An Initial Public Offering (IPO) is a transformative step for a company, giving it access to the capital markets. Far from being a simple financial operation, it is a complex legal process, requiring meticulous preparation and the involvement of many players. The aim of this article is to provide you with an overview of the main stages and legal issues involved in this major project, the more technical aspects of which are detailed in our dedicated publications. Solent Avocats has a recognised practice in banking and finance law to support companies in such operations.
Understanding initial public offerings: definition and issues
What is an Initial Public Offering (IPO)?
An initial public offering (IPO) is the process by which a company offers its equity securities (shares) to the public for the first time on a financial market. By becoming a listed company, it opens up its capital to new investors and subjects its shares to continuous trading on a regulated market (such as Euronext) or a multilateral trading facility (such as Euronext Growth, formerly Alternext).
Why go public? Objectives and benefits
The decision to go public has several strategic objectives. The most obvious is to raise funds to finance growth, whether this involves investment, international expansion or research projects. An IPO also creates a new "currency of exchange": listed shares can be used for future acquisitions. In addition to the financial aspect, listing enhances the company's reputation and credibility. Finally, it offers liquidity to historical shareholders, such as founders or private equity funds, who can sell part of their stake.
Stock market cycles and post-IPO performance (short and long term)
The success of an IPO is closely linked to the economic climate. Companies generally choose periods of bull markets to launch their projects, in order to maximise their chances of success. Post-IPO share performance is often characterised by two distinct phenomena. In the short term, there is often underpricing: the share price rises significantly in the first few days of trading. Over the longer term, numerous studies have found a tendency for stocks to underperform the rest of the market, a risk that every investor should consider.
Legal preparation of the issuing company
Adapting the legal structure (corporate form, articles of association)
Before even considering a listing, the company must ensure that its legal structure is compatible with the requirements of the markets. A public limited company (société anonyme) or a limited partnership with share capital (société en commandite par actions) is almost imperative. The simplified joint stock company (SAS), although very common, cannot have its shares admitted to a regulated market. A conversion may therefore be necessary. In addition, the articles of association must be audited to remove any clauses restricting the free movement of shares, such as an approval clause, which is incompatible with the principle of negotiability on a market.
Raising capital: capital increase and cancellation of pre-emptive rights
An IPO is almost always accompanied by a capital increase. To allow new investors to subscribe, the Extraordinary General Meeting must decide to waive the pre-emptive rights of existing shareholders. This decision, which is governed by reports from the Board of Directors and the Statutory Auditor, is an essential prerequisite for opening the capital to the public and ensuring that the shares are sufficiently widely distributed.
The role of financial intermediaries and advisers
Introducing banker and listing sponsor: tasks and responsibilities
The company does not carry out its IPO project alone. It is accompanied by an introducing banker, often an investment bank, which acts as lead manager for the operation. The banker advises the company on structuring, carries out the financial valuation and coordinates the placement of the securities. It is responsible for advising the company on the opportunity and chances of success of the deal. On unregulated markets such as Euronext Growth, the involvement of a listing sponsor is required. This approved partner helps the company prepare for listing and ensures that its post-listing obligations are met.
Other advisers: lawyers, auditors, communications agencies
An IPO requires a full team of experts. Lawyers are involved in all the legal aspects: restructuring the company, drafting the legal documentation, particularly the prospectus. The auditors certify the historical and projected financial statements. Finally, a financial communications agency manages relations with the press and investors to promote the deal.
The listing prospectus: key information document
Requirements and content (information, summary, language)
The prospectus is the central document of the IPO. Its purpose is to provide investors with complete, accurate and non-misleading information on which to base their investment decision. Its content is strictly regulated and includes a detailed presentation of the company, its business, financial situation and strategy, as well as the associated risks. It must include a summary and be written in French, or in a language commonly used in financial matters under certain conditions. To find out more, see our article on the initial public offering prospectus: legal obligations and responsibilities.
AMF approval: procedure and deadlines
Before being distributed to the public, the draft prospectus must be approved by the Autorité des marchés financiers (AMF). The AMF checks that the document is complete and comprehensible, and that the information it contains is consistent. It does not rule on the advisability of the transaction, but checks the quality of the information provided. This crucial stage is subject to strict deadlines, generally ten to twenty trading days after the submission of a complete file.
Listing and admission procedures
Regulated markets (Eurolist): OPO, OPF, OPM, direct listing
For admission to a regulated market such as Euronext, there are several technical procedures for determining the listing price and allocating the shares. The most common are the Open Price Offer (OPO), where shares are offered within a price range, and the Firm Price Offer (FPO), where the price is fixed in advance. Other techniques such as the Minimum Price Offer (MPO) or direct listing also exist. The choice of procedure depends on the characteristics of the transaction and the issuer's strategy. To find out more, read our guide on admission to trading on regulated markets: procedures and conditions.
Non-regulated markets (Alternext, Marché Libre): specific features
For small and medium-sized companies, unregulated markets such as Euronext Growth (formerly Alternext) or Euronext Access (formerly Marché Libre) offer an attractive alternative. These markets have simpler listing requirements, particularly in terms of historical accounts and free float (the proportion of capital held by the public). These markets are designed as a springboard for growing SMEs seeking initial access to stock market financing. For more details, see our article on unregulated markets: Alternext and the Marché Libre for initial public offerings (IPOs).
Post-IPO support
Stabilisation and green shoe operations
Immediately after the IPO, the share price may be subject to high volatility. To counter any downward pressure, the underwriting syndicate may implement stabilisation operations, consisting of buying shares on the market for a limited period (usually 30 days). To cover any over-allotment of shares during the placement, the banks often have an over-allotment option, known as a "green shoe", enabling them to buy additional shares from the company at the offer price.
Liquidity contracts: maintaining the liquidity of securities
In the longer term, to ensure regular liquidity for the shares and avoid major price shifts, the company may sign a liquidity contract with an investment services provider. The latter acts independently on the market, buying and selling shares to facilitate transactions and ensure that the order book is well-stocked. These post-IPO mechanisms are essential, and you can explore them in our article dedicated to post-IPO support: stabilisation and liquidity contracts.
Solent Avocats: your expertise for a successful IPO
Our legal support throughout the process
The IPO process is a legally demanding adventure. From the initial restructuring to the drafting of the prospectus and compliance with stock market regulations, each stage requires specialised expertise. Our firm puts its expertise in capital markets law at your service to help you secure your project and turn it into a growth driver for your company.
A stock market flotation is a strategic decision that has a lasting impact on a company and its management. For an in-depth analysis of your project and tailored support, contact our team of lawyers.
Frequently asked questions
What is underpricing in IPOs?
Underpricing is the phenomenon whereby the price of a share increases significantly on its first day of trading compared with its IPO price. It is a very common feature of IPOs, often explained by the desire to guarantee the success of the placement and to reward the first investors.
What is the role of the AMF in an IPO?
The Autorité des marchés financiers (AMF) is the regulator responsible for protecting investors and ensuring that markets operate smoothly. In an IPO, its main role is to examine the information prospectus and give it its "visa" before the offer can be made to the public, thereby ensuring that the information provided to investors is complete, understandable and consistent.
Can an SME go public?
Yes, SMEs can go public. Markets such as Euronext Growth (formerly Alternext) have been specifically designed for them, with access conditions and regulatory requirements that are lighter than for the main regulated markets, in order to facilitate their access to market financing.
What is a "listing sponsor"?
A listing sponsor is an adviser approved by the market operator (such as Euronext) whose role is to assist a company when it is listed on a non-regulated market, such as Euronext Growth. The listing sponsor helps the company to prepare its admission file and then ensures that it complies with its disclosure obligations once listed.
How are shares allocated in an IPO?
The allocation of securities depends on the offer procedure chosen (OPF, OPO, OPM). If demand exceeds supply, orders are reduced. Often, part of the offer is reserved for institutional investors via a "guaranteed placement", while another part is intended for retail investors via a centralised offer, with allocation rules specific to each tranche.
What is a "green shoe"?
The "green shoe", or over-allotment option, is a mechanism that allows the introducing banks to buy up to 15% of additional shares from the company, at the IPO price, during the 30 days following the IPO. It is used to cover over-allotments made during the placement and to facilitate share price stabilisation operations.
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