Structuring an IPO involves a mix of accounting, tax and legal analysis and is important to tackle right from the beginning. For one, it permeates all the keys documents from your prospectus, your due diligence planning memorandums, underwriting agreements and other key documents necessary to undertake the IPO.
For example, you should determine the IPO vehicle and the sell-down method. Is it going to be a top hat structure, a new co-structure or a sale co-structure? We like to get the tax advisers and the accounting advisors to prepare a paper summarising all the issues from their perspective and recommending the appropriate structure that produces a good outcome for both the company and its ongoing shareholders but also, importantly, for the existing shareholders.
With this paper we then put in the overlay of the legal analysis necessary to ensure that the structure involves the right amount of risk minimisation for the outgoing shareholders and the company and its directors. In many cases you may need to convert the holding company of your current business (which is probably a private company) to a public company. This process can take 6 to 8 weeks and so is something again once the structure is settled you need to get on straight away.
You also need to work out escrows. Escrows are agreements where key shareholders are prevented from selling their shares for a period after the float, usually typically the forecast period. Now while escrow agreements are fairly standard in form you need to get the bankers, the ASX and of course the shareholders themselves across the implications for the escrow agreement, and get those documents ready to sign and summarised in the prospectus.
The pre‑IPO structuring is an important matter as well. For example, are you rolling up any businesses into your float co? How are the accounts for those businesses? Unaudited accounts can present problems ‒ if the business is substantial enough it's quite important to get those accounts audited to allow you to roll them into your forecasts or, if necessary, to pro forma them back into your historical information.
Another thing to consider is whether or not you need to undertake any pre‑IPO restructuring. For example, are you acquiring a business which you want to present in the accounts for the combined entity going forward? Have those accounts for the target business been audited? If the business is substantial and they haven't been, that can involve a timetable delay because getting those accounts audited will facilitate rolling them into your forecast and if necessary pro forma-ing them back to your historicals.
Another thing to consider is whether or not you have a history of profits. ASX requires you to apply for listing under either the assets test or the profits test. If you satisfy ASX's profit requirements and these are based on statutory numbers, in many cases quite profitable businesses on paper don't satisfy the technical rules.
But if you're applying under the assets test you need to get your lawyers to talk to ASX early, either to convince them that the vehicle is suitable for listing without any additional conditions, or, if not, agreeing with ASX what mandatory escrows may apply.
A key thing to work out early on is who is selling down, if anyone, and approximately how much are they selling down. Further, is the company itself raising new funds? These might not seem important initially but they permeate the entire document structure, including your infrastructure documents you put together to run the process, and also your prospectus. Importantly they affect who has primary liability under the float and therefore who the float process needs to protect.
You also need to get on top of ASX waivers and ASIC modifications. Most floats requires a modification or waiver from ASX or ASIC in some form. Some of them are necessary to do the IPO itself, and some of them are necessary as part of the process of preparing for an IPO. For example, if you need to talk to key shareholders who aren't wholesale shareholders, or even your employees about the incentive plans or just to communicate the IPO process, you'll need to talk to your lawyers and get hold of ASIC and get them to give appropriate modifications to allow the smooth transition through to a public company.
The key message here is that there is a plethora of legal and commercial issues that you need to get your lawyers off and running early on, to ensure a smooth process throughout and to make sure there's no hiccups, particularly when you're going with an aggressive timetable.