Following a second year of sparse European IPO activity one focus is on how exchanges can attract new listings.
A key area that is often overlooked is education to ensure companies fully understand the relevance and benefits of going public and providing them with the knowledge and capability to successfully complete the process, while introducing them to investors at an early stage.
Across Europe a number of exchanges now run programmes aimed at training senior executives for life as a public company and generating a pipeline of IPO-ready candidates.
SIX Swiss Exchange recently launched the third round of its Sparks IPO Academy that began in 2021. This year's round involves 16 companies based on a range of criteria from turnover to their prominence in the financial ecosystem.
The six-month programme, which was oversubscribed, involves a mixture of online and in-person sessions covering topics such as corporate governance, financial readiness, valuation considerations and the buyside, plus networking events with investors and experts.
“We found education has a central role to equip companies with the necessary tools,” said Fabian Gerber, senior relationship manager at SIX. “The goal is to show companies where they are, where the gaps are and find out if an IPO is an option or not. We have had companies that found it was not what they want to do. The idea is to make them aware of the option."
Gerber said a lot of companies have misconceptions around IPOs, a common one being that they come at the end of development and are often seen as an exit option rather than a means to help fast-growing companies expand using primary capital.
Euronext recently launched its IPOready programme, a six-month IPO preparation scheme that amalgamates a number of its existing programmes such as TechShare and FamilyShare that had been running since 2015.
“IPOready gives a clear view of what an IPO brings in terms of benefits and challenges,” said head of group listing activities Aurelien Narminio. “Participants are provided with tools to assess whether it's right for them and to understand how it works.
"What we want is that the IPO is not discarded by lack of knowledge. We want the discussion about financing options to be one that is informed."
The Euronext programme is aimed at companies considering an IPO within the next three years but has attracted participants ranging from unicorns to small-cap businesses with valuations in the tens of millions of euros.
Workshop sessions look at crafting an equity story, preparing a prospectus and sustainability, as well providing introductions to banks, lawyers and accounting firms.
Since 2015, more than 25 companies that participated in one of Euronext's programmes have completed IPOs, with deals ranging from €9m to €252m.
For Narminio another key aspect is preparing company executives to juggle their day jobs – keeping up company performance – while leading an IPO, particularly CFOs.
"Recently I was with a participant from the 2021 edition who took his firm public and told me 'I don’t understand how executives get through the IPO process without having this experience'."
Not all exchanges opt for a formal programme. The London Stock Exchange discontinued its Elite programme after its developer Borsa Italiana was acquired by Euronext.
According to Marcus Stuttard, head of AIM and UK primary markets at the LSE, the needs are different in the UK, given the greater number and diversity of companies that list in different stages.
"One benefit of a structured programme is the number of companies who can support each other but actually we tend to find that area is well served in the UK by organisations like Innovate UK, the Catapult Network, and venture capital and private equity portfolios if you think of the Business Growth Fund, for example, so a lot of networks exist," said Stuttard.
Many features of other exchange programmes still exist, with LSE providing direct advice and connections to companies in addition to monthly events such as panel sessions, breakfast and lunch sessions, and IPO forums.
"We put prospective companies in contact with founders and entrepreneurs who have done IPOs," said Stuttard. "A company will spend a lot of time with advisers, lawyers and banks so chemistry is important. The company’s roster of advisers needs to understand the business. So if we engage early on and it looks like an IPO is a valid opportunity, while we don’t make specific recommendations, we do look at size, sector and base and suggest a number of banks to start with."
The London Stock Exchange is part of LSEG, which also owns IFR.
Successful alumni
French chemical group Afyren completed a €66.5m Paris IPO in September 2021, around 18 months after going through Euronext's TechShare programme.
"You meet a lot of people who have been there before you and understand how the process works," said CFO Maxime Cordonnier. "To see that there were companies like us that managed it was very helpful. It can be a mountain you consider too high to be climbed."
During the programme Afyren was introduced to Portzamparc and Lazard, which became bookrunner and adviser on the IPO, respectively.
According to Cordonnier the IPO process was largely as expected following the programme, though one area of surprise and frustration was the lack of direct involvement for the company during pre-marketing, which emphasised the need for a close relationship with its advisers.
"I would not have done it with people who I couldn’t see would fit when times were hard," he said. "Trust with the banks is so important."
Although not having run for as long, and coming during an IPO drought, graduates of SIX’s Sparks IPO Academy are looking to come to market.
Around 40 companies have come through the programme of which two have embarked on the IPO process, however these are currently on hold until market conditions improve.
In addition to the knowledge gained during the programme one of the companies acquired a new chairman via the mentoring pool.
Varied listing options
The programmes are not just for those larger companies that could go straight to listing on the main market of an exchange. SIX operates Sparks Exchange, tailored specifically for SMEs coming through the programme, though companies could go straight for a Swiss main market listing if suitable. The same is true for SIX-owned Spanish exchange BME.
"We’re trying to reach companies who wouldn’t think going public is available to them," said Jesus Gonzalez, head of BME Growth and BME Scaleup, who said the aim is to find a balance between what smaller companies can do and what investors need.
BME Scaleup launched in June and gives smaller companies longer to prepare audit reports and does not have minimum free-float requirements.
BME’s Pre-Market Environment is a programme of training and networking that pairs companies with a mentor analyst from BME Growth.
The programme started four years ago and has seen six companies list on the growth market.
"We aim to be with them from the very beginning," said Gonzalez. "If you wait to attract a US$10bn company from scratch it is very difficult as they are free to list when and where they want, and don’t necessarily value a local listing. Walking alongside them is very important."
In London consideration is also taking place beyond traditional public markets with innovations such as a proposed intermittent trading venue that allows private companies to trade unlisted shares at regular intervals and a partnership with Floww, a networking platform linking companies with venture capitalists and angel investors.
"We recognise that companies have unique funding needs and that for some an IPO might not be the most suitable way to access capital,” said Stuttard. “These needs will change as a company grows and develops, whether that is eventually through an IPO or accessing capital in private markets. We have solutions and tools to support them to ensure a seamless funding continuum through their journey."