The quick summary of the main changes, pretty much as we set out in our analysis in March:

1. A registration statement is to be published at the start of the IPO process, to reinstate the primacy of the prospectus as the main information document for investors. A draft “Pathfinder” is no longer available (or indeed relevant) to be published half way through, although there is regulatory leeway to publish a full price range tripartite prospectus (including any updates since the registration statement) at the start of the marketing and bookbuilding phase.
2. Unconnected analysts to be given access to management and the analyst presentation. Two options: i) at the same meeting, in which case both types of analyst can publish on the Intention to Float announcement which will be the day after the prospectus, ii) at separate meetings, in which case both may only publish at least 7 days after the prospectus. In the latter case, the ITF may take place only after the seven days are elapsed from the prospectus publication. Effectively, option i) is still a four week IPO timetable, while option ii) becomes a 5 week IPO timetable. Although respondents have indicated for a couple of reasons, that in option ii) the 2 weeks of investor education by analysts could be cut to 1 week, becoming an overall 4 week timetable.
   
3. Connected and unconnected research assumed to be published together.
4. Issuers and advisors may not interact with research analysts during a pitch process.
5. Issuers must now determine whether the analyst presentation is inside information under the Market Abuse Regulation.
6. As these changes are being made not in the UK IPO regulations, but in the Conduct of Business Sourcebook, I still maintain it’s possible these changes apply to all IPOs handled by London-based investment bankers. Including IPOs throughout EMEA that are run from London and/or have London research analysts involved.
7. The rules will be in force from 1 July 2018 for IPOs that have all of the relevant transaction events after this date. In practice, assume any deals launching from September 2018 will need to observe the new rules.

We’ve updated our prior thoughts below. Indicating where NEW/NO CHANGE/SOME POSITIVE CHANGE

Consequences for issuers internal processes

NEW Option ii) most likely to be used

The concerns over deal confidentiality, among other reasons, have led banks to indicate they will prefer to recommend option ii) with separate connected and unconnected analyst presentations. This is also the preferred route from independent research houses who have indicated a desire to absorb the issuer information in the registration statement before the management meeting.

NEW Inviting buyside research analysts to the unconnected analyst presentation?

Some investors have indicated their analysts should attend the unconnected analyst presentation. This was also a key ask in our previous article discussing buyside feedback on the proposals. Assuming this only happens in option i) and therefore the risk of leaks is eliminated, from an issuer’s perspective, this can only be a good thing. The registration statement is public at this point, so those buyside analysts are already doing work on the company. And the issuer’s investor relations activity post IPO will need to cover these institutions even if they do not participate in the IPO.

NO CHANGE Pre IPO IR and PR preparedness is now essential

The previously confidential analyst presentation is now potentially a capital markets day for all sellside research and independent research analysts. The consultation paper’s cost-benefit analysis assumes this meeting includes 60-100 analysts (!). All of whom now need to be serviced immediately, not least to address any misconceptions. Frequently, new issuers don’t hold a capital markets day for a year or more. Or the first annual results is the company’s first time to meet a broader audience of sellside research. No longer.

And as the prospectus is now a public document at the start rather than end of the process, there’ll be heightened interest from press, suppliers, and other stakeholders, all of whom will need to be serviced.

The issuer and banks unsurprisingly have an obligation to deliver the same information, including any resulting from ad hoc discussions, to connected and unconnected analysts. Although at least the use of webcasts etc. is encouraged.

NO CHANGE Understanding the research analyst landscape will be harder

Research analysts are fundamental to a UK and international IPO process. The consultation was pretty clear investors still appreciate connected research. The rules now require that an issuer never sees or speaks to the connected research analysts until the analyst presentation or until the banks’ roles are communicated in writing by the issuer.

There is a carveout here, when the research analyst is unaware there is an IPO pitch process ongoing. Which means in practice – the carveout is pretty unlikely to be used, not least as banks’ internal policies require analysts meeting a potential IPO issuer to receive a quite scary compliance briefing on what they can and cannot discuss, which will rather give the game away.

We continue to maintain this is an unwelcome development from the perspective of an issuer. Issuers need to understand the analyst landscape out there as part of their IR preparedness for an IPO. After all, servicing the analyst community is an incredibly important part of life as a listed company. It is quite surprising these new rules blind issuers to one of their post-IPO major stakeholders, until they sit in front of 100 of them at a time of great stress. We predict IR advisors will become more relevant in an IPO process, as potential issuers can no longer discuss with analysts what will be required of them post IPO.

SOME POSITIVE CHANGE Issuer liability for unconnected research is unclear

The changes recognise the validity of restrictions on the distribution of unconnected research for liability reasons. The same restrictions must apply to both connected and unconnected analysts. As to the remaining portions of research guidelines, the FCA is still silent on what should be included, only saying that trade associations should develop a form of common research guidelines for unconnected analysts. These guidelines will also act as a precondition for eligibility to attend the unconnected analyst presentation.

There is still no mention of liability for the unconnected research under the regulations of other jurisdictions (for instance, the US), nor of sanctions for breaches of the guidelines that impact on the issuer.

NO CHANGE Could the Analyst Presentation become a public document? Issuers are reminded to consider Market Abuse Regime status of the information in the analyst presentation

The CP reminds issuers that non-disclosure agreements do not guarantee the disclosure of inside information is lawful. And an issuer who has e.g. listed bonds, could conclude they have an obligation to announce some or all of the information contained in the analyst presentation as soon as it is given to the research analysts. The policy paper specifically highlights the strategic and forward-looking information on the issuer.

NO CHANGE There is a positive side to being forced to accommodate unconnected research

In two words, Investor Feedback. The whole point of including this unconnected research is because there is investor demand for it, which is not satisfied by the connected research.

A really big question is how the issuer will receive this feedback. After all, independent research houses don’t have salesforces and syndicate desks to gather the feedback, nor do they know where to send it and in what format! Further, how can an issuer or its advisors check the quality or importance of the unconnected feedback? And even where these unconnected analysts are in a bank, the equity and syndicate teams in that bank don’t have an economic interest in providing the feedback since they’re not the syndicate.

I believe independent online platforms for gathering feedback will be essential. I’ve mentioned Issufy before [as previously noted: I like their product so much that I am collaborating with them]. Issuers wanting to get the benefits of being forced to include unconnected research, should be looking to providers like them on every IPO.

These changes turn out to be evolutionary rather than revolutionary. Unfortunately, they have increased the burden on issuers, with little regulatory support for gathering, or acknowledgement of, the benefits for them of this more inclusive approach. Educated issuers will challenge their advisors on how to best gather and reflect on the feedback from the increased analyst and investor access to the transaction.

As always, if you have any questions, we’re here to help.

Please note – We’ve used our judgement to select the linked external information which we believe may be of interest. We are not however responsible for the accuracy, completeness or relevance of the information and opinions contained therein.