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Exits through AIM: the impact of the Prospectus Directive14/12/2005. Source: SJ Berwin. Victoria Kershaw
 Changes to the prospectus regime in the UK due to the implementation of the Prospectus Directive will have implications for private equity companies, says SJ Berwin. Those wishing to exit or partially exit their investments by the increasingly popular route of an AIM flotation should be aware of its impact.
The Directive requires a prospectus to be issued whenever securities over a certain amount are being offered to the public, or where any securities are admitted to trading to an EU regulated market. The London Stock Exchange opted in 2004 to relinquish AIM’s regulated market status precisely to limit the application of the many directives emanating from Europe. This is in keeping with the LSE’s wish to maintain a more flexible regulatory approach for growing companies.
However, AIM cannot entirely escape the ambit of the Directive. If an AIM flotation involves an offer to the public, a prospectus will still be required. The Directive requires that a prospectus is approved by a ‘competent authority’, which in the UK is the UK Listing Authority. This represents a major departure for companies raising funds through the AIM market, as previously there was no requirement to have an Admission Document vetted in advance – one of the perceived advantages of the AIM regime.
Certain limited exemptions exist from the requirement to publish a prospectus. The Directive does not apply to securities included in an offer where the total consideration of the offer is less than €2.5 million (over a 12 month period). The current regime requires a prospectus for offers in excess of £100,000, so this represents a relaxation. Exemptions also apply where the offer is made only to “qualified investors”, or to fewer than 100 persons.
One important question that has arisen in the context of an AIM flotation is whether an issuer can make use of the qualified investor exemption in relation to issues of securities to discretionary brokers who subsequently allocate the securities to their retail clients. The industry was concerned that this could amount to a public offer and trigger the requirement to publish a prospectus, which would add significantly to the costs and timetable of an AIM flotation. Fortunately, the Treasury has clarified this issue in the final regulations implementing the new regime which were published at the end of May.
The final regulations make it clear that where a broker has the authority to accept offers of shares on his client’s behalf without reference to that client, the offer will be treated as being made to the broker as a qualified investor. This development has been welcomed by the industry, as the similar exemption under the existing regime is heavily used in relation to secondary fundraisings and associated exits by private equity houses.
Victoria Kershaw is a professional support lawyer to the corporate finance department at SJ Berwin LLP.
She can be contacted on:
T +44 (0)20 7533 2555
E victoria.kershaw@sjberwin.com
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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