necessary capital but also support for the company's future growth and development. 

The role of the analyst

The quality and depth of research coverage are also vital considerations, as strong analyst coverage can lead to greater visibility and understanding of the company's value proposition among investors and stakeholders. Moreover, visibility to customers and business associates in the chosen market can significantly impact the issuer's public image and operational success, and the presence of industry peers on the same listing venue can enhance its credibility and attractiveness to investors.

Domestic or international market

Most companies will have a geographic centre of gravity, and this will often be a key factor in initial discussions around choice of market. However, while the local exchange may offer certain advantages (including familiarity) it will not necessarily be a suitable, or the most suitable, listing venue. 

Whether this is the case will depend on a range of factors, including the nature of the market (and whether it is primarily domestically focused or more international in nature) as well as pros and cons compared to other potential listing venues – for example, in areas such as ease of building investor relations and raising the company's profile with customers and potential business partners, ability to gain media coverage, and investors’ understanding of the company’s market and industry dynamics. 

If a decision is taken to list on a more domestically focused exchange, consideration should be given to combining this with an international offering to enable access to large international investors as part of the IPO. 

Benefits of a dual listing

For some companies, a dual listing (with admission to both a domestic and an international market) could also be a potential option. This may involve a dual listing of shares or, in some cases, be facilitated using an American Depositary Receipt (ADR) or Global Depositary Receipt (GDR) structure with the ADRs/GDRs listed on the international market and the shares on the domestic market. 

Although dual listings can offer certain benefits (including the potential to enhance liquidity, increase investor base diversity, and provide greater visibility), they can also introduce greater execution risk during the IPO process and will increase the cost of compliance (including in terms of management time and administrative burden) following listing. 

As such, companies must carefully weigh these factors when determining whether the benefits of a dual listing outweigh the additional challenges and expense. 

Balancing stakeholders’ interests

When considering the most appropriate listing venue, companies will also need to balance the interests of different stakeholders in the IPO, including investors and employees. 

For example, consideration will need to be given to the exit of any existing venture capital and other private equity investors who have supported the company's growth using private funding – a well-chosen listing venue should provide enough liquidity and investor interest to facilitate this without causing excessive price volatility or market disruption, maintaining investor confidence and stability in the company's stock price. 

The needs of management, employees and other participants under the company’s share-based incentive schemes will also need to be taken into account, including how easy it will be for them to exercise and realise stock options and awards to enable them to participate effectively in the equity growth of the company post-listing. 
Balancing these considerations will be important to ensure that the IPO meets the needs of key stakeholders while positioning the company for long-term success in the public market.

Rules around acquisitions and fundraising

Where the company’s strategy involves a focus on growing via acquisitions, understanding how these would be regulated by the rules of different listing venues will be critical, including what disclosure requirements will apply and whether shareholder approval may be needed in certain circumstances. 
If it is intended to use equity as an acquisition currency, additional factors to take into account will include the ease of issuing and admitting further shares and the relative attractiveness to potential vendors of shares traded on the different markets under consideration.
Similarly, for capital hungry companies that expect to conduct significant fundraisings post-IPO the relative ease of issuing further shares (including the extent of any associated public documents required and the availability and ease of use of devices such as “shelf” registration or issuance programmes to satisfy those requirements) will be a key factor to consider when looking at different listing venues. 

Understanding ongoing obligations

More broadly, companies will also need to take into account the scope of the ongoing obligations associated with different listing venues, the applicable liability regime and risk and the associated costs of compliance and how these factors align with the long-term goals and operational capabilities of the business.

Our IPO guide

Using a Q&A format for ease of comparison, this guide discusses the requirements and processes for listing equity shares in a range of key markets (the United States (NYSE and Nasdaq), the United Kingdom, Canada, Australia, South Africa, the United Arab Emirates (the Abu Dhabi Securities Exchange and the Dubai Financial Market), Saudi Arabia, Hong Kong, the Netherlands, France and Germany), offering a helpful resource for companies navigating their path to going public. It covers:

• Core requirements for listing, including eligibility criteria, board composition rules, the regulators and main advisors involved, certain key structuring considerations, and listing documentation and marketing practices (such as the use of pre-IPO research). 
• An indication of any special listing categories and requirements (including “secondary” listings or other accommodations for foreign issuers, if any).
• Key continuing obligations post-IPO, including corporate governance and ongoing reporting/continuous disclosure requirements, specific rules in relation to material and related-party transactions, requirements regarding disclosure of interests/dealings in the company’s shares, and an indication of the applicable takeover regime.

We hope you find this guide helpful. If you would like to discuss any of the issues covered in further detail, including in the context of your company’s specific circumstances, or to receive further information on particular markets or areas, please do not hesitate to get in touch.