EY IPO leaders' insights EMEIA 2020_E-book

EY IPO leaders’ insights Europe, Middle East, India and Africa #IPO #IPOreport #AmbitionUnlocked

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EY IPO Dr. Martin Steinbach Franck Sebag Anil Menon leaders EMEIA and Germany, France, Maghreb and Middle East and Switzerland and Austria Luxembourg North Africa The journey from private to public company is far more than a simple equity transaction. For your > 8 | 22 | 34 | 66 | 68 | > 12 > 14 IPO to be successful, you must make the right 72 judgement on countless decisions — and you only have one chance to get it right. Gregory Hughes Paolo Aimino Robert Klimacki Middle East and Mediterranean and Poland EY IPO leaders across Europe, the Middle East, North Africa Italy India and Africa set out the key stages of the IPO > 24 process — from the decision to go public, to the > 16 | 50 > 18 critical post-IPO work needed for continued success. As trusted advisors, we are here to support you by helping you through your IPO journey and to achieve your ambition. Scott McCubbin Victor I. Khoma Metin Canoğulları Andreas Dalhäll Claus Kronbak Felicia V. Gavrila United Kingdom CIS and Russia Turkey Nordics and Sweden Denmark Romania and and Ireland Moldova > 28 > 30 > 36 > 38 > 26 > 40 Rosa Maria Orozco Päivi Pakarinen Sandip Khetan Sofia Kalomenides Mayur Pau René Coenradie Centenera Finland India Central and Southeast Middle East and Belgium and Spain Europe and Greece North Africa Netherlands > 44 > 46 > 42 > 48 > 54 > 56 Thomas Embretsen Daniel Mair Pramit V. Nathoo Peter Wells Norway Germany, Switzerland Africa Czech Republic and Austria > 58 > 62 > 64 > 60 EY IPO leaders’ insights Europe, Middle East, India and Africa  | 3

Inside 01 Strategic considerations Making connections 8 Driving activity 12 14 How can the EY IPO leaders How are PE and VC changing 16 help you? the IPO environment? 18 Franck Sebag Foreword by Dr. Martin Steinbach Listing as a family What are the challenges of a family enterprise IPO? Anil Menon Selling privatizations How can IPOs be used as a privatization strategy? Gregory Hughes Selling brands abroad Why are global brands considering cross-border listings? Paolo Aimino 02 Where to list Finding the right spot 22 How can companies ensure they select the right market for their IPOs? Dr. Martin Steinbach Choosing a junior market 24 Why consider an alternative to the main markets? Robert Klimacki Listing in London 26 What are the key characteristics of an IPO in the United Kingdom? Scott McCubbin “EY teams have guided more US offerings exempt from 28 registration under Rule 144a companies through their IPO than any other public What are the benefits of listing abroad? accounting organization. Victor I. Khoma Going public in Turkey 30 Why might an IPO be the right strategy to fund growth in Turkey? Metin Canoğulları 4 |  EY IPO leaders’ insights Europe, Middle East, India and Africa

03 Getting 04 IPO planning and IPO ready plan B options Getting ready 34 Perfect planning 54 Why start with an IPO What are the secrets to planning readiness assessment? a successful IPO? Dr. Martin Steinbach Mayur Pau Making a statement 36 Pulling it all together 56 How can companies manage the risks How can a project management office lead to a smoother IPO? when issuing a working capital statement? René Coenradie Andreas Dalhäll Optimizing taxes 38 Getting the facts straight 58 Why does tax planning need to be How can an IPO fact book help companies a priority throughout the IPO process? carry out a dual-track process? Claus Kronbak Thomas Embretsen Converting quickly 40 Covering both exits 60 How can IFRS be implemented in a Why is vendor due diligence short time frame to make the most crucial to a dual-track process? of an IPO window? Daniel Mair Felicia V. Gavrila Digitizing diligence 62 Closing fast 42 Could a virtual data room smooth your IPO process? How can the financial statement close process be improved pre-IPO? Pramit V. Nathoo Rosa Maria Orozco Centenera Alternative exits 64 Growing apart 44 Why should you run a multitrack process? How can companies make the most of a spin-off IPO? Peter Wells Päivi Pakarinen Anticipating future risks 46 Six derisking strategies for 66 How should companies considering IPO-bound companies an IPO reassess their risk management? How to derisk a company’s IPO and improve transaction certainty Sandip Khetan Dr. Martin Steinbach Comforting thoughts 48 Alternative route to How can companies address the market gains traction 68 challenges posed by comfort letters? Is your business the right fit Sofia Kalomenides for a direct listing? Dr. Martin Steinbach Setting the right price 50 How can companies get the right result 05 Life in the from the valuation and pricing process? public eye Gregory Hughes Organizing the interface 72 with investors How can an effective IR function help organizations succeed with their IPO and beyond? Dr. Martin Steinbach EY IPO leaders’ insights Europe, Middle East, India and Africa  | 5

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With you all the way At each stage — no matter what your sector, location or chosen market — we have the knowledge, experience and global reach to help you achieve your ambition and get the most from your IPO journey. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 7

Foreword Making connections How can the EY IPO leaders help you? Dr. Martin Steinbach In EY IPO leaders’ insights, IPO leaders from For fast-growing private companies, an IPO can across Europe, the Middle East, India and be an attractive route to raising capital and Africa (EMEIA) set out the key stages of the funding growth. And while challenging market IPO journey — from the decision to go public conditions will come and go, companies that to the critical post-IPO work needed for fully prepare will always be the best able to take continued success. advantage of open IPO windows. Despite the growing availability of private Preparing for an IPO is an intense and arduous capital, many clients value four key advantages process. It is easy for management and employees that an IPO as a strategic option, and the listing to become distracted by the sheer size of the task. in public markets deliver: During an IPO, senior management must 1. Public capital markets are still the deepest balance its focus between the IPO preparation pool of liquidity with a daily valuation and the company’s day-to-day operations. And they must have the experience and skills both 2. Higher brand recognition opportunity in to undertake the IPO transaction and operate a a public spotlight with positive spill-over public company leading up to the road show and effects on business growth long after it is over. 3. Higher corporate governance oversight by To get the most from its IPO, a company regulators, analysts and multiple investors needs external advisors who are highly skilled professionals with extensive IPO credentials, 4. Direct access to a diversified global investor capital market contacts and industry expertise. base and funds being part of capital markets Fig. 1: Annual EMEIA* IPO activity (2010–19) 516 440 358 349 366 367 323 237 237 214 $49 $33 $17 $38 $73 $68 $38 $65 $48 $58 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Proceeds (US$b) Number of IPOs *Based on IPO activity on EMEIA stock exchanges. Data for 2019 is based on priced IPOs from 1 January 2019 to 31 December 2019; data is up to 2 January 2020, 9 a.m. India time. Source: Dealogic, EY research. 8 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Making connections “With strong links to capital market intermediaries, regulators and exchanges, the EY IPO leaders network has a presence in every capital market in the world. Detailed knowledge with global reach About the author EY is the number one organization by audit share for helping Dr. Martin Steinbach is a partner and the IPO Leader for EMEIA high-growth companies list publicly. We use our international and GSA, Ernst & Young LLP. knowledge to guide companies as they address priorities and mitigate risks. His areas of experience include initial and secondary public offerings, M&A transactions, investor relations and technology- With its deep pool of knowledge and experience, the IPO focused private equity deals. leaders in EMEIA can help you anticipate the risks and overcome the challenges of life as a public company. He has over 25 years’ experience working in corporate finance in Europe, China, Russia and India. Before joining EY, he held The network is made up of interdisciplinary teams with management positions in investment banking, private equity, IT market-specific knowledge that work together to facilitate and the securities exchange sector. cross-border IPOs and overseas listings. With strong links to capital market intermediaries, regulators and exchanges, the He has served on the supervisory boards of listed and non-listed EY IPO leaders network has a presence in every capital market companies, as well as the investment committees of private in the world. equity firms. He has published articles on, and contributed to, books about stock markets, IPOs, investor relations and real Preparation is crucial estate investment trusts (REITs). He is a frequent speaker at international seminars. Companies around the world continue to ready themselves to go public. Whether a company is owned by its founders, a Contact family enterprise, a conglomerate, government, private equity or venture capital, it is important to build confidence and gain Dr. Martin Steinbach investors’ trust. This can best be achieved by being IPO ready IPO Leader EMEIA and Head of IPO and Listing Services GSA, in all areas. Ernst & Young LLP EY local IPO Leaders in EMEIA will be happy to discuss your Mergenthalerallee 3–5 plans with you. We know each company has unique ambitions. 65760 Eschborn/Frankfurt am Main With over 30 years’ experience, we know what it takes to fully Germany prepare for an IPO. As trusted advisors, we can help you to realize your full potential. Telephone: +49 6196 996 11574 Mobile: +49 160 939 11574 We are ready to help. Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 9

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Strategic considerations There are different strategic considerations that may lead to the IPO decision. What are your goals, motivations and ambitions for going public? EY IPO leaders’ insights Europe, Middle East, India and Africa  | 11

Strategic considerations Driving activity How are PE and VC changing the IPO environment? Franck Sebag Over the last few years, private equity (PE)- Key benefits and venture capital (VC)-backed companies have increasingly been driving IPO activity, Some geographies, such as the US, have and now account for 89% of global deals. In the been more profitable for IPOs than others; as US, almost three-quarters of IPOs originate have some sectors, such as life sciences and from PE and VC, as do more than a third of technology. But for companies everywhere, IPOs IPOs in Europe. There seems to be a strong offer some key advantages: appetite among institutional investors for this type of IPO, which can offer the prospect of • An IPO remains a great opportunity to fund higher returns. growth and increase a company’s exposure among stakeholders and the public. This can Fig. 2: Share of PE- and VC-backed IPOs in boost the brand and help attract new talent. global deals • IPOs can help investment funds keep their 79% 83% 87% 90% 89% capital moving while keeping control of the company. Unlike M&A, an IPO can 1% 2% 2% 3% 2% enable a company to continue functioning 11% 7% 9% independently — without being absorbed 20% 15% 2017 by a larger entity — thus maintaining its 2015 2016 2018 2019 strategic freedom. PE- and/or VC-backed • IPOs are an increasingly viable and highly Former state-owned enterprises attractive exit route. Sixty percent of Nonfinancial sponsor-backed institutional investors believe PE- or VC- backed IPOs offer equal, or better, returns on investment than offerings without financial sponsors. A challenging process Going public comes with greater exposure and increased responsibility regarding governance, financial reporting and internal controls. Listed companies are subject to multiple regulations and face many specific risks, which require the creation of solid financial, technological, control and risk management structures. PE- and VC-backed companies have a head start here, being accustomed to having their finances and governance regulated. 12 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Driving activity “Sixty percent of institutional investors believe PE- or VC-backed IPOs offer equal, or better, returns on investment than offerings without financial sponsors. And the challenges do not end once a company has gone About the author public. When the excitement of the process and the attention Franck Sebag is a partner and the IPO and VC Sector Leader for of the media have subsided, the company must continue to France, Maghreb and Luxembourg, Ernst & Young LLP. communicate key corporate messages to investors to maintain their interest. IPOs should be seen as a milestone, not an end His areas of experience include acquisitions, due diligence, in themselves. financing, IPOs and the needs and issues of companies experiencing rapid growth. We offer a double advantage He has over 20 years’ experience providing audit and advisory An IPO is not just a financial event: it is a profound services to both private and public companies. transformational process that requires extensive preparation and a clear strategy. Franck works as a coach and mentor for start-ups, and has served as a jury member in several competitions for fast- To succeed at each stage — from defining an operation growing companies. He is member of a number of major French schedule to achieving post-listing financial goals — leaders and VC organizations, including France Digitale, CroissancePlus and administrators will find it invaluable to have the support of France Biotech. He frequently speaks with the media and has external experience. been quoted by publications such as Les Echos, Option Finance and La Tribune. And as a global leader helping clients throughout their IPO journeys, EY has acquired unrivaled experience in cross-border Contact operations — a crucial asset in sectors such as technology, Franck Sebag where a presence is needed in all markets. IPO and VC Leader France, Maghreb and Luxembourg, Ernst & Young LLP With proven experience in the most dynamic sectors for IPO activity and in-depth knowledge of the PE and VC sectors, EY Tour First, TSA 14 444 teams provide a double advantage when offering this support. 92037 Paris — La Défense Cedex France By being able to address issues that are specific to them, we can help companies through the course of the IPO while Telephone: +33 1 46 93 73 74 protecting their investors’ interests. Mobile: +33 6 08 74 60 30 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 13

Strategic considerations Listing as a family What are the challenges of a family enterprise IPO? Anil Menon There are many reasons why a family enterprise • What is the transaction perimeter? might consider an IPO, such as to enable It is very important to determine the exact succession and estate planning, to monetize scope of the business to be listed. This will existing investment, to increase visibility or to determine the equity story and the overall raise growth capital. pricing — factors that play a major role in generating market interest in the IPO. IPOs are once-in-a-lifetime events that need careful planning and preparation. One of the In the case of family enterprises, there may biggest mistakes a company can make is to be relationships between various parts of the approach an IPO purely as a capital event. business that will need to be regularized prior The changes involved in the IPO journey, from to the IPO. This may mean negative synergies, private to public company, are permanent and increased costs and redundancies. far-reaching. • What will the board constitution be? Pre-IPO questions for family enterprises Stock exchange and security market regulators demand that listed companies have There are a number of strategic issues family a strong corporate governance framework, enterprises considering an IPO must address: including independent directors to represent minority shareholders. Before the IPO takes • What is the optimal capital structure? place, family enterprises need to decide on When the IPO’s objective is to raise growth their board constitution. capital, this is a key strategic issue. Capital events are particularly tricky for family We highly recommend that, before the enterprises where the group treasury allocates IPO takes place, family enterprises enlist capital to group companies on an ad hoc basis. independent directors to coach the family directors on their pre- and post-IPO • Is an IPO the appropriate equity solution? responsibilities. Getting the right board Having decided that offering equity is the members in place to achieve good chemistry, right way to raise capital, the family enterprise an appropriate mix of skills and knowledge and needs to evaluate the pros and cons of the the right kind of networks is a key strategic different methods — such as an IPO, private pre-IPO task. placement or private equity. • What is the equity story and expected Given that IPOs come with significant public valuation? scrutiny and regulatory oversight, they Family enterprises embarking on an IPO should not be embarked on for the wrong need a clear equity story — the reasons why reasons. Depending on the circumstances, equity investors will find the IPO attractive. other capital-raising mechanisms may be Throughout the road show process, the more effective. company’s management and select directors will be called upon to explain and defend the equity story, so they will need to be able to articulate it clearly and concisely. 14 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Listing as a family How EY teams can help you with your “We highly recommend that, family enterprise IPO before the IPO takes place, EY teams have advised many ambitious family family enterprise enlist enterprises with their IPOs. We act as a sounding independent directors to coach board and a trusted advisor, and our advice is the family directors on their pre- tailored to help the family plan and execute a and post-IPO responsibilities. successful IPO. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 15 As American inventor Thomas Edison once said, “Good fortune often happens when opportunity meets with preparation.” IPOs are too important to be taken lightly. To achieve your ambition successfully, strategic planning is imperative. About the author Anil Menon is a Transaction Advisory Services partner and the IPO and M&A Leader for the Middle East and North Africa, Ernst & Young LLP. He has led a number of high-profile IPO advisory and sell-side engagements. With over 20 years’ experience working in corporate finance across the Middle East and North Africa, Asia and other markets, he has a strong focus on the retail, industrial and consumer products sectors. Anil serves on EY’s Deal Review Board. Contact Anil Menon IPO and M&A Leader, Middle East and North Africa, Ernst & Young LLP Tower 1, Level 3 Dubai International Financial Centre Al Fattan Currency House Dubai — 9267, United Arab Emirates Telephone: +971 4701 0726 Mobile: +971 5 6547 6997 Email: [email protected]

Strategic considerations Selling privatizations How can IPOs be used as a privatization strategy? Gregory Hughes For centuries, governments across the world have Identify creative and achievable alternatives: found themselves with significant public deficits and the need to restore economic stability. In other • Investigate a range of alternative exit cases, they have recognized that state-owned strategies other than an IPO enterprises may not be operating efficiently or providing world-class services or products. In both • Consider the process of, and the issues instances, privatization may be the solution. involved in, transferring ownership There are many ways a government can realize • Develop a “do nothing” option for comparison the value of state assets, such as through public- private partnerships or strategic sales. But Establish clear value criteria and trade-offs: often, the most transparent way to show that a government has maximized value is through • Develop measures to assess the effectiveness an IPO. of each alternative Demonstrating value, protecting • Establish a set of decision-making criteria that public interest aligns with the strategic objectives Those responsible for executing an IPO of state • Understand the nonfinancial benefits of the assets face two major challenges: they must privatization demonstrate that they have maximized value and that they have protected the public interest Acquire meaningful and reliable information, and the interests of all stakeholders. Based including detailed financial information: on EY studies of past privatizations, we have developed the Privatization Value Framework to • Identify the critical information needed for the help governments considering an IPO. It consists IPO offering document of the following steps: • Assess the data for relevance and reliability • Understand the views of key stakeholders: taxpayers, employees and political leaders Build quality business modeling: • Explain the development of the historical • Construct robust business models ownership and structure of the assets to • Incorporate risk and uncertainty assessments stakeholders Commit to action: • Understand constraints, policies and motivations from the seller’s perspective • Develop an IPO business case to present to stakeholders • Gain full stakeholder buy-in • Execute the IPO 16 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Selling privatizations “For governments that understand the challenges of privatization, an IPO of state- owned enterprises may be the best option to maximize value. Lessons from history About the author Gregory Hughes is a partner in Transaction Privatization of state-owned enterprises is not new — it dates as Advisory Services and IPO Leader for the Middle far back as the Roman Empire, which privatized tax collection and East and North Africa, Ernst & Young LLP. military logistics. He has undertaken a wide variety of internationally- From both ancient and modern history, we have learned some focused cross-border transactions for financial important lessons: and strategic investors, including sell-side and IPO projects for various clients in the UK, US, Hong • Before pursuing a privatization strategy, governments need Kong, India, and the Middle East and North Africa. to show that they can maximize value for their stakeholders Gregory has approximately 20 years’ experience in and protect public interest. IPO and M&A transaction preparation and execution initially in the UK, followed by secondments to • Regardless of the privatization strategy, e.g., strategic sale, Hong Kong, Mumbai and Dubai. He is an FCA and peoples’ IPO, sale to financial investor or IPO, a similar exit- completed his MBA from MBS and HKUST. Gregory readiness process is needed to maximize value. has worked closely with various exchanges and regulators and various corporate and PE clients • Reliable, timely financial information is a significant factor in planning and delivering IPO and exit readiness the success of privatizations. workshops and roadshows around the world. • Investors do not like structural complexity or restrictive Contact operating conditions. Gregory Hughes IPO Leader Middle East and North Africa, • Investors need clarity on employment conditions and the Ernst & Young LLP composition of the workforce. 27 Floor, Al Saqr Business Tower • To carry out a successful privatization, excess working Sheikh Zayed Road capital and non-core assets must be eliminated. P.O. Box 9267, Dubai – 9267 United Arab Emirates • It is important for governments to understand the need for disclosures beyond the financial statements. Telephone: +971 5650 35085 Email: [email protected] For governments that understand the challenges of privatization, an IPO of state-owned enterprises may be the best EY IPO leaders’ insights Europe, Middle East, India and Africa  | 17 option to maximize value.

Strategic considerations Selling brands abroad Why are global brands considering cross-border listings? Paolo Aimino Today, companies have an increasing range of Prada, a company expanding rapidly in Asia, options when deciding to go public, including: was the first Italian luxury brand, and among the first leading brands from Western Europe, to list • Listing on their domestic stock exchange in Hong Kong. • Accessing foreign capital markets At the same time, Salvatore Ferragamo considered floating on the Hong Kong Stock • Considering a dual listing Exchange, which promised higher valuations and closer connections to emerging markets. However, The chosen path will significantly affect the the management regarded this as a more volatile value attributed to the business, available market and felt Milan was a better fit for an Italian liquidity, the volatility of shares and future company with a wholly Italian supplier base. performance for investors. Finally, Brunello Cucinelli always regarded its Traditionally, companies floated on their business as an expression of an authentic made- domestic markets. But with the increasing in-Italy concept: its entire production process globalization of capital markets, a growing is located in Italy. Recognizing that its success number of issuers are seeking better growth is based on Italian craftsmanship and modern, prospects by listing abroad. And, in truth, the innovative design, it felt the natural choice choice of listing market can be a critical factor in was to float on the Milan stock exchange, the an IPO’s success. Borsa Italiana. The IPO choices of three Italian brands Making the decision The range of factors considered by similar When assessing the opportunities offered by companies can be seen in the IPO choices made different global markets, there are a number of by three Italian luxury goods companies over the factors to consider. same period. First, the management should focus on In recent years, luxury goods producers and achieving the desired valuation. To ensure fashion houses have started to consider listing visibility, a fair valuation and interest from in Far Eastern stock exchanges. Such companies international investors, they must select a are finding these exchanges more and more stock exchange with a clear connection to the attractive because of their geographical company’s business and its long-term strategy. proximity to China, which is expected to become By choosing a market where competitors are the world’s largest luxury goods market in the listed, businesses ensure comparability of near future. A listing abroad has become a tool performance and increase the likelihood of for raising brand awareness in these rapidly attracting the interest of investors and analysts. growing markets. 18 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Selling brands abroad Second, the management should consider any “In recent years, luxury goods differences in culture and expectations between the business’s stakeholders and the chosen producers and fashion houses market, the quality and number of investors, and have started to consider listing the market visibility. in Far Eastern stock exchanges. Third, it is important to assess the technical factors, such as differences in regulatory requirements, the timing of the listing process, the associated fees and ongoing costs. About the author Paolo Aimino is an Assurance partner and IPO and Capital Markets Leader for the Mediterranean and Italy, Ernst & Young LLP. His areas of experience include providing audit and due diligence services, with an in-depth knowledge of Italian, IFRS and US accounting requirements. He actively participates and coordinates both equity and debt capital market transactions, including IPOs, bond offerings and extraordinary transactions. He has more than 30 years of experience in EY, with an extensive knowledge in the automotive and industrial products sectors. Since 2004, Paolo has been a member of various committees within Assirevi, the Italian association of auditing firms. Contact Paolo Aimino Mediterranean and Italy IPO Leader, Ernst & Young LLP Via Meravigli, 12 Milan — 20123 Italy Telephone: +39 011 516 1607 Mobile: +39 335 123 3075 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 19

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Where to list Companies can choose from more than 100 stock exchanges and listing options worldwide. How will you find out which is the best fit for your individual strategy? EY IPO leaders’ insights Europe, Middle East, India and Africa  | 21

Where to list Finding the right spot How can companies ensure they select the right market for their IPOs? Dr. Martin Steinbach IPO candidates have a choice Listening to investors In a global environment with highly connected In the EY global survey of institutional investors, electronic market platforms and converging over half those surveyed said they considered regulatory requirements, many issuers now have the exchange venue an important factor when a choice about where to list. making investment decisions. Most companies — historically and on average When asked what the main criteria for their 90% of global IPOs — go public in their home assessments of IPO destinations were, they cited markets (where they are incorporated). liquidity availability, confidence in the regulatory environment and corporate governance And this is where investors expect listings to standards. And if the IPO is listed abroad, they take place, because companies are often tightly expect compelling reasons for this, and that the linked to economic environments in their home company will have a presence in the local market country (the economy, culture, infrastructure, where the listing is made. technology base and taxes), and because it shows a company’s commitment to the relevant Set goals before picking a venue capital market regulations. When embarking on an IPO, the first thing But it could be argued that a company is most at a company must do is set its goals. This will home where the people can best understand and enable it to establish the specific requirements evaluate its business model. for its IPO, which will help it determine which capital market or listing zone (the Americas, Europe, Asia, etc.) and which stock exchange and segment will actively support its strategy. Fig. 3: Why is the IPO exchange venue important for your investment decision? Liquidity is available for 63% Note: respondents were investment and/or disvestment 56% asked to select their top three reasons. The Confidence in the regulatory environment symbol “%” represents the number of respondents Corporate governance standards 40% that chose the particular reason as one of their top Own investment rules restrictions 29% three choices. Connectivity and accessibility 28% 80% 100% to the exchange 23% 22% Availability of indices that track sector performance and act as benchmarks Well-known peers are trading at same venue Derivatives exist to hedge and arbitrage 2% 0 20% 40% 60% 22 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Finding the right spot “Where’s the best place to take your IPO or secondary listing, and how do you build the right market strategy to achieve your ambition? To achieve the right combination of corporate and capital Total flotation Capital markets market strategy for the IPO or secondary listing, companies and ongoing regulations can choose from more than 100 stock exchanges and listing post-IPO costs options worldwide. But which stock exchange is right? Does Strategic fit: it make sense to go public or have a primary listing outside Initial and ongoing stock • Consumers the company’s country of incorporation? How flexible is the exchange requirements • Growth markets company on the capital market? Legal and market risks Speed of approval process Assess each potential destination Liquidity on the Currency: A guided assessment of potential IPO destinations can help stock exchange a company clearly establish which destination best fulfills its • M&A target market main criteria. Decisions about the potential location of your IPO • Financing growth should involve careful consideration of five main factors: IPO • Strategic motivations and goals Language Availability of • Factors affecting valuation and culture analyst expertise • Considerations relevant for valuation purposes Prestige and Investor base critical mass of and attention • Costs and regulations the marketplace • The preferences of shareholders and management Brand recognition Valuation level of potential comparable companies There are, of course, many other factors that motivate companies to go public outside their home market. These vary Participation Peer companies according to the company’s country of incorporation, and to in indices assess them requires in-depth knowledge of various factors, including the size requirements of different regulators, any For more information, please visit IPO destination services. uncertainties regarding the listing process, and the waiting or processing times during the approval of the prospectus and the registration of the securities. Also certain sectors such as life science are more active in cross border IPOs making use of the better analyst and investor education in the foreign capital market chosen. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 23

Where to list Choosing a junior market Why consider an alternative to the main markets? Robert Klimacki For any company considering an IPO, choosing Junior markets mainly serve companies seeking the right stock exchange is an important and to raise capital of between US$1m and US$30m. complex process, and a decision needing careful It is not only companies in innovative sectors thought that should be based on hard evidence relying on intangible assets — such as information and calculation. technology, electronic media, biotechnologies, environment protection and alternative energy — The main criteria to consider include: that list on junior markets. Innovative, rapidly growing companies in any sector can consider • The size of the company this option if they have a vision and a chance for a future main-market debut. • The regulatory requirements of the stock exchange and their potential impact on the Junior markets, major benefits company Typically, junior markets have lower requirements • Flotation costs and regulatory reliefs compared with main markets. For investors, they enable access to • Liquidity emerging and growth companies, and offer the trading security expected in public markets. • Primary market activity They open up entirely new opportunities to • The development of investor confidence, based investors, offering easy access to promising, on the longer-term success of new issues rapidly growing companies. They also offer low transaction costs — comparable with those of the • The ability for companies to develop and move main markets — and all the advantages of stock up to the main markets exchange trading. This decision is especially important for small How EY teams can help you with a junior and relatively new companies, and those market listing operating in emerging economies. EY operates in all main and junior IPO markets. During the last decade, a lot of junior IPO We have trusted advisors in London, Frankfurt, markets have been established that are perfect Paris, the Nordics, Warsaw, Bucharest and most for smaller, fast-developing businesses. These junior markets operating in Europe who help include the AIM London Stock Exchange, SCALE businesses evaluate all the pros and cons of an Deutsche Boerse, Alternext at Euronext NYSE, IPO, including the question of whether to list in a First North and New Connect in Warsaw. main or junior market. What type of company suits a junior market IPO? Junior markets are intended for new, small to mid-size dynamic companies that need a capital injection in order to grow. They may lack the resources and processes needed to meet the requirements of the main regulated markets, so a junior market IPO may be their best option. 24 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Choosing a junior market About the author “Innovative, rapidly growing Robert Klimacki is a partner and the IPO Leader for Poland, Ernst & Young LLP. companies can consider to list on a junior market if they have a His areas of experience include carrying out audit vision and a chance for a future projects for customers in the retail, IT, automotive main-market debut. and manufacturing industries, as well as municipal services. Since 2001 Robert has been a member of the Association of Chartered Certified Accountants in Great Britain (ACCA), and since 2003 he has been a Chartered Auditor entered on the list of the Polish Chamber of Statutory Auditors (PIBR). He is a graduate of the Poznań University of Economics, Faculty of Management in the field of Accounting and Corporate Finance. Robert is a member of the international Capital Markets group operating within the structures of EY. Contact Robert Klimacki IPO Leader Poland, Ernst & Young LLP pl. Andersa 3 Poznan — 61-894 Poland Telephone: +48 61 856 29 90 Mobile: +48 50 244 41 22 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 25

Where to list Listing in London What are the key characteristics of an IPO in the United Kingdom? Scott McCubbin For entrepreneurs considering an IPO, the The listing process London Stock Exchange (LSE) offers a whole range of options with equity IPOs concentrated The Premium process in London typically on the Main Market and AIM (formerly the involves a more detailed financial due diligence Alternative Investment Market). than some other markets. The scope of this is partly set by regulation and partly by custom The Main Market is subdivided into two and practice. segments: Premium and Standard for equity, debt and Global Depository Receipts (GDRs). In addition to the financial information in the prospectus (typically a three-year track record Regulation for admission to the Main Market, and pro forma statement), a number of private a pre-condition to listing, is provided by the reports are typically prepared in support of a Financial Conduct Authority, also known in this London IPO: role as the UK Listing Authority (UKLA). • The long-form report: a detailed due AIM is owned and operated by the LSE in its diligence report on all aspects of the business capacity as a regulated investment exchange. being listed It is designed for smaller, faster-growing companies, but a broad range of businesses now • The working capital report: a report on choose to list on it. Its rules are based on similar the sufficiency of cash and funding for the principles to those of the standard Main Market business for at least 18 months post-IPO, listing rules. which supports a statement made by the directors in the prospectus Regulatory requirements • Financial position and prospects The UKLA listing framework underpins procedures: a report detailing the systems London’s reputation for balanced and globally and controls, reporting and budgeting, and respected standards of regulation and corporate corporate governance practices within the governance. Regulatory requirements in London applicant’s business are principles-based, and provide a balance of investor protection, practitioner certainty Sponsor and nomad roles and flexibility. One of the key roles in a Premium IPO is that This framework is a combination of European of the sponsor, a role carried out by one of the law and the London Listing Rules, many of which banks involved in the transaction. The sponsor are super equivalent (additional) to European ensures the company’s directors have received minimum requirements, which principally advice and guidance about their obligations, apply to those companies seeking a premium and provides confirmations to the UKLA on the listing. These additional requirements include applicant’s eligibility to be listed. The role is substantive eligibility requirements, such as the distinct from any underwriting or book-running need for a three-year track record, the class tests role the bank may have. whereby transactions over a certain size require shareholder approval, and related-party regime. 26 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Listing in London Each company applying to the AIM must appoint “The listing process in London and retain a nominated advisor (nomad) to guide it through the admission process and its requires more detailed subsequent life as a public company. Nomads are financial due diligence than full-time corporate finance advisors approved some other markets. by the exchange. They have a similar role to the sponsor, but also act in a regulatory role. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 27 If you are considering a London IPO with its many benefits, it is vital you ensure you have a team of advisors that understands not only the IPO process, but also the unique aspects of a London IPO. About the author Scott McCubbin is a Transaction Services partner and the IPO Leader for the UK and Ireland, Ernst & Young LLP. He has provided a number of major capital market transactions, including the privatization of Royal Mail and the IPOs of Avast, Forterra, The Gym Group, Softcat and International Airlines Group. Scott has led many cross-border transactions, and has experience in all elements of the transaction process, particularly UKLA reporting, vendor due diligence, buyside due diligence, exit readiness and SPA negotiations. He is a qualified member of the Institute of Chartered Accountants of Scotland and a member of the London Stock Exchange Primary Markets Group. Contact Scott McCubbin IPO Leader UK and Ireland, Ernst & Young LLP 1 More London Place London SE1 2AF UK Telephone: +44 20 7951 3519 Mobile: +44 777 649 3121 Email: [email protected]

Where to list US offerings exempt from registration under Rule 144a What are the benefits of listing abroad? Victor I. Khoma United States 1933 Securities Act (the Act) of a private placement offering memorandum requires the registration of securities offered for for a Rule 144A transaction is substantially sale to the public unless there is an exemption. the same as would be required for a registered transaction (e.g., Form F-1) even though the It originally provided for an exemption from memorandum will not be reviewed or approved registration for individuals to sell to a broker by the SEC. Over the past years, the information who could resell them to the public (Section content for a European Union prospectus and 4 (1)) and an exemption for a company to the information content for a US registration sell securities directly to a limited number of statement for a non-US company has been sophisticated investors (Section 4 (2)), but did harmonized so that it is substantially consistent. not explicitly allow the company to sell securities to the sophisticated investors using a broker. The level of due diligence performed by the In the 1970s, securities attorneys developed issuer’s US SEC legal counsel and the investment a practice of having companies sell through banks’ legal counsel will be substantially the a broker to a limited number of sophisticated same as they would perform for a US registered investors which they called “Section 4 (1 ½) transaction, including the requirement for transactions,” although this was not actually a comfort letter from the issuer’s auditor in part of the Act. In 1990s, the US Securities and accordance with AU-C 920 (formerly known as Exchange Commission (SEC) adopted Rule 144A SAS 72), 10b-5 letters from the attorneys and in order to codify this private placement process. tax due diligence. Due to the requirement for an AU-C 920 comfort letter, the transaction would Rule 144a is an SEC safe harbor exemption from be expected to close within 134 days from the the US registration requirements which allows latest balance sheet that has been audited or the company to sell securities through a broker reviewed by the auditors. to an unlimited number of Qualified Institutional Buyers (QIBs). To meet “QIB” definition, the The Rule 144A offering process is often buyer has to be an institution and should qualify similar to the public offering process: it by size. involves solicitation of purchase orders using a preliminary offering memorandum, delivery The information required by the Rule 144a of a final pricing term sheet to investors, to be provided to the QIBs is limited under an confirmation of orders with final offering assumption that QIBs can perform their own due memorandum, execution of the purchase diligence and request whatever information they agreement, delivery of a comfort letter from the want directly from the issuer. At the same time, issuer’s auditor at pricing date and transaction antifraud provisions of the Act still apply to Rule closing several days after. 144A offerings, therefore market practice has developed over the years whereby the content 28 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Entering US markets “After a successful IPO, US markets have shown a strong appetite for secondary public offerings and follow-on offerings. Advance preparation and planning (typically 4 to 12 months) is About the author required for a Rule 144A offering. Critical factors to consider Victor I. Khoma is a partner and the IPO Leader for CIS and include, but are not limited to, the following: Russia, Ernst & Young LLP. • Which financial statements of the issuer should be included Victor has over 23 years of professional experience in in the offering memorandum (that would depend on the assurance, accounting, capital markets and IPO services in timing of the transaction), keeping in mind the “134 days” Europe and the US. He has extensive experience assisting rule? clients in raising capital on public markets. • How fast can the issuer prepare annual and interim financial Contact statements? Victor I. Khoma IPO Leader CIS and Russia, Ernst & Young LLP • Does the company have sufficient detailed financial information to prepare the offering memorandum? Sadovnicheskaya Nab., 77, bld 1 115035 Moscow • Is there any sensitivity to disclosing related party Russia transactions? Telephone: +7 495 755 9696 Rule 144A transactions would allow the tapping of a large Mobile: +7 903 363 8178 pool of US investors without the requirement to register in the Email: [email protected] US. Offering securities to US investors may be essential for larger transactions and certain industries, but of course the involvement of multiple specialists makes the process more costly and the offering process demands strict adherence to tight deadlines and needs advance planning. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 29

Where to list Going public in Turkey Why might an IPO be the right strategy to fund growth in Turkey? Metin Canoğulları Executing a company strategy and funding In the last 5 years, the market has seen growth in Turkey require access to capital. One 33 public offerings with a total value of more of the options for accessing capital is to go than US$2b. The very first exit of a private public. But preparation is critical: successful IPO equity investor through an IPO, namely Turkven’s candidates often spend up to two years building exit from Mavi, took place in 2017 and is a business processes and infrastructure, recruiting positive development for IPO market, presenting executive and advisory talent, and dealing with different types of investment opportunities for financial and external reporting issues. both local and foreign investors. A number of other prominent IPOs in the same period were A draw for investment Medical Park, the largest hospital chain in Turkey and Sok Markets, a leading large-size discount Turkey’s foreign direct investment (FDI) profile retail chain. is a dynamic mix of established and emerging sectors. The country attracts investors in The upward trend in the IPO market is expected knowledge-intensive sectors as well as in heavy to continue in the long term in spite of the industry. Majority of FDI into Turkey comes from market fluctuations. Despite the size and depth developed countries, the EU constituting more of its stock market being smaller compared with than half of the total, between 2013 and 2018. developed countries, Turkey promises higher Asian investors also show significant interest growth opportunities thanks to its geographical toward Turkey. In the same period, knowledge- position and young population. driven sectors, such as financial services, manufacturing industry and utility services For many companies, a primary or an additional generated more than 60% of the total FDI into stock exchange listing, particularly in rapid- Turkey. And foreign investors expect energy, growth markets, is becoming increasingly health care and export driven manufacturing important for strategic reasons. This is sectors to drive economic growth in the especially true for companies with a core coming years. strategy in the market of the dual listing, that believe that a dual listing will give them a higher Funding growth via capital markets profile with end consumers and better access to, and commitment from, the market and IPOs have always been attractive funding government. One example of a company that options for Turkish companies. A number of has followed such a strategy is Austrian catering family-owned companies in Turkey increasingly company DO & C0, which went public in Vienna consider IPO as an option to strengthen their 1998 and has been listed in Istanbul since 2010. corporate governance and financial reporting in addition to extending their access to international and local debt and capital markets. 30 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Going public in Turkey “In Turkey, foreign investors expect real estate, hospitality, construction, energy and heavy industries to drive economic growth in the coming years. Meeting investors’ demands About the author Any company considering a listing outside its home market Metin Canogullari is the Country Managing Partner and IPO needs to get IPO ready. When preparing for the IPO value Leader for Turkey, Ernst & Young LLP. He has almost 30 years journey abroad, a company will need to address investors’ of experience in the Assurance services industry. After 13 years needs and include their feedback. The top three issues that of work experience in the industry, he joined EY as an Assurance companies face while conducting a cross-border IPO are: partner at Ernst & Young LLP in 2002 and provided services to • Investors’ corporate governance complaints international and local companies as well as financial organizations • A company’s failure to state compelling reasons for a cross- headquartered in Turkey. Metin Canogullari’s experience includes services in telecom, consumer products, retail, manufacturing, border listing cement and finance industries. In addition to his role as the • The absence of a company’s management at the listing Country Managing Partner, he is also the Family Business Leader of Turkey, Ernst & Young LLP. Metin has played a key role in the destination development of Middle Market, Family Business and IPO markets. For those who can overcome or avoid these issues, Turkey He is also an independent public accountant and financial advisor offers a lot of investment opportunities and a large appetite in Turkey, having a certificate for the independent audit in capital for IPOs. markets. He has been involved in financial statements’ auditing prepared in IFRS, US GAAP, CMB principles since 1990. He is also a member of TUSIAD (Turkish Industry and Business Association). Metin Canogullari graduated from Istanbul Technical University (ITU). He was a faculty of Management Engineering and holds an MBA from Bogazici University in Istanbul. Contact Metin Canoğulları IPO Leader Turkey, Ernst & Young LLP 34485 Istanbul Turkey Telephone: +90 212 408 5318 Mobile: +90 532 342 1204 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 31

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Getting IPO ready There are many steps involved in fully preparing for an IPO. What are the areas companies need to focus on to achieve their ambition? EY IPO leaders’ insights Europe, Middle East, India and Africa  | 33

Getting IPO ready Getting ready Why start with an IPO readiness assessment? Dr. Martin Steinbach As companies that have completed a successful • Tax optimization pre-IPO, country of listing know, an IPO involves a complete registration and legal form transformation of processes and culture. • Transformation to external reporting, Going public takes a great deal of planning, corporate social responsibility reporting, fast- organization and teamwork. Organizations must closing ability, IFRS conversion and prospectus prepare for a whole new phase of corporate life, preparation which is why market outperformers treat the IPO as a long-term transformational process. • Systems infrastructure, internal controls, compliance and risk management Getting IPO readiness right requires establishing a sound financial reputation. And, once listed, • New functions, corporate governance, investor companies will be subject to increased filing relations, insider regulation, directors’ requirements, transparency and compliance; dealings and ad hoc disclosure greater scrutiny from investors and analysts; and more overall accountability around • Leadership structure and organization, and delivering on promises. remuneration Starting early: the IPO readiness • Choosing the right IPO window, IPO schedule, assessment plan B and internal resources During an IPO, senior managers will face Informing decision-making: the IPO numerous challenges that test their business’s readiness result report IPO readiness. And executives will need to understand what it takes to win in the capital The next step is to define an initial target markets. To clarify these key issues, successful structure and an IPO base case in line with businesses typically start to prepare 12 to 24 company objectives. Then a gap analysis will months before their IPO, in many cases with an be undertaken to identify the gaps between the IPO readiness assessment. target IPO and current structures. Eight main areas are usually covered in the The results are used to develop the IPO Q&A session of an initial one- or two-day IPO readiness report. This defines the initial strategy, readiness assessment workshop: identifies gaps between current status and IPO- ready status, and establishes a road map with • Potential IPO strategy, motivation, use of estimated time lines and the resources needed proceeds, relevant market, right exchange, to fill the gaps and achieve IPO readiness. first check of equity story and main elements of offering concept in an IPO base case • Legal structures, potential issuer, transparent company structure, design of articles of association and type of shares 34 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Getting ready “The IPO readiness assessment is an integrated approach that can include up to eight modules tailored to your specific needs. This holistic assessment has a number of advantages. It can 1 Strategy 2 Structures 3 Taxes help companies: • IPO venue and • Issuing company • Company level • Determine which options best fit the business’s strategies exchange • Group structure • Shareholder level and objectives • Governance a� nd legal • Transaction level • Equity story • Deliver an IPO base case and the road map to enhanced • Issue concept value 8 Timeline IPO readiness 4 Financial • Set up and improve the infrastructure and processes needed assessment to get IPO ready • IPO timeline and and program • External reporting regulatory approval management • Business plan and • Save time by gaining insight into capital-raising options • Plan B options forecasting • Map out organizational changes needed to successfully • Project management • Prospectus execute an IPO in one go, which reduces costs by achieving transparency on how to get IPO ready and resources These discussions about the big picture and the specific 7 Leadership 6 Functions 5 Systems requirements of the IPO are an ideal opportunity to address questions, share knowledge and prepare the company’s IPO • C-suite • Investor relations • Internal controls � project team. • Board of directors • Compliance officer and audit • Remuneration and • Committees • Enterprise risk human resources • Compliance and IT A tailor-made and integrated approach: the IPO readiness assessment workshop can include up to eight modules tailored to your specific needs. IPO readiness — save time and costs and increase transaction certainty by adopting a structured approach to your IPO journey. EY IPO leaders’ insights Europe, Middle East, India and Africa  | 35

Getting IPO ready Making a statement How can companies manage the risks when issuing a working capital statement? Andreas Dalhäll A company planning an IPO on a regulated applicants are typically expected to provide a market in Europe will need to prepare a “clean” working capital statement, i.e., one that prospectus, which must then be registered with does not contain reference to any caveats. the domestic financial supervisory authority. ESMA Level III Guidance The board of directors of the company executing the IPO is formally responsible for the contents How working capital statements should be of the prospectus. But in many cases the board prepared is set out by the European Securities and management team will need to seek the and Markets Authority (ESMA) in its Level III assistance of the company’s legal and financial Guidance in the ESMA update of the CESR advisors. recommendations.1 Working capital statements This guidance sets out what procedures issuers are expected to have undertaken to support the The contents of a prospectus are governed statement, including: by the European Commission’s Regulation no. 2017/1129 and the Commission’s Delegated • Preparing cash flow, profit and loss and Regulation (EU) 2019/980. It states that balance sheet information prospectuses for shares must include a working capital statement. • Business analysis, covering cash flows, as well as banking and other financing relationships A working capital statement is a statement to the effect that the company has sufficient • Considering business strategy and plans working capital to support its business for a and related risks, with checks made against period of at least 12 months from the date of external evidence and opinion the prospectus. • Assessing whether there is sufficient margin If no such statement can be made, the company or headroom to cover reasonable worst-case needs to disclose how it proposes to provide scenarios additional working capital. The role of due diligence The working capital statement provides investors with assurance that the company is adequately The thorough preparations of a working capital capitalized and that, unless something statement should be central to any company unexpected occurs, it will not need to raise executing an equity offering, because of: additional funds within twelve months from the date of the prospectus. • The statement’s importance to investors In many markets (including, for example, the • The responsibility of the board of directors for Swedish Stock Exchange Nasdaq Stockholm) the statement • The due diligence requirements of banks involved in many equity offerings 1 The ESMA level III guidance is applicable also under the 2019 Prospectus Regulation, to the extent it is compatible, according to the ESMA Q&A on prospectuses (Version 4, February 18, 2020, Section 2.1). 36 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

However, in our experience, many Nordic share Making a statement issuers underestimate what is required to follow ESMA’s Level III Guidance in order to gain an “The aim of the working capital appropriate level of confidence in their working capital statement. statement is to show that the company has sufficient working Other markets have a more formalized due capital to support its business for a diligence process for working capital reports. period of at least 12 months. For example, in the UK it is relatively rare for a working capital report to be included EY IPO leaders’ insights Europe, Middle East, India and Africa  | 37 in a prospectus without the company having commissioned a specifically related due diligence report. How EY teams can help manage the risks involved in issuing a working capital statement Without outside help, many companies are unable to prepare the complex financial reports pertaining to the working capital statement. EY teams can provide the necessary assistance to help an issuer prepare the required supporting documentation for the working capital statement in accordance with ESMA Level III Guidelines. We are experienced in providing regulatory support and advice in financial centers around the world. And, thanks to EY professionals, we have both domestic and international knowledge. Our clients value their direct access to teams of professionals, our technical and industry knowledge, and the insights and practical experience we bring to each IPO journey. About the author Andreas Dalhäll is the Head of Capital Markets and the IPO Leader for the Nordics and Sweden, Ernst & Young LLP. He is experienced in IPOs and capital markets law, corporate governance and company and M&A law. Contact Andreas Dalhäll Head of Capital Markets and IPO Leader, Nordics and Sweden Ernst & Young AB Jakobsbergsgatan 24 P.O. Box 7850, SE-103 99 Stockholm Telephone: +46 852 059 879 Mobile: +46 761 264 879 Email: [email protected]

Getting IPO ready Optimizing taxes Why does tax planning need to be a priority throughout the IPO process? Claus Kronbak When it comes to designing its new legal and tax Such changes must be carefully considered, structure, each company undergoing an IPO will because they can have a significant tax impact have different needs and priorities. There is no on the company and its shareholders. one-size-fits-all solution, but there are a number of key areas that all companies must consider. These changes can also be time-consuming. So it is necessary, early on in the process, to Finishing the housekeeping work out what steps need to be taken so that they can be implemented prior to the IPO. Early on in the process, the company’s tax risk and exposures should be identified and Shareholders and picking the assessed, and how to manage them should be right location carefully considered. As far as possible, tax audits and other tax work streams should be Prior to the IPO, the key shareholders should completed and closed. assess their tax situation and the potential tax consequences of the IPO. Key shareholders are This is important because the company’s tax often surprised by the various tax implications, situation will be covered in the IPO prospectus, risks and — in some cases — opportunities and because extensive tax due diligence will be that can arise throughout the process. And part of the IPO process. Tax risk and exposures key shareholders will often have to remain will need to be discussed with analysts and shareholders for a given “lock-up” period after potential investors, and this can have an impact the IPO. on valuation. Whether a company will face withholding tax will Putting the structure in place depend on where it chooses to locate its head office. The choice can also have a substantial Care must be taken when putting the company’s impact on the tax efficiency of profit repatriation IPO structure in place. During this process, it is and income pooling. When selecting the head important to ensure that tax assets — such as tax office location, companies must also be aware loss carry forward — are not lost, and that the that they will need to carry out genuine business steps taken during reorganization do not trigger activities there. transfer taxes (such as real estate transfer tax), capital duty or stamp duty. Making changes to management To prepare a company for an IPO, it will often be An IPO will often involve changes to necessary, for example, to: management or the board of directors. So it may be necessary to amend existing annual incentive • Restructure, to simplify or optimize the plans or to establish new ones. corporate structure Incentive plans should be based on the key • Spin off business activities drivers for increasing shareholder value, over both the short and long term. Incentive plans • Make changes to, or increase, share capital can help to ensure the retention of important existing personnel. 38 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Optimizing taxes “Key shareholders are often surprised by the various tax implications, risks and – in some cases – opportunities that can arise throughout the process. Keeping track of expenses About the author IPOs involve substantial expenditure on advisors, lawyers Claus Kronbak is a Financial Accounting Advisory Services and banks. So it is important to consider how to allocate and partner and the IPO Leader for Denmark, Ernst & Young structure these costs in order to maximize tax deductibility LLP. His areas of experience include small-, mid- and large- (including for VAT). capitalization IPOs, and merger and demerger transactions involving listed companies and companies that are being listed How EY teams can help you with your IPO tax planning as part of the transaction. This knowledge includes providing detailed advisory services relating to exchange readiness IPOs involve many complex transactions and carry a assessments, equity stories and pro forma financials. variety of risks. Any misstep during the process can prove very expensive. He has more than 20 years’ experience working in financial services, and over 10 years’ in the capital markets field. He is EY IPO leaders have the experience — across sectors and the former Chairman of the Exchange Committee of Danish jurisdictions — to help your company to put the right structures FSR — Danish Auditors, a trade organization for the Danish audit in place and to avoid serious tax pitfalls. profession. Contact Claus Kronbak IPO Leader Denmark, Ernst & Young LLP Dirch Passer Allé 36 2000 Frederiksberg Denmark Mobile: +45 25 29 34 44 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 39

Getting IPO ready Converting quickly How can IFRS be implemented in a short time frame to make the most of an IPO window? Felicia V. Gavrila Companies wanting to carry out an IPO in The most effective way to do this is through the EU must present three years of annual workshops with your finance team, other consolidated financial statements in accordance relevant stakeholders and your IFRS with International Financial Reporting Standards conversion advisors. (IFRS). This phase will provide a diagnostic report An effective approach to IFRS conversion can and a clear conversion road map, including be critical for an IPO’s timing, and the smartest prioritization of activities and a detailed application of conversion options can help make time plan. a business more attractive to potential investors. The design and planning phase Depending on its complexity, conversion from your current GAAP to IFRS can be very time- This phase aims to set up the structure and consuming, with tight deadlines. project management organization for the conversion. Even after almost a decade with IFRS as the EU’s main reporting framework, our experience One key task is developing customized IFRS work is that most companies start the IFRS adoption plans for high and medium impact accounting process thinking of it as a purely technical work streams, based on differences identified accounting exercise. during the diagnostic phase. This is a mistake that generally has a number of Another is to train members of the core team unfortunate results: failure to involve all people and establish an ongoing training plan for all with the required knowledge, business decisions relevant people. taken in ignorance of the financial reporting consequences, lack of reliability and speed in The solution development phase producing IFRS financial statements, and gross underestimation of the time needed to convert. Starting with issues identified by the diagnostic, this phase addresses the impact of the We believe that, in anticipating an IPO, conversion on accounting, tax, business, IT companies need to apply a thorough conversion and processes. approach in order to effectively adopt IFRS to a tight deadline. Accounting policies and related choices are analyzed and selected, and on this basis, The diagnostic phase the skeleton accounts, accounting manual and reporting package (which must fulfil The first step is a detailed review to identify the all disclosure requirements under IFRS) are differences between your current GAAP and developed. Last but not least, training can IFRS requirements. be started. Each difference will be analyzed from an accounting perspective for its tax implications and impact on IT systems and processes. 40 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Converting quickly “To start the IFRS adoption process and think of it as a purely technical accounting exercise is a mistake that generally has a number of unfortunate results. The implementation phase About the author The main outputs of the implementation phase will be: Felicia V. Gavrila is an Assurance partner and the IPO Leader for Romania and Modlova, Ernst & Young LLP. • The first set of IFRS financial statements, prepared in accordance with IFRS 1 She has over 18 years experience within audit. Felicia is a member of the Association of Chartered Certified Accountants (ACCA) • Approved accounting policies and accounting manual Glasgow, UK. She is a Certified Accountant and a Financial Auditor, member of the Romanian Chamber of Auditors (CAFR), member • A finalized training program of Public Oversight of the Activity of Statutory Audit Authority (ASPAAS) and an Expert accountant, member of the Body of • Changes to IT and processes rolled out Expert and Licensed Accountants of Romania (CECCAR). As for most significant changes, the company may also benefit Her areas of knowledge include, leading multinational audit teams from a post-implementation phase, which assesses the and projects for listed and private clients in various sectors; implementation, addresses any items deferred and establishes extensive experience in IFRS, internal audit and SOX engagements, a process to address changes in IFRS. purchase price allocations; experience in smooth interaction both on management and audit committee level, financial due diligence We have applied this IFRS conversion approach during projects and transaction audits at acquisition. numerous IPOs undertaken by our clients, and it has proved to be one of the critical ingredients to the success of the IPO and Felicia’s non audit related service experience include issuance of post-listing financial reporting. comfort letters for Bond/IPO transactions. Throughout her career, she has worked within a number of industries, including real estate, automotive, consumer goods, retail, power and utilities. Contact Felicia V. Gavrila IPO Leader Romania and Moldova, Ernst & Young LLP Bucharest Tower Center, 22nd floor 15-17 Ion Mihalache Blvd., Sector 1 011171 Bucharest Romania Telephone: +40 21 402 4057 Mobile: +40 723 211 611 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 41

Getting IPO ready Closing fast How can the financial statement close process be improved pre-IPO? Rosa María Orozco Centenera Companies going public face many challenges, 3. Integrate financial IT systems. It is critical including: to integrate accounting IT systems across locations and create standard disclosure • R► eorganizing — and, if involved in an M&A schedules for inclusion in financial deal, combining with another business statements. • Internationalizing as part of expanding into 4. Anticipate new standards. Companies must mature and emerging markets anticipate the impact of new IFRS standards and evaluate the impact of early adoption. These challenges mean that, when getting ready for an IPO, companies must adapt their financial 5. Anticipate new regulations. Companies reporting processes and related IT systems. must anticipate the impact new regulations could have on their financial statements and In addition, new regulations and IFRS disclosures, as well as on future results. developments, including new disclosure requirements, will affect the financial statement 6. Revisit the routine estimation process. The close process. estimation process should be reviewed at an appropriate level within the organization with Key tasks for a more efficient enough time to ensure quality estimates are closing process delivered on time. We have identified 10 tasks that will help the 7. Generate impairment and nonrecurrent advance and fast closing of financial statements, provision estimates. Companies must have create a more cost-efficient process and meet controls and procedures in place for the stakeholders’ expectations on financial data: timely identification of impairments and other risks so they can assess their impact 1. Create a timetable. It is critical to establish on financial statements. This area should a timetable with your IPO advisors be regularly reviewed by the company’s key and auditors, featuring deadlines and executives. responsibilities. Companies must establish realistic and well-defined reporting and review 8. Establish links between tax and accounting deadlines, communicate the closing timetable departments. Regular and adequate to those involved within the organization, and communication and analysis between tax and clearly set out the owners and reviewers of accounting departments is needed to ensure each task so everyone involved has a clear income tax calculation is properly reflected understanding of their role. in financial reporting, as well as associated deferred tax accounting. 2. Establish common reporting standards. To avoid inconsistencies, companies must 9. Reconcile management reporting and standardize accounting reporting standards financial reporting. This is critical in order (IFRS) across all locations; for example, by to provide quality information about the using a group accounting manual. They must different segments of the company and also implement the same chart of accounts in for risk management. It is vital to have a each location. 42 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

proper IT systems infrastructure to provide Closing fast consistent data on all internal and external company reporting. “When getting ready for an IPO, 10. Obtain quality nonfinancial information. It companies must adapt their is critical to establish adequate procedures financial reporting processes and controls to obtain quality nonfinancial and related IT systems. information to include in the financial statements (regarding, for example, EY IPO leaders’ insights Europe, Middle East, India and Africa  | 43 litigation, guarantees and risks). As you can see, advance and fast closing is all about: • O► btaining quality data • Integrating and standardizing systems, processes and procedures • Automating reporting • Anticipating issues • Achieving the right level of managerial involvement to achieve an efficient closing and compliance with reporting deadline. About the author Rosa Maria Orozco Centenera is an Associate Partner, Capital Markets and IPO Leader for Spain, Ernst & Young LLP. She has more than 17 years’ experience in EY, working in different areas within Assurance Services, and an extensive experience in transaction accounting and Capital Markets services for both public and private companies, including acquisitions, carve-outs and capital market transactions. Having been involved in most of the Spanish listings and debt issuances in recent years, she has in-depth knowledge of the IPO process. She has led a large number of Capital Markets transactions and IPO readiness assessments and provided assurance and support on the preparation of financial information in connection with IPOs process. Contact Rosa María Orozco Centenera IPO Leader Spain, Ernst & Young LLP Torre Azca Calle Raimundo Fernández Villaverde, 65 28003 Madrid Spain Telephone: +34 91 749 31 15 Mobile: +34 618 089 205 Email: [email protected]

Getting IPO ready Growing apart How can companies make the most of a spin-off IPO? Päivi Pakarinen Spin-offs are the process by which one existing The original entity being split will already have listed company is turned into two separate listed the required public company practices and entities. The underlying motive for most spin- processes in place, so these can to a certain offs is shareholder value generation, but this is extent be adopted by the spin-off entity. not always the case. However, in a demerger, these practices and Why a spin-off IPO? processes will need to be refined for both entities because the context and scale will change. In general, investors like to create their investment portfolios themselves. And boards Operational carve-out issues may be significant, like to have greater focus and more resources especially those regarding IT systems. To secure for business development. a smooth separation requires careful planning, including resourcing the IPO project. Following a spin-off, both entities will be able to sharpen their strategy and investment story; To avoid business disturbances, existing the new entities will gain significant interest customers, suppliers, debtors and employees from stakeholders and, more importantly, the need to be given consistent, fact-based entities will be able to reorganize their funding information throughout the process — structures and gain new funds for future simultaneously taking into account the regulatory investments. requirements for listed company disclosures. Furthermore, the management of each company How EY teams can help with your may be improved by recruiting new board or spin-off IPO management team members. EY has been involved in a number of spin-off Unique challenges IPOs as an auditor and advisor, and we have supported many companies undertaking A spin-off IPO is not something CEOs and CFOs complex operational and financial carve-outs. experience often during their careers, and it is a challenging process for any management team In addition to the typical IPO-related services — and board. such as financial, tax and IPO due diligence and auditor’s comfort letters — we can provide Spin-offs present a wide range of challenges, entities undertaking a spin-off IPO with including: experience and resources in several key areas: • C► reating an interesting investment story • Project management for the demerger process • Handling all legal and regulatory matters A spin-off is a demanding process for any • Avoiding tax risks organization. Typically, management and support functions have to incorporate the • Managing the operational separation of planning and execution of the separation businesses of operational systems into their already busy schedules. 44 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Growing apart “A spin-off IPO is not something CEOs and CFOs experience often during their careers. We can provide experienced advisors to facilitate each step About the author of the process, and run the project management office. Our Päivi Pakarinen is Associate Partner in Transaction Advisory insights from numerous carve-out projects, combined with Services and IPO Leader for Finland, Ernst & Young LLP. our in-depth understanding of the listing process, help avoid She has extensive experience in transaction advisory for both bottlenecks or pitfalls. public and private companies, including acquisitions, divestitures, carve-outs and capital market transactions. Having been involved • IFRS carve-out financial statements in nearly 50% of the Finnish listings in recent years, she has in- depth knowledge of the IPO process. She has led a large number An EU prospectus must include three audited IFRS financial of IPO-related due diligence assignments and IPO readiness statements. The challenge in a spin-off case is that the new assessments and provided audit and attest services in connection entity’s corporate structure will not be in line with existing with IPOs. Her specialty is dual-track exit processes. reporting structures. And the figures for the new entity will Contact often need to be prepared during the IPO process. Päivi Pakarinen IPO Leader Finland, Ernst & Young LLP In practice, this means the accounts are prepared on a Alvar Aallon katu 5 C carve-out (also known as combined) basis for the business to 00100 Helsinki be spun-off, and the preparation needs more judgment than Finland standard consolidated accounts. The carve-out statements Mobile: +358 40 754 8419 must also be audited. Email: [email protected] • Pro forma information EY IPO leaders’ insights Europe, Middle East, India and Africa  | 45 Because of the nature of a spin-off transaction, it may be necessary to include pro forma information in the prospectus, in which case a report by auditors on the pro forma information will need to be included in the prospectus. • Operational carve-out For example, splitting the IT system can be particularly difficult. EY IT specialists can help you identify the spin-off company’s requirements and help you carry out the split in a way that provides both entities with the systems they need. Our experience of working on spin-off IPOs has highlighted the importance of building teams from across our different service offerings that can best respond to the wide variety of client needs that arise throughout the process.

Getting IPO ready Anticipating future risks How should companies considering an IPO reassess their risk management? Sandip Khetan A business considering an IPO is more likely to Effective risk management is the product succeed if it carefully considers the impact of of organizational strengths in a number of integrated risk, compliance and control functions important areas, for example, the company’s on its financial performance. ability to: The journey from private to public is • Manage surprises — positive and negative — to transformational. investors, analysts and regulators A company needs to understand the impact its • Set and fulfill realistic and sustainable new stakeholders — both internal and external — financial goals will have on risk and compliance. These stakeholders typically include independent • Anticipate and address regulatory changes directors, auditors, regulators, analysts and and business risks in an efficient and timely investors. In an uncertain economic environment manner with events such as Brexit, trade and other global tensions, past practices are no longer Additionally, management’s ability to fit for purpose. A company will need to have a communicate the company’s risk management dynamic governance system to address issues policies and processes is important, as is the facing the business on an ongoing basis. quality of its corporate governance, including its approach to compliance issues. An important part of preparing for listing focuses on bridging the gap between existing Setting the scope procedures and those that need to be established to be a successful publicly listed Business dynamics change as the environment company. Effective governance and risk and changes, or is anticipated to change, so risk compliance management processes can enable management is a continuous process. better communication between companies and their stakeholders, including managing To determine the scope of the required risk investor expectations. assessment, organizations must develop an understanding of both the nature of When a company goes public, it must become their objectives and the types of possible more transparent, ensure compliance with a risk — typically enterprise wide, but with a greater amount of regulation and open itself specific focus on individual business units and up to scrutiny from investors, regulators geographical areas. and analysts. Understanding the key issues investors care What is effective risk management? about will enable the company to present its financial information and KPIs, including Risk assessment should be an ongoing, consistency of information between the systematic process to identify and evaluate any business plan, budgets and that included in the possible future events — whether within the Prospectus and reported to the market on an organization or its external environment — that ongoing basis. could affect its ability to meet objectives. 46 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

Anticipating future risks “The stakeholders of public companies, particularly regulators and investors, react negatively to surprises. Preparing for increased scrutiny About the author Sandip is a Chartered Accountant with more than 18 years’ post It is not enough, however, to just understand the required qualification experience, and a subject matter expert in Indian scope and put a plan in place to address it. GAAP, IND AS, IFRS and US GAAP. He has extensive experience providing various assurance and advisory related services to Companies considering going public often carry out a industry segments such as manufacturing, power, financial thorough benchmarking of their risk identification and services, e-commerce, infrastructure and software. He is also mitigation processes against their listed peers and industry special invitee to the Ind-AS implementation group of ICAI, and experts’ reports. Increasingly companies are going digital has significant experience in cross-border listing (US) as well as and adopting advanced technologies such as data analytics, in the domestic Indian IPO market. robotics and automation to reduce risks and increase Contact efficiency of their processes. In addition, they are also Sandip Khetan evaluating how employee interactions are managed on social IPO Leader India, Ernst & Young LLP media platforms. Golf View Corporate Tower Golf Course Road, Sector 42 To make sure it can withstand investor, analyst and regulator Gurgaon, NCR Delhi scrutiny, a company’s risk mitigation plan should be carefully India 122002 deliberated and tested. The risk management process is as Telephone: +91 124 6714930 important as the final risk management plan, and investors will Mobile: +91 9810 395208 demand to know who is involved. Email: [email protected] How EY teams can help you prepare your risk EY IPO leaders’ insights Europe, Middle East, India and Africa  | 47 management framework EY has extensive experience assessing the effectiveness of risk management frameworks and processes, providing design and implementation support, digital technologies that accelerate transformation, and continuous monitoring and oversight through internal audits. Through this experience, EY has developed insights and knowledge that can prove invaluable to ambitious companies planning to go public.

Getting IPO ready Comforting thoughts How can companies address the challenges posed by comfort letters? Sofia Kalomenides When companies seek to raise funds in public The limitations of comfort letters offerings of securities, discussions inevitably turn to comfort letters, which underwriters and When it comes to financial and accounting data in other parties will commonly request before an unaudited offering document, the procedures closing on the offering. the auditor performs are limited, with the ability to provide, at most, negative assurance on the What is a comfort letter? unaudited financial information. A comfort letter is a letter issued by an auditor Negative assurance consists of a statement by to underwriters and other requesting parties, the auditors that, having performed specified providing a level of comfort regarding the procedures, they have not noticed anything company’s financial statements included or causing them to believe matters do not meet incorporated in the offering document. required standards and, for example, unaudited condensed financial statements do not require In international offerings, the form and content any material modifications to conform with of the most commonly used comfort letter is generally accepted accounting principles. governed by the American Institute of Certified Public Accountants’ AU-C Section 920, “Letters If negative assurance cannot be provided, for Underwriters and Certain Other Requesting the auditor can perform other agreed-upon Parties,” historically referred to as SAS 72. procedures and report on the findings. The purpose of a comfort letter Serious challenges The requesting parties, among others, are liable There are many complex rules and regulations if any part of an offering document contains a surrounding the issuance of comfort letters. In material omission or misstatement. A comfort addition to the limitations on the type of comfort letter helps them complete their due diligence an auditor can provide, auditors are only able procedures in connection with public offerings to comment on matters relating to financial of securities. reporting — their area of professional expertise. The company’s auditor is typically asked to Auditors are also unable to issue comfort letters perform procedures relating to the financial including capsule financial information relating and accounting data included in an offering to a company’s fourth fiscal quarter or full fiscal document, and then issue a comfort letter. The year before audited financial statements are sufficiency of the procedures the auditor is issued. This is because this financial information asked to perform is the requesting parties’ sole is subject to change. responsibility, not the auditor’s. Timing is also critical. For the auditor to provide negative assurance, the cut-off date by which comfort letter procedures are performed must be less than 135 days from the end of the most recent period on which the auditor has performed an audit or review. 48 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents

How EY teams can help you deal with Comforting thoughts comfort letter requests “EY teams can provide practical EY has extensive experience of comfort letter issuance. We can provide practical guidance guidance on comfort letter requests on comfort letter requests to help clarify to help clarify expectations, avoid expectations, avoid misunderstandings and misunderstandings and make sure make sure complex and costly procedures are complex and costly procedures are performed on time. For further information performed on time. about SAS 72 comfort letters, please visit www.aicpa.org. About the author Sofia Kalomenides is a partner, the IPO Leader for Central and Southeast Europe and Greece, and the Head of Accounts and Business Development for Central and Southeast Europe, Ernst & Young LLP. Her areas of knowledge include auditing Greek and US listed companies, including conversions to IFRS and US GAAP, and advising on IPO transactions in Greece and the US. Sofia has over 28 years’ experience in audit services, during which time she has worked for clients in a wide range of sectors, including shipping, construction, cement, oil, telecommunications, publishing and real estate. Contact Sofia Kalomenides IPO Leader Central and Southeast Europe and Greece, Ernst & Young LLP 8B Chimaras str, Marousi Athens — 15125 Greece Telephone: +30 210 288 6199 Mobile: +30 694 438 1262 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa  | 49

Setting the right price How can companies get the right result from the valuation and pricing process? Gregory Hughes The success or failure of an IPO is greatly Step 2: A preliminary offer price is set determined by correct pricing. Given that valuation and pricing do not necessarily go hand To generate initial interest in the issue, the in hand, companies considering an IPO need preliminary offer price generally includes a to understand fully how the process works and discount on the fair value estimate. This discount how best to defend their interests each step of needs to be agreed upon by the underwriter and the way. the issuing company. The preliminary price is then “tested” with investors during the following Step 1: The lead underwriting bank IPO road show. prepares a fair value estimate Step 3: The final offer price is determined The underwriting bank (or lead underwriter in the case of a syndicate) prepares an in-depth The higher the perceived risk of an investment, valuation of the issuing company using different the higher the return required and, therefore, valuation methods, generally grouped around the lower the price an investor will be willing to two approaches: pay. This is why a good road show is crucial to the success of an IPO. A convincing equity story, • Income approach: the company is valued told by a management team that communicates based on whatever it is able to generate for its effectively, will generate investor confidence and shareholders. will lower the perceived risk of the investment, thereby increasing the valuation. • Market approach: the company is valued based on whatever the market is willing to pay for it. The underwriting bank will receive feedback from investors during and after the road show, A good valuation will always consider both which it will use to adjust the final offer price. In approaches — for example, discounted cash flows a perfect economy, and after a favorable road and discounted dividends under the income show, this final offer price should be very similar approach, and guideline company multiples or to the original fair value estimate. However, comparable transaction multiples under the external factors will influence the IPO price market approach. significantly. These factors include: Since the fair value estimate is the starting point • The type of price-setting mechanism used — in the IPO pricing process, issuing companies e.g., book building or auction naturally try to push their underwriter toward the highest possible valuation, whereas • The type of targeted investor — retail or the underwriter (particularly if it is fully institutional guaranteeing the IPO, rather than working on a “best efforts” basis) may try to defend a lower • The general stock market sentiment value. After all, underwriting banks are repeat players in the IPO scene, and their priority is to • The chosen peer group ensure the full subscription of the issue in order to help attract new business. • The number of other IPOs issuing at a similar time 50 |  EY IPO leaders’ insights Europe, Middle East, India and Africa Contents