A lawyer’s perspective on IPOs: Challenging, but nothing to be afraid of

Juha Koponen is one of the most experienced capital market lawyers in Finland. He urges companies considering an IPO to set aside enough resources for drafting a prospectus, which, although being a lengthy and intensive process, is nevertheless important.

Juha Koponen, who heads the Capital Markets practice at Borenius Attorneys Ltd, a leading Finnish corporate law firm, has been involved in a large number of IPOs during his long career. Just in the past three years, Koponen has helped 14 companies with their listing process.

Even though IPOs involve a great deal of legal responsibility, Koponen feels that there is no real reason to fear an IPO process.

“If a company has a good investor story and the will to grow and expand internationally, it should absolutely go for it. Looking at this from a lawyer’s perspective, I’ve yet to come across a company that couldn’t be listed,” says Koponen.

He points out that a company should, first and foremost, determine why it wants to go public: Do existing shareholders intend to sell their shares? Are they looking for liquidity for their investments? Or do they wish to secure additional funds for growth purposes? Where IPOs are concerned, the best investor story for a small or rapidly growing company is usually one that emphasises their desire for growth.

“The reason why the company chooses to make an IPO also affects the legal process to some extent,” explains Koponen.

A major joint training exercise before going public

The prospectus is a formal document with prescribed content that provides essential and sufficient details on the company. In addition to the representatives of the company and its owners, the company’s legal advisors, bankers from the arranging bank (with their own legal advisors) and the company’s auditor all participate in the drafting of the prospectus. After a company decides to go public, it will usually appoint a communications agency to assist in its marketing communications. The agency will also review the language of the prospectus to ensure that messages are aligned in all communication the company makes in relation to its IPO.

Koponen has found that even the smallest companies should set aside sufficient resources for drafting the prospectus. People who have the clearest, most comprehensive understanding of the company’s business should be involved in developing the investor story.

“There should be enough experience on hand to ensure that the prospectus is accurate. The prospectus should give analysts and investors a clear understanding of how the company has used its funds up to this point and how it intends to use the funds it will receive from investors,” says Koponen.

Working on a prospectus takes a great amount of time and can feel tedious, but Koponen emphasises that it is a major joint training exercise before the company goes public.

“What is important to understand is that the prospectus is, by nature, a liability document and not a sales document. A well-made prospectus protects the company’s shareholders and management from potential lawsuits,” he says.

The prospectus provides the basis for all other forms of investor communications, such as the marketing brochure and the presentations held at investor meetings. These are easier to digest than the prospectus.

An IPO process well begun is half done

According to Koponen, the IPO phase is an extremely intensive process. It requires a great deal of time, particularly from the company’s top executives, because the company’s management and board of directors are personally liable for the prospectus. This is because the prospectus must be approved by the company’s board of directors.

“The amount of effort required by the prospectus process comes as a surprise to most companies. In addition to the actual prospectus, the agenda also includes ‘early look’ meetings and ‘pilot fishing’ meetings, analyst meetings and investor and retail roadshows. Meetings with potential investors begin at an early stage of the process.

“I have yet to come across a company that found the IPO process easy, but no one has ever told me that it wasn’t worth it ,” says Koponen.

Proper preparation, however, goes a long way in helping a company make an IPO. Companies should practice operating as a listed company well in advance. Internal reporting, operating guidelines, agreements and administrative protocols can be brought up to the level required for listed companies well before the company actually becomes one. Companies should also assess whether their existing management and board need reinforcements while preparing for their IPO.

“During the IPO phase, it is vital for the company’s numbers to be in good order. The company’s management and the board must be capable of ensuring that the company’s financial reporting will remain above board,” states Koponen.

Koponen’s tips for companies preparing for an IPO

Have enough senior resources participate in drafting the prospectus.
Drafting a prospectus is a major joint training exercise on the company’s way to going public.
The company should operate as a listed company well before actually becoming one.
Internal reporting, operating guidelines, agreements and administrative protocols should be brought up to the level required for listed companies in advance.

Juha Koponen

Partner at Borenius Attorneys Ltd and head of its Capital Markets practice. Juha has almost 20 years of experience in capital markets transactions, corporate acquisitions and finance. Also qualified to practice law in New York.
Worked as a transactional lawyer at a Wall Street office for several years, as an Associate at Fried, Frank, Harris, Shriver & Jacobson LLP for three years (New York and London) and as Corporate Legal Counsel at Nokia Corporation focusing on both Finnish and American securities regulation.
All international legal directoriesthat rank lawyers and law firms, such as The Legal 500, The Best Lawyers, Chambers Global, Chambers Europe and IFLR1000, rank Koponen among the top capital markets lawyers in Finland.

Borenius Attorneys Ltd

Founded in 1911, Borenius Attorneys Ltd provides comprehensive services in all areas of corporate law.
Over 200 employees.
Locations: Helsinki, Tampere, St. Petersburg and New York.