IPO reforms to 'encourage more dual-tracks'

The Financial Conduct Authority has introduced proposals which are likely to lower the failure rate of IPOs, which may encourage private equity firms to pursue more dual-track processes.

The UK Financial Conduct Authority (FCA) has proposed changes to the initial public offering process (IPO), which would allow investors to access more information sooner and pave the way for faster listings.

“Currently there is a blackout period, typically of 14 days, between research on the issuer being published by the banks supporting the IPO and circulation of the issuer’s prospectus. This means that investors only have access to an important source of information late in the process,” the FCA wrote in the proposals.

The FCA has proposed to reduce the current blackout period to seven days and allow investors to access the issuer’s prospectus, which contains more detailed information on the issuer, such as price ranges and details on the company profits and losses, much earlier on in the process.

Under the proposals, the company prospectus will be issued first, followed by the broker research.

“The new proposals are likely to lower the failure rate of IPOs and minimize execution risk, which may encourage private equity firms to pursue more dual-track exits,” said Katherine Ashton, corporate partner at Debevoise.

Financial sponsors frequently use dual-track processes – whereby a private sale process and a public listing are prepared in tandem – to exit their portfolio companies as a way of mitigating the risk of either avenue failing to deliver.

Debevoise’s Ashton added that a shorter blackout period would lead to faster listings and, as a result, reduced risk of processes being derailed by market volatility.

The FCA is open for comments on the proposals until July 13, after which the regulator will analyse and publish the feedback.