‘Reduced Disclosure’ Prospectuses – Take A Fresh Look

One of the downsides of a listing on London’s Main Market is that it requires companies that want to list a further 20% or more of their share capital in any 12 month period to publish a further prospectus. The process of drafting and settling a prospectus with the FCA can be costly and time-consuming, and historically this has been a bit of a turn-off for growth companies that may want to raise equity capital frequently, or use their shares to make acquisitions.

Separately, the requirement for companies on the Main Market or AIM to publish a prospectus for most rights issues and open offers if they exceed €8m has arguably contributed to retail investors being cut out of fundraisings for smaller companies.

And established private companies seeking to raise capital from the public have always been restricted by the cost associated with publishing a prospectus, and have resorted to private equity, crowd-funding or mini bonds.

However, it’s worth re-examining the ‘simplified prospectus’ and ‘EU growth prospectus’ regimes, which allow qualifying companies to publish a much shorter prospectus.

The ‘Simplified Prospectus’

A company that has been listed on the Main Market or AIM for 18 months or more can publish a ‘simplified prospectus’. This can sometimes be overlooked when companies are at the planning stage of transactions, perhaps because its predecessor, the ‘proportionate disclosure’ regime, was of little practical use. The simplified prospectus regime should be of particular interest to the class of 2018/19, including a number of dual-listed companies, who will have come to the Main Market accepting the fact that a further fundraising may require a costly prospectus. For them, the process is now a lot quicker and cheaper than it would have been within their first 18 months of listing.

Whilst a simplified prospectus still has to be approved by the FCA, its content is significantly shorter than that required for a full prospectus. It needs to contain:

• A summary of the main contents of the prospectus
• Annual and half-yearly financials published in the 12 months prior to publication (which can be incorporated by reference)
• A concise summary of the information announced to the market over the 12 months prior to publication. In practice this can be a very brief summary and is not a complete reprint of all historical announcements
• A brief overview of the company and its business, but not the usual lengthy description in a full prospectus
• Risk factors, as would be required in a full prospectus
• A working capital statement and a ‘capitalisation and Indebtedness’ statement, as would be required in a full prospectus
• Certain boilerplate disclosure, although not quite so detailed as a full prospectus.

To date, the regime has been used for a number of secondary fundraisings, including the recent placings and open offers by Ted Baker, De La Rue and Warehouse REIT. However, the approach in most of these seems to have been to include almost as much information as would be required in a normal prospectus. Perhaps a view is being taken that, where there is extensive participation by retail investors, as would be the case with an open offer, a greater level of disclosure is prudent; additionally, it is likely that the simplified prospectus would not satisfy the disclosure requirements under US securities laws, so any offer into the US would require a greater level of disclosure. In these cases the use of the simplified prospectus will have enabled the companies to reduce disclosure a bit, but not considerably.

However, for a Main Market listed company issuing shares to a limited number of institutional or strategic investors, or an AIM or Main Market company making a smaller open offer or rights issue to a predominantly non-US shareholder base, the simplified prospectus regime could be a good choice.

The ‘EU Growth’ prospectus

Unlisted companies and companies listed on AIM could also consider the ‘EU growth’ prospectus, which is another form of simplified prospectus with reduced disclosure requirements. This option is not available to Main Market companies.

SMEs, AIM-listed companies with a market capitalisation of under €500m, and unlisted companies with no more than 499 employees who are seeking to raise up to €20m can consider this option. For these purposes, an ‘SME’ is a company with a market capitalisation of under €200m or which satisfies two of the following three criteria: fewer than 250 employees, a balance sheet not exceeding €43m and an annual net turnover not exceeding €50m.

In practice, AIM-listed companies are more likely to choose the ‘simplified prospectus’ over the ‘EU growth’ prospectus. However, the ‘EU growth’ prospectus may be of interest to private companies with strong brands that are seeking to offer equity to the public.