June 2012 (121) – Listing on AIM

Having come to the end of a busy May, I can now look forward to my daughter’s wedding this weekend – the day after tomorrow!  To those of you who have sent their well wishes, many thanks – it’s all very exciting!

First some news  about the ITSAPT Association.  The website is now up and running at www.itsapt.com and we will be able to accept members  in the next month – please look out for our next newsletter with further information or visit the membership page on our website when all security arrangements have been completed. 

The ITSAPT Association is a global portal for all international entrepreneurs, corporations and professional advisers who need to understand how to structure international organisations as well as personal requirements, and to enable them to contact all those individuals and organisations in other countries who can help them.

The four major aims are:

·         The ITSAPT Association will be the portal to enter for those wanting to understand how to structure international business organisations whose Knowledge page will include information relating to international tax, trusts, company, legal and case law indexed in an accessible format

·         The ITSAPT Association will be the portal to enter for those wanting to contact  organisations in different countries which can help the international requirements of businesses and individuals.  These may be local bodies offering help to incoming businesses, such as local government sponsored organisations, chambers of commerce, international banks, universities etc etc.  These links will enable members to find out information that is not easily available elsewhere and is an invaluable facility to enable www.itsapt.comto act as the international  portal for entrepreneurs, corporations and individuals.

·         The ITSAPT Association will be run for our members with increased benefits as length of membership increases including special arrangements at all ITSAPT Conferences and discounts on Publications

·         The ITSAPT Association will provide bursaries for students to attend university courses on international law around the world

Please save the date of late afternoon/early evening of Thursday September 13th as the inaugural launch party of the ITSAPT Association where all these aims will be demonstrated.  We will be holding this at the ‘ITSAPT hotel’ – the Landmark London hotel – and will be portraying the Knowledge section of the website, accepting applications for membership, and generally doing what one normally does at launch parties – drinking, eating and socialising.  I will let you have more details nearer the time but please diarise the date.

And of course, the other important forward date is the ITSAPT Conference this year to be held on 8thNovember, again at the Landmark London hotel, and this time the subject matter is Structuring International Real Estate Transactions.  This is a topic that I spoke on this month at a conference in Gray’s Inn, and we will be exploring in greater depth innovative Fund structures and the practical application of double tax treaties when investing in real estate around the globe.  The highlight may be a role play of a consultation with Tax Counsel Philip Baker QC on the latest structures for investment in the UK.  Barclays Bank is sponsoring the entire conference with SDM also sponsoring the cocktail party; you can find details of the Conference on www.itsapt.com/Conference/ …  and we are now accepting delegate applications.  Please note the early bird discount for applications prior to 31 July 2012.

There were two IFS highlights of this busy month of May – one was the Wentworth golf day presented by IFS in conjunction with Barclays Bank and Memery Crystal.  Miraculously it didn’t rain and equally miraculously, I was on the winning team – a fix I hear you cry!  But in spite of a good round and my jokes kindly received in an after dinner speech, I am not intending to give up the day job to be either a professional golfer or even an amateur comedian!

The second highlight was the joint presentation that IFS and Memery Crystal held in Geneva last week, entitled Seeing London More Closely (a photograph of Big Ben shrouded in fog being the centrepiece of the invitation).  We had guests attending at the Hotel d’Angleterre from many countries and we followed the presentation with a cocktail party overlooking the lake – in fabulous weather.

We also teemed up with London & Partners, a not-for-profit public private partnership, funded by the Mayor of London and a network of commercial partners to promote London, and Chris Orange spoke about London with some fascinating facts.  Such as London being the 5th richest city in the world by GDP per capita, having 30% of its land mass as green parkland with 101 golf courses, 2 Universities being in the top 10 of the world, more US banks in London than in New York, and many other surprises.  As the song goes, maybe it’s because I’m a Londoner, that I love London Town!

Besides the corporate and personal tax benefits that London (and the UK generally) has to offer, the main thrust of the presentation was to inform the audience of the liberal UK corporate tax regime for holding companies and the financial markets available in London to raise private or public equity.  I have asked Greg Scott of Memery Crystal to prepare an article for this newsletter summarising the talk he gave, and this is our article this month which I am sure you will find very interesting.

Finally, another conference at which I spoke in May was on Corporate Tax Planning at the Millenium Hotel, where I delivered two papers, one on corporate migration and the other on EU holding company structures.  I will be putting the slides onto the ITSAPT website and these will be available to download under security arrangements for ITSAPT members.

I am now going to enjoy a weeks’ holiday after my daughter’s wedding, but I am looking forward to building the ITSAPT Association with your help and involvement in the coming months. 

Kind regards

Article re AIM at Geneva Conference

I am head of the corporate department at Memery Crystal, a central-London law firm and we are particularly well known for dealing with the legal side of bringing companies to AIM and dealing with their requirements once listed.

On 24 May, it was my pleasure to accompany Roy Saunders and my Tax Partner, Tim Crosley, together with a representative from London & Partners (partly funded by the Mayor of London’s office) at the Hotel D’Angleterre in Geneva where we discussed the advantages of living and doing business in London and the UK.  We used the case study of Mr Ivanov (it’s true, we could have been more imaginative with the name!), a Russian gentleman who decides to settle in London with his family, partly to be near his teenage children as they move into higher education and partly to develop his growing international mobile telecoms business, Telecomsk.  Whilst Roy and Tim focussed on the tax advantages of basing the business in the UK, I looked at the financing opportunities and why London is such an enviable location.

As with any business needing capital to develop and expand, Mr Ivanov has three basic choices, namely, bank debt, private equity funding (typically involving a mixture of senior debt, mezzanine funding and pure equity) and an IPO on one of London’s capital markets.  At its current stage of development, Mr Ivanov’s business will not attract much in the way of leverage as, although it is cash-generative, all revenues are being ploughed back into R&D, marketing and sales and related expenses.  The asset base is also small.  Although London is the headquarters for more private equity funders than any other city in Europe, Mr Ivanov has decided that private equity is not right in this particular case. 

We have often advised clients of the relative pros and cons of private equity as opposed to a capital markets flotation.  These are of course both legal and financial.  On the legal side, an IPO exposes Mr Ivanov to potentially onerous legal obligations and responsibilities to his shareholders and compliance with the relevant disclosure regime.  He will be putting his head above the parapet – he will be in the public domain.  Having said that, the private equity provider will require detailed and onerous warranties and indemnities from Mr Ivanov as to the running of his business.  It will also of course insist that at least one of its representatives sits on the board.  Mr Ivanov did not necessarily regard that as a good thing!  Finally and perhaps most importantly, where it is clear that the capital markets have an appetite for a business, he had to think long and hard about the price at which he was giving away his shares.  Private equity providers did not get rich by being overly generous with their money!  Of course, the capital markets will not support every kind of business and in the current cautious markets, investors will shy away from any business that is at too early a stage or unproven.  Luckily for Mr Ivanov, in this case, he has legally protected intellectual property, proof of concept, recurring and growing revenues and a strong management team.  These are all important tick boxes for investors and the brokers who pitch to them.

Having decided to bite the bullet and go for an IPO in London, Mr Ivanov then had to consider the choice of markets available to him.  A Main Market listing on the London Stock Exchange was out of the question.  The business did not have the requisite three year track record.  Achieving a free float of 25% (holdings of directors and any other shareholders holding over 10% of the shares being excluded) can also be an impediment for younger businesses.  AIM however welcomes new and younger businesses and has a more relaxed approach to free float (with none being required in the rules but with a de facto minimum 10% applying in practice).  We looked at why AIM was particularly suitable for Mr Ivanov’s business and his plans to aggressively expand it.  Principal among these were:

  • AIM has proved a successful venue for technology companies;
  • Because Mr Ivanov has, for sound corporate tax reasons, decided to base his holding Company in the UK, individual UK-based investors will be able to take advantage of generous reliefs available (or shortly to be available) under the Enterprise Investment Scheme even though much of the business is/will be conducted overseas.  One of the reasons is that the gross assets of the Company do not exceed £15 million and the Company has less than 250 employees.  The admission to the share register of a large number of small individual shareholders should help encourage liquidity, something that is often difficult to achieve with otherwise closely held companies with just a few institutional shareholders;
  • London in general and AIM in particular has an appetite for international markets which other exchanges might regard as difficult or exotic.  In this particular case, a significant amount of growth is projected to occur in African countries such as Nigeria and Kenya where demographics, economic growth and technological improvements put the business on a strong upward trajectory.
  • Companies listed on the Main Market are severely restricted from issuing shares for cash other than by way of a rights issue to all shareholders.  Typically, the limit here is 5% per annum.  With AIM companies however, shareholders take a more tolerant approach and are typically comfortable with the board having leeway to raise capital from selected shareholders up to 15% or more of the Company’s share capital (this may depend on the size and maturity of the company concerned and the type of investors on the register).  This enables Mr Ivanov to go back to the markets on several occasions as and when further cash is required (and without suffering the inevitable dilution involved when trying to raise too much cash too soon) without having to go to the expense and delay of convening a general meeting and publishing a detailed prospectus on each occasion.
  • The AIM model, rather than relying on detailed monitoring of the regulatory rules by a bureaucratic authority, namely, the UK Listing Authority, delegates this responsibility to a Nominated Adviser or NOMAD.  The NOMAD works closely and proactively with the board to ensure that the AIM Rules are being complied with without announcements or documents being subject to time consuming review by a committee of remote people.

Mr Ivanov plans to build-up the business to a critical mass and to then gradually sell shares into the market from the third year post-IPO onwards.  As his shareholding starts to fall towards 30%, a bid premium may start to emerge in the share price and an offer from a third party may complete his exit.  In this way, he will exit over time and hedge his risk of the business peaking then deteriorating.