capital raising forum_-_achieving_a_successful_ipo

Audit | Tax | Advisory

Achieving a Successful IPO – the success factors and on-going requirements

May 2011

Capital Raising Forum

2Crowe Clark Whitehill

Contents

• Introduction

• The IPO Process – An overview

• Illustrative timetable

• What are investors looking for?

• How to become investor ready？• How will investors value your business?

• Valuation methodologies

• The role of the reporting accountant

• Corporate Governance issues

• On-going accounting requirements – market comparisons

• Key factors of post IPO success

• Case studies

• Conclusions

• Crowe Horwath International

• Our capital markets track record

• Principal contacts


Introduction

• Moving a privately owned company to a public market will take time, detailed planning is required

• Accounting compliance requirements are not onerous on admission and continuing obligations are reasonable

• In accounting terms the key elements for success are:

• sound and effective financial controls

• timely and accurate management reporting

• an experienced CFO

• IFRS, US or suitable national GAAP compliant audited financial statements

• realistic and supportable financial projections

• Taxation planning will be required at an early stage for the company and shareholders


The IPO Process – An overview

The AIM IPO process can be broken down into the following phases:

Phase 1 Phase 2 Phase 3 Phase 4

PlanningDueDiligence

Broker’sResearch Drafting

Phase 5

Marketing Impact &Admission

Placing &PlacingAgreement

Phase 6 Phase 7


Illustrative timetable Note: The pre-IPO period can take 12 – 24 months

Month 1 Month 2 Month 3 Month 4Phase Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Phase 1 : PlanningDecision to proceed

- Sponsor / financial advisor appointed

- Broker appointed

Phase 2 : Due diligenceFinancial

- Long form report

- Short form report

- Working capital review

Legal

Phase 3 : Research

- Prepare flotation research

Phase 4 : Drafting - Prospectus

- Presentation

- Verification

Phase 5 : Marketing

- Broker pre marketing

- Pathfinder published / Road show commences

Phase 6 : Placing and Placing agreement

Phase 7 : Admission

- Pricing / Dealings commence

Intensive workPreparation / follow-up work

Indicative IPO Timetable


What are investors looking for?

• A growing business operating in an expanding markets

• International exposure or potential to expand overseas

• Sustainable competitive position

• Visibility of earnings

• Quality of earnings

• A committed and experienced management team

• A commitment to strong corporate governance procedures

• Sector approach based on macroeconomic factors


How to become investor ready ？

Improve the “quality” of your profits by:

• A strong and complete management team with clear succession planning

• A scalable business model, growing organically or by acquisition

• A move to higher value and higher margin products

• Build barriers to entry based on technical excellence, market knowledge or scale

• Robust and reliable accounting and management information system

• Enhance corporate governance and appoint non-executive directors

• Capital restructuring or reorganisation, consider share incentives, regulatory approvals

• Defendable rights over intellectual property


How to become investor ready？ (cont’d)

• Dispose of non-core activities and assets

• Identify strategic acquisitions and mergers

• Adopt International Financial Reporting Standards or local equivalent

• International Audit Standards Compliance

• Tax review of compliance and planning issues, national and international

• Reduce dependence on particular customers, products or staff

• Review terms of trade and strengthen credit management

• Appoint experienced advisers


How will investors value your business?

Estimated valuation

Projected revenue growth

Revenue visibility

Scalability andmargin potential

Acquisition/developmentStrategy & use of proceeds

FinancialOutlook

Market conditions

Exploitation of provenbusiness model

Competitive landscape

New markets and channels

Market and customergrowth potential

市场和客户的潜在发展

Company

BusinessFundamentals

Co

rpo

rate

go

ve

rna

nc

e

Ma

na

gem

en

t

Market and customergrowth potential


Valuation methodologies

Mu

ltip

les

Method

Forward P/E

Forward EV/EBITDA

Forward EV/Sales

Comment

Investor familiarity, particularly in small/mid cap markets

Includes all charges against profits

Not distorted by differences in capital structure and tax

Facilitates international comparison

Often applied where lack of profits

Used to review valuation levels across the cycle

DCF analysis

Significant sensitivity to a number of assumptions

Overly dependent on terminal value

Often used as a “sanity check”

Dis

cou

nte

d

cash

flo

w


The Role of the reporting accountant

• Pre IPO planning

• Long Form Accountants’ Report

• Short Form Accountants’ Report

• Working Capital Review

• Financial Reporting Board Memorandum

• Pro-forma Financial Information

• Other Financial Information, Consent and Comfort Letters

• Taxation Advice


Corporate governance issues

• The key relationship:

Governance = confidence = quality = investor interest = liquidity = Value

• The Quoted Company Alliance (UK) Guidelines:• Schedule of matters reserved for the board

• Timely provision of information to the board

• Annual review of all material internal controls and risk management systems

• Separate independent Chairman and CEO

• 2 independent non-executive directors

• Independent audit, remuneration and nomination committees

• Annual published corporate governance statement

• UK Listing Rules – The Model Code• Comply or explain any non-compliance and provide a statement of differences


ACEPLUSAIM

UKGAAP/IFRS/USGAAP/AUSGAAP

UKGAAP/IFRS/USGAAP

IFRS/USGAAPAccounting policies

2 months3 months3 monthsInterim results announced within (months)

QuarterlyHalf yearlyHalf yearlyInterim results frequency

6 months5 months6 monthsAnnual results announced within (months)

On-going accounting requirements – market comparisons


On-going accounting requirements – market comparisons

Catalist SGXBursa Malaysia

Sing FRS/IFRS/USGAAP

Sing FRS/IFRS/USGAAP

UKGAAP/IFRS/USGAAP/AUSGAAPAccounting policies

45 days 45days2 monthsInterim results announced within (months)

Quarterly/Half-yearlyb

Quarterly/Half-yearlya

Half yearlyInterim results frequency

60days60days6 monthsAnnual results announced within (months)

a Depending on market capitalisation

b Catalist companies are listed based on the Catalist Sponsor‘s assessment that they are suitable. No minimum quantitative entry criteria are set, but Sponsors will use their own deal selection criteria


Key Issues of post IPO success

Realistic valuation Do not over value the value of the business on IPO is less important than the value 12 months later

Strategy Admission to market is the start of the process, not the end

Communication A continuous process – Invest time and effort in the market and the market will invest in you

Expectations Keep the market informed, under-promise and over-achieve if possible

Financial Control working capital, maintain and display strong corporate governance

Flexibility Consider secondary or two-stage listings e.g.:• Asian Citrus• RC Group• West China Cement


Case Studies

Property development company, operating in Malaysia and Vietnam. April 2007, joined LSE Main Market and raised US$162m at IPO

Malaysia-based, provides data centre facilities and services in SE Asia. Joined AIM in March 2010 and raised £28m

Provision of healthcare support services. Malaysia HQ and operating in SE Asia. November 2008, Joined AIM and raised £2 million

Beijing-based software and content management company. AIM admission in June 2006, 3 further secondary fundraisings

Orange plantation and producer in China, joined AIM in July 2005 and raised £12m, raised a further £20m in March 2007. Dual listing on HKSE in November 2009 by introduction, placing of HK$1.55b in November 2010


Conclusions

Moving a privately owned company to a public market will take time, detailed planning is

required

Increasing the “Quality” of profits will increase the value of your business

Preparing for external investment at an early stage will significantly increase your chance of

success – Plan early!

The value of the business on IPO is less important than the value 12 months later, do not over

value

Admission to a market is the start of a process, not the end

Liquidity and valuations must be developed - Invest time and effort in the market and the market

will invest in you


Crowe Horwath International

• Global professional services alliance with more than 150 independent member firms

• Services provided include: audit and assurance, taxation, accountancy, corporate finance, consultancy, financial planning

• Our corporate finance services include pre-IPO planning, reporting accountant services, due diligence, M&A , company disposals, raising finance and MBO’s

• Based on integrated and high quality service delivery and common core values

• 640 offices in over 100 different countries, annual revenues $2.8 billion and approximately 28,000 professional staff

• Ranked 5th in Asia Pacific with over 8,500 staff. Strong coverage in Kuala Lumpur, Jakarta and Singapore

• 31 offices throughout China including Beijing, Shanghai, Hong Kong, Guangzhou and Shenzhen

• In the UK a leading accountancy firm established in 1843, strong international client base

Crowe Clark Whitehill

Asia Pacific Ranking (in m US Dollars)

AccountancyAsia Survey:5th in Asia Pacific

Relayed in the IAB

Leading accounting networks 2009: fee data

Asia Pacific: top 10 accounting networks

Rank Network Revenues($m)

Staff

1 PricewaterhouseCoopers 3,803 39,585

2 Deloitte 3,400 34,154

3 Ernst & Young 3,157 34,222

4 KPMG 3,007 30,932

5 Crowe Horwath International

651 8,656

6 BDO 448 8,844

7 Grant Thornton International

389 5,921

8 RSM Asia-Pacific 353 6,423

9 Nexia International 328 5,034

10 Baker Tilly International 325 6,442

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Our Team Members’ Capital Markets Track Record Includes…

20


Our Team Members’ Capital Markets Track Record Includes…

21


Principal Contacts – Capital Markets

United Kingdom

Robin Stevens Direct line: +44 (0) 20 7353 7282 email: [email protected] Mobile: +44 (0) 7787 112 059

Marty Lau Direct line: +44 (0) 20 7842 7240 email: [email protected] Mobile: +44 (0) 7899 070 609

Peter Varley Direct line: +44 (0) 20 7842 7353 email: [email protected] Mobile: +44 (0) 7775 502 776

Stephen Bullock Direct line: +44 (0) 20 7842 7166 email: [email protected] Mobile: +44 (0) 7714 700 657

Linda Jin Direct line: +44 (0) 20 7842 7208 email: [email protected] Mobile: +44 (0) 7887 600 766

Paul Blythe Direct line: +44 (0) 20 7842 7231 email: [email protected] Mobile: +44 (0) 7876 282 728

Chulanga Jayawardana Direct line: +44 (0) 20 7842 7173 email: [email protected]: +44 (0) 7880 818 386

Mitesh Timpani Direct line: +44 (0) 20 7842 7305 email: [email protected] Mobile: +44 (0) 7500 048 069

Kuala Lumpur Kien Hoe Onn email: [email protected]

Jakarta Munir Ali email: [email protected]

Singapore Catherine Cheng email: [email protected]

Beijing Wo Xiao Ning email: [email protected]

Shanghai Xu Li Ying (Amendar) email: [email protected]

Hong Kong Delores Teh email: [email protected]

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