The initial public offering (IPO) process, by which a company changes from being a private to a public company, is often shrouded in secrecy. Numerous advisers will work closely with a company to support them through this process and ensure that the company achieves maximum valuation with a full subscription to shares.
With a significant increase in the number of IPOs in 2014 and 2015, there has been a growing level of scrutiny from regulators and other bodies. The 2014 Royal Mail IPO in particular, where the company moved from state to private ownership, caused an enormous amount of criticism towards the government as the shares soared to double the listing price within weeks of the IPO date. This led to calls that shares had been undervalued, thereby giving a poor return to UK tax payers for the investment. It also emerged that the majority of the priority investors that were selected to be long-term investors in the business actually sold their holdings in the following months, making considerable profit.
Media scrutiny around this event has led to greater examination of the general IPO process and the inherent flaws within it. Against this backdrop, the Financial Conduct Authority (the FCA regulates financial firms providing services to consumers and maintains the integrity of the UK's financial markets) has announced that, following a year-long review, it is considering a change in the rules regarding access to research on pre-IPO companies along with other additional changes.
The FCA wants to see a greater level of information available to investors at an earlier stage in the IPO process to help with better decision making. In particular, the FCA review raised questions about the “blackout period”: the two week window before the IPO prospectus is published, when analysts of the banks managing the listing are currently prevented from publishing research about the company. This period causes a void of information, forcing investors to make decisions without enough time to understand the prospectus and analyse the research.
The full FCA review can be viewed on their website. It’s lengthy but provides a good framework for engagement on this important subject. How the report is interpreted remains to be seen and there will likely be those lobbying both for and against the changes.
It’s too early to speculate on what impact any rule changes might have on a company website, but we shall be following the debate closely.