IPOs - what do they mean for employee share plans?

Posted by RM2 at 15:51 on 27 Feb 2014


The Financial Times tells us that Initial Public Offerings (IPOs) are a six year high on the London Stock Exchange and every day it seems there is a further announcement of another company planning an IPO.

An IPO is an initial public offering, meaning that a company decides to issue and sell new shares to the public. Of course the main reason for doing this is to be able to raise capital funds to use in the business with the hope of more growth in the longer term.

There are a number of important aspects for companies that have or intend to have share incentive plans for employees and executives. Here is a simple list of some of the issues you will need to take into account and a reminder that The RM2 Partnership is very experienced that helping companies through this exciting but time-consuming period in a company's life. (The points can be equally relevant for any fund-raising except that a prospectus might not always be needed.)

1. If a share option plan is already in existence you need to see whether any pre-IPO restructuring of the Group impacts on the existing plan.

It is not uncommon for a new holding company to be established as the front vehicle but this must be done carefully if there are existing plans that are tax advantaged. For example Enterprise Management Incentive (EMI), Company Share Option Plan (CSOP) and Share Incentive Plan (SIP) can lose their tax benefits.

With some advance warning, we can ensure that the structuring is conducted according to the statutory requirements to make sure the benefits are retained.

2. Prior to key float or IPO there will need to be due diligence and a thorough review of the company's existing arrangements, including full copies of all option agreements, scheme rules, annual HMRC tax returns.

These documents need to be obtained and made available for scrutiny.

We can help where we have been administering the plan by presenting a package of all the relevant information to be available for due diligence.

3. Many plans established prior to an IPO will commit participants to exercise their options or take their entitlements upon an IPO.

This is an exciting opportunity to get the rewards that have been through the hard work getting the company ready for a float.

RM2 can help by simplifying the processes for exercising options, coordinating the exercise and ensuring that cashless or simple exercise procedures can be followed.

4. If you had a plan that works and the company is comfortable operating, this might be retained.

Existing plans usually need review to ensure that it complies with the requirements of The London Stock Exchange, AIM (Listing Rules or AIM Rules), ISDX or any other market, together with any corporate governance or investor guidelines that it is appropriate for your company to follow.

The RM2 Partnership can help by advising you as to the correct corporate governance or other obligations that you should have according to your sector and the size of the company. The RM2 Partnership can then assist with making appropriate amendments to the scheme rules and the operation of the plan to ensure proper compliance.

5. If the current plan is no longer appropriate, the company will need new incentive arrangements.

Often the existing plan is no longer suitable for the next phase of the company's development and the company might find that potential investors are expecting the urgent introduction of a new plan.

Where this is the case, The RM2 Partnership can ensure that a new plan is established in time and in parallel with the IPO to ensure that brand-new share rights can motivate and retain key executives and employees and can be established smoothly during this very busy time for the company.

6. The company will need to publish a prospectus often in the form of an admission document for AIM.

In the prospective you will need to describe and explain the existing share incentives or similar arrangements and any new arrangements so that investors can identify the dilution risks and the proposed methods of incentivising staff. You need to list the number of shares subject to existing share incentives. The plans should comply with the Remuneration Policy and chosen corporate governance code.

The RM2 Partnership can help by preparing suitable what you need to be inserted in the admission document or prospectus. By using the RM2 partnership, you understand the workings of your share scheme this will simplify procedures and enable one element of this complex arrangement to run smoothly. For more information on the contact covered in this article, contact us directly on 020 8949 5522, or via enquiries@rm2.co.uk.