The Italian initial public offering (IPO) market experienced its first successful season during the 1990s, in large part owing to the privatisation of state-owned industrial and financial companies such as Eni, Enel, Leonardo SpA, Autostrade, IMI, the Instituto Nazionale Previdenza Sociale, INA and Credito Italiano.
A second wave of IPOs characterised the market in the 2000s, as a number of internet companies, public utilities, oil companies and fashion brands decided to go public.
The global financial crisis affecting capital markets, starting in 2007, and the ensuing economic downturn suffered at the national level, especially during 2011 and 2012, resulted in a significant reduction in the number of IPOs launched on the Italian market until 2013, which marked the beginning of a slow but steady recovery, in the wake of a new privatisation pipeline announced by the Italian government.
Although 2017 has seen a brilliant performance of the Italian IPO market, led by the IPO of the Italian tyre manufacturer Pirelli (which amounted to approximately €2.6 billion and represented the largest IPO in Europe during 2017), IPO activities significantly slowed down, especially in the second half of 2018, when several equity capital market transactions were withdrawn or cancelled because of the markets' generally higher volatility. This trend has been only partially offset by the increasing number of small and medium-sized enterprises (SMEs) seeking access to capital markets through listing on multilateral trading facilities such as AIM Italia (AIM).
As at 28 December 2018, the Italian primary IPO venues (the Online Stock Market (MTA) and AIM) included 357 listed companies, with an aggregate market capitalisation totalling approximately €543 billion (33.5 per cent of GDP), with a decrease of 15.7 per cent as compared with the aggregate market capitalisation registered at the end of 2017.7
The Italian Securities and Exchange Commission (CONSOB) is an independent public supervisory authority that regulates financial markets and listed companies, and is responsible for authorising the publication of prospectuses in the context of IPOs.
Borsa Italiana SpA (Borsa Italiana), which belongs to the London Stock Exchange Group, is a private company that organises and manages the Italian Stock Exchange, and is responsible for establishing the relevant admission requirements.
II GOVERNING RULES
The governing rules are as follows:
- Legislative Decree No. 58 of 24 February 1998, as subsequently amended and supplemented (the Italian Financial Act) (in particular, Articles 94 to 101);8
- CONSOB Regulation No. 11971 of 14 May 1999, as subsequently amended and supplemented (the CONSOB Issuers Regulation) (in particular, Articles 3 to 13);9
- the Italian Stock Exchange Regulation (in particular, Articles 2.1.1 to 2.2.3), together with its Implementing Instructions (in particular, Titles IA.1 and IA.2);10
- Regulation (EU) No. 2017/1129 of 14 June 2017 (the New EU Prospectus Regulation) and the relevant implement regulations;11 and
- the Self-Regulation Corporate Governance Code approved by Borsa Italiana in July 2015 (the Corporate Governance Code), which sets forth the principles, guidelines and recommendations listed companies should abide by in the establishment and maintenance of their corporate governance structure.12
i Main stock exchanges
Borsa Italiana currently organises and manages several trading venues catering to various types of issuers and investors.
The main regulated markets of the Italian Stock Exchange specifically aimed at IPOs are the MTA and the Market for Investment Vehicles (MIV).
The MTA is a regulated market for shares, convertible bonds, warrants and options rights.
The shares listed on the MTA can be classified as blue-chip, star or standard, depending upon the size of the relevant issuer as well as the specific respective admission requirements to be met.
In particular, the MTA is composed of three different segments:
- the blue-chip segment, dedicated to companies with capitalisation exceeding €1 billion;
- the STAR segment, dedicated to medium-sized enterprises with capitalisation between €40 million and €1 billion, which, to remain listed on this segment and benefit from its advantages, undertake to comply with stringent requirements in terms of liquidity, transparency and corporate governance; and
- the Standard segment, dedicated to all other companies with capitalisation ranging between €40 million and €1 billion.
The MIV is a regulated market reserved for a specific type of issuers such as, inter alia, investment companies and real estate investment companies, private equity funds, closed-end real estate funds and special purpose acquisition companies (SPACs).
Multilateral trading facilities
The main multilateral trading facilities of the Italian Stock Exchange are AIM and the Global Equity Market (GEM).
AIM is a multilateral trading facility dedicated to Italian SMEs with high growth potential.
GEM is a multilateral trading facility dedicated to the trading of shares of non-Italian issuers already traded on other regulated markets in EU Member States or in other Organisation for Economic Co-operation and Development member countries, which can be admitted without being required to publish a prospectus.
ii Overview of listing requirements
The Italian Stock Exchange Regulation provides for different sets of listing requirements depending upon the exchange the relevant company is applying to.
To be eligible for the admission to listing, an issuer must be duly incorporated pursuant to the relevant laws of its country of incorporation and conduct business operations capable of generating revenues directly or through its subsidiaries, and in conditions of management autonomy.
Companies applying for admission to listing on the MTA are required to comply with the following requirements:
- expected minimum capitalisation of €40 million (and, with regard to the STAR segment, lower than €1 billion);
- at least three years of establishment prior to the relevant application;
- preparation of financial statements – also on a consolidated basis – in accordance with International Accounting Standards or International Financial Reporting Standards as consistently applied in the European Union, and reviewed by external auditors for the past three financial years;
- adoption of a management control system and a three-year business plan;
- implementation of a corporate governance structure complying with the specific rules set forth in the Italian Financial Act and the recommendations contained in the Corporate Governance Code; and
- minimum free float of 25 per cent (provided that the Italian Stock Exchange may grant the admission to listing even with a lower free float as long as a regular market functioning is ensured) or, with regard to the STAR segment, 35 per cent.
The listing requirements on the MTA do not differ significantly from those applicable to the Main Market of the London Stock Exchange (even though, in the United Kingdom, the shares must have an expected minimum aggregate value equal to only £700,000, provided that the UK Listing Authority may admit securities of lower aggregate value if it is satisfied there will be an adequate market for such shares).
However, the listing rules of the main US exchanges such as Nasdaq and the New York Stock Exchange provide for more stringent liquidity requirements as well as for the satisfaction of at least one of certain financial standards, respectively based on earnings, capitalisation on cash flow, capitalisation on revenues or assets on equity over a given time prior to the admission to listing.
The Italian Stock Exchange Regulation does not provide for any minimum or maximum capitalisation thresholds in relation to companies listing on AIM. Moreover, the AIM rules do not mandate any minimum duration or the adoption of any specific corporate structure.
The only requirement expressly provided for companies listing on AIM is represented by a minimum free float of 10 per cent (to be divided among at least five professional investors or 10 investors, including two professional investors).
A pivotal element of the listing on AIM is the appointment of the nominated adviser (Nomad), an investment bank or financial intermediary required to assist the relevant issuer during both the admission process and the entire time the company continues to be listed.
During the preliminary stage of an IPO, on AIM, the Nomad evaluates the potential appreciation of the company by the investors and, on the basis of this appraisal, advises the company on the actual feasibility of a listing process.
Following the admission to AIM, the Nomad carries out guidance by supporting the relevant issuer as long as it remains on the market, and ensuring its compliance with the market rules and requirements.
The procedure for admission to AIM is flexible and based only on an admission document and audited financial statements for one financial year.
The admission document contains general information on the company's business, management and shareholders, and its key financial information, but does not present the level of detail or the degree of complexity of a prospectus.
iii Overview of law and regulations
With specific reference to IPOs, the Italian Financial Act contains the general provisions governing the offering of financial instruments to the public and, in particular, sets forth general principles and rules concerning:
- the preparation and contents of the prospectus;
- the prospectus liability regime;
- the validity of the prospectus;
- CONSOB's powers in relation to the envisaged offering;
- the exemptions from the obligation to publish a prospectus; and
- the advertising activities related to the envisaged offering.
The CONSOB Issuers Regulation is designed to implement the Italian Financial Act's aforementioned general rules and, therefore, governs at a detailed level the authorisation process of the prospectus before CONSOB.
The EU Prospectus Regulation sets forth in detail:
- the format and the minimum information requirements to be included in the prospectus;
- the ways in which certain information may be incorporated by reference in the prospectus;
- the methods of publishing the prospectus; and
- the methods of disseminating advertisements in respect thereof.
The Italian Stock Exchange Regulation (together with its Implementing Instructions) includes, inter alia, all the provisions concerning:
- the admission requirements and procedure;
- the roles and tasks of the sponsor and the specialist;
- the suspension or revocation of listing; and
- the participation of market operators.
CONSOB constitutes the central supervisory authority in the context of the IPO process and pursues the twofold objective of protecting the investors while ensuring the efficiency, transparency and development of the domestic capital markets.
In the context of an IPO, CONSOB reviews the prospectus and authorises its publication.
Pursuant to Article 94(1) of the Italian Financial Act, anyone intending to carry out a public offering for sale or subscription of securities is required to publish a prospectus before carrying out such offer. The publication of the prospectus is subject to CONSOB's prior approval.
CONSOB is therefore required to verify the completeness of the prospectus and to ensure that all of the information contained therein is consistent and comprehensible. The prospectus must contain – in a manner that is easy to analyse and understand – all the information necessary for prospective investors to make an informed assessment of the relevant issuer, the securities being offered and the relevant rights attached thereto.
CONSOB generally monitors the compliance of the entire IPO process with the Italian legal and regulatory framework, and has enforcement and sanctioning powers in the event of any breaches.
III THE OFFERING PROCESS
i General overview of the IPO process
Expected time frame
The IPO process covers a time span of approximately three to six months.
The introductory phase of an IPO entails activities such as corporate restructuring (where necessary), as well as the definition of the business plan and the implementation of International Accounting Standards in the preparation of the financial statements. Moreover, during this stage, the relevant issuer should select and appoint its financial and legal advisers and the underwriters, set up a data room for the due diligence activities to be carried out by its legal advisers and the underwriters, and start a preliminary dialogue with CONSOB and the Italian Stock Exchange.
The duration of this first stage depends upon a number of factors, including the initial corporate structure of the issuer and the need to create a sufficiently strong equity story prior to commencing the actual IPO process.
During the second stage of the IPO, the relevant issuer drafts the prospectus, together with its legal advisers and subject to review by the underwriters and, should the IPO entail an international offering, the international offering circular.
This stage generally takes two months and ends with the formal filing of the prospectus with the Italian Stock Exchange. The practice of making an informal filing of the prospectus in advance has become increasingly common, as it enables the issuer to adjust the document in accordance with the regulator's preliminary indications prior to the formal commencement of the approval and admission process.
Following the formal filing of the prospectus, CONSOB may declare it to be incomplete within 10 business days; the issuer or offeror must then supplement or complete the documentation within 10 business days following the receipt of CONSOB's requests.
Once the documentation has been completed, a maximum term of 70 business days will begin to run, during which CONSOB may request additional information if reasonable.
Despite the rather long regulatory terms (as the approval process may take up to 95 calendar days from filing), in practice, shorter terms may be agreed with CONSOB, subject to all the documentation being prepared in a complete and accurate manner, and the issuer or offeror's promptness in providing the additional information the regulator may request.
As a general estimate, the approval process may take six to 10 weeks from the formal filing of the prospectus.
Once the authorisation to publish the prospectus has been obtained, the issuer generally executes the underwriting agreement concerning the retail tranche of the offering, which commences the following week on the basis of a previously approved price range.
In tandem, the issuer starts its roadshow activities and the institutional underwriters engage in the book-building activities, which will result in the determination of the final price of the shares (by taking into account, among other things, the quality and quantity of the orders received from institutional investors, and the quantity of orders received from retail investors) and the execution of the institutional underwriting agreement.
Trading generally starts in the week following the closing of the institutional placement.
The actual placement and admission process then takes approximately three weeks.
Global coordinators constitute the first tier of the underwriting syndicate of the IPO and are selected by the issuer to act as coordinators for public and institutional offerings.
In such capacity, in addition to their commitment to purchase, or subscribe for, a predetermined quantity of the shares being offered, they:
- generally oversee the IPO process;
- coordinate the underwriting syndicate;
- advise the company on, among other things, the offering strategy, timing, business preparation and compliance with exchange listing requirements;
- provide the company with information on market conditions and their impact on the offering on an ongoing basis; and
- estimate demand for the company's shares.
The issuer generally selects from among the global coordinators one bank or intermediary to act as stabilisation agent, engaged to carry out stabilisation activities, such as the exercise of the overallotment or greenshoe options, to mitigate the underpricing risk following the admission to listing.
Moreover, as far as the retail tranche of the relevant offering is concerned, one global coordinator is also appointed to act as the party in charge of the placement, which may be held liable for any material false information or omissions contained in the prospectus, unless it proves to have adopted a certain standard of diligence and care in the review of such document.
Bookrunners represent the second tier of the underwriting syndicate.
In this capacity, they:
- undertake to purchase, or subscribe for, a given amount of the shares;
- market the IPO to institutional investors; and
- carry out research on the issuer through their independent research departments.
The sponsor is a financial intermediary who supports the issuer in connection with its admission to listing on the MTA and in its relationship with the Italian Stock Exchange during the entire IPO process.
In particular, upon submission to the Italian Stock Exchange of the application for the admission to listing on the MTA, the sponsor is required to:
- disclose any relationship (credit, shareholding, etc.) existing between the group of the issuer and its material shareholders and the sponsor's group;
- confirm that the Italian Stock Exchange has been provided with all the data and information gathered while performing its activities;
- declare that the managing and supervisory bodies of the issuer have been adequately informed as to the duties and obligations arising from listed company status;
- confirm the adoption by the issuer of a management control system consistent with the one described in the relevant memorandum; and
- release a specific statement concerning the provisional data, estimates and forecasts included in the business plan filed with the Italian Stock Exchange upon submission of the application.
The sponsor also carries out post-listing activities, such as the publication of at least two financial analyses on the relevant issuer per year, as well as further analyses upon the occurrence of extraordinary corporate events, and the organisation of meetings between the issuer and the financial community at least twice a year.
The specialist is a financial intermediary with market-making functions that undertakes to support the liquidity of one or more equity securities.
The appointment of a specialist is mandatory for companies seeking admission to listing on the STAR segment of the MTA and on AIM.
The role of the company's legal advisers in an IPO is to provide guidance on the legal aspects of the offering such as legal structuring and timing, compliance with securities and corporate laws, and obtainment of governmental approvals.
Moreover, lawyers assist in coordinating the due diligence activities and draft the offering documentation, as well as negotiating the underwriting agreements drafted by the underwriters' counsel.
Legal advisers are also involved in the preparation of other documents, including, without limitation, publicity memoranda, research report guidelines, listing applications, legal opinions, etc.
External auditors support the issuer throughout the entire IPO process.
The typical documents prepared by independent auditors in an IPO include, among other things:
- reports on the issuer's financial statements;
- an opinion on the reasonableness of the basic assumptions made, the correct application of the methods used and the appropriateness of the accounting policies adopted in the preparation of pro forma data;
- a report on the procedures followed by the issuer in preparing its business plan;
- a report on the estimates and forecasts included in the prospectus; and
- various comfort letters addressed to the sponsor and the underwriters.
The prospectus must be drawn up in accordance with the schemes annexed to the EU Prospectus Regulation, and is composed of three different parts:
- the registration document, which contains all the information on the issuer;
- the note on the financial instruments, which contains all the information on the shares, the offerors and the placement agents; and
- the summary note, which contains the main information on the transaction that is most relevant for the investor in non-technical language.
To reduce overall processing times, an issuer may decide to separately file these sections, thereby obtaining separate authorisations.
In addition to the prospectus, an issuer is obliged to file a number of additional documents with CONSOB and the Italian Stock Exchange, including:
- a copy of its current by-laws, accompanied by a copy of the by-laws to enter into force upon admission to listing;
- the corporate resolutions related to the issuance of the shares and the application for the admission to listing;
- the auditors' report on the latest financial statements;
- a memorandum describing the management control system; and
- a three-year business plan.
Upon the occurrence of a new event, or detection of a material error or inaccuracy during the period lapsing between the publication of the prospectus and the final closing of the offering, the relevant issuer will be obliged to publish a supplement to the prospectus, subject to CONSOB's prior authorisation.
The approval process for a supplement to the prospectus is designed to allow for prompt publication thereof and lasts for up to seven business days.
Upon publication of a supplement to the prospectus, any investor who has already agreed to purchase, or subscribe for, the shares being offered may exercise a withdrawal right within the following two business days.
An international offering circular (IOC) is the document used by the underwriters for purposes of the international institutional placement of the shares.
Its contents must be consistent with the information contained in the prospectus, but the IOC is not subject to any specific approval by CONSOB or the Italian Stock Exchange.
The main contractual documents to be entered into in an IPO are the engagement letter of the global coordinators, the retail underwriting agreement, the institutional underwriting agreement and the sponsorship agreement.
ii Pitfalls and considerations
A company going public should carefully consider:
- the engagement of first-tier advisers and underwriters, as planning, preparation and deep knowledge of the market are key factors for the success of an IPO;
- the ongoing compliance monitoring of the IPO process to avoid any sanctions (including any delays or suspension of the offering) and the consequential reputational harm; and
- any information to be disclosed in the prospectus, including risk factors and forward-looking statements, as the offerors (companies and selling shareholders) are subject to a strict prospectus liability regime, pursuant to which they are liable for losses suffered by an investor who has relied on the truthfulness and completeness of the information if such information turns out not to have been truthful or complete, subject to the burden of proof of having adopted 'all diligence' to ensure that the information was true and consistent with facts.
iii Considerations for foreign issuers
The Italian legal and regulatory framework does not provide for a different procedure or for specific rules applicable to foreign issuers seeking admission on the Italian Stock Exchange.
However, the Italian Stock Exchange Regulation requires foreign issuers incorporated in non-EU countries to prove the absence of any hindrances to their substantial compliance with the Italian Stock Exchange Regulation, its Implementing Instructions or any other laws and regulations applicable to them in respect of the information to be made available to the public, CONSOB and the Italian Stock Exchange.
Moreover, foreign issuers in general are required to give evidence as to the absence of any hindrances to the exercise of all the rights attached to the securities to be listed.
IV POST-IPO REQUIREMENTS
Listed companies are subject to a comprehensive and broad array of post-listing obligations and requirements in terms of disclosure, reporting and corporate governance.
i Disclosure obligations and requirements
A company that applies for the admission to listing is required to adopt specific procedures for the internal treatment and the external disclosure of documents and information concerning its business, with a specific focus on price-sensitive information.
The legal regime concerning treatment and disclosure of price-sensitive information has recently tightened because of the entry into force of Regulation (EU) No. 596/2014 of 16 April 2014 (the Market Abuse Regulation (MAR)), which has introduced stricter requirements to prevent market manipulation conduct.
Moreover, listed issuers are subject to specific rules in relation to, among other things:
- the disclosure of transactions involving its shares, any financial instruments linked thereto and, following the implementation of the MAR, any of its listed debt financial instruments carried out by persons having access to price-sensitive information such as directors, statutory auditors or key officers;
- the disclosure of related-party transactions;
- the disclosure of material shareholdings and any changes thereto;
- drawing up, maintaining and updating an insiders list; and
- financial reporting.
ii Corporate governance requirements
The Corporate Governance Code sets out high corporate governance standards for listed companies in line with international best practices.
The Italian Financial Act sets out the 'comply or explain' principle, requiring listed companies to disclose information about their compliance with the Corporate Governance Code in an annual formal report on corporate governance.
The Corporate Governance Code recommends that the entire board of directors be entrusted with the primary responsibility for determining and pursuing the strategic targets of the company, as well as:
- the examination and approval of the strategic, operational and financial plans of the company;
- the evaluation of the general performance of the company;
- the resolutions on material transactions; and
- the periodic evaluation of the performance of the board and its committees.
In light of the above, directors are designated as either: executive, namely, those vested with management powers; or non-executive, whose role is to enhance the board's discussion and to provide an independent unbiased opinion on the proposed resolutions, particularly those where the respective interests of executive directors and shareholders may not be aligned, such as executive director remuneration, and the internal control and risk management systems.
Although independence of judgement is required of all directors, certain board members must meet specific independence requirements set out in the applicable laws and regulations, and recommended by the Corporate Governance Code.
The Code recommends the division of key management competences, particularly those of the chair and CEO. Where these two offices are held by the same person, the Code recommends the appointment of a 'lead independent director' to act as the representative of non-executive and independent directors within the board.
The general meeting appoints the board through a slate election system. At least one director must be appointed from the minority slate that obtained the highest number of votes, and the relevant director must be free of any direct or indirect link with the shareholders who filed or voted in favour of the slate that obtained the majority of votes.
Gender balance must be on a ratio of at least 1:3 (either way).
Further, the applicable laws and regulations, and the Corporate Governance Code, require that there be a minimum number of independent directors on the board.
The Code also requires the board of directors to establish internal committees, consisting mostly of independent directors (except in special cases):
- the control and risk committee, which supports the analysis and decisions of the board of directors relating to internal control and risk management, and the approval of periodical financial reports;
- the remuneration committee, which submits proposals or opinions to the board of directors concerning the remuneration of executive directors, and for the periodic assessment of the adequacy, the overall consistency, and the actual implementation of the remuneration policy for directors and key managers of the company; and
- the appointments committee, which formulates opinions and recommendations to the board regarding the board's size, composition and professional skills, and submits specific proposals if the company approves the adoption of an executive director succession plan.
The functions of the appointment committee and the remuneration committee may be joined under one single committee.
Committee members are elected from among the members of the board of directors. As a general rule, internal committees have exclusively advisory and propositional duties, as any resolution concerning the matters falling within their respective competences should in any case be adopted by the board of directors.
The board of statutory auditors is entrusted with supervisory duties over:
- the compliance of the management of the company with general law and by-laws;
- the observance of principles of good management;
- the adequacy of the company's organisational structure as well as the adequacy and effectiveness of the internal control and risk management system; and
- the actual implementation of corporate governance rules as provided by the Corporate Governance Code.
The Board of Statutory Auditors is composed of three or five statutory auditors, appointed by means of a slate voting system. The chair of the board must be a member elected from the slate filed by the minority shareholders, and must be free of any direct or indirect link to the shareholders who filed or voted in favour of the slate that obtained the majority of the votes. Again, gender balance must be on a ratio of at least 1:3 (either way).
Statutory auditors must meet certain stringent professionalism, independence and integrity requirements.
V OUTLOOK AND CONCLUSION
Following the downwards trend in 2018, the outlook on the IPO market for 2019 seems slightly more positive. If, on the one hand, the current market situation may push certain family-run companies to evaluate delisting options, on the other hand, a fair number of IPOs are currently rumoured or have otherwise already been formally announced. Moreover, certain transactions pulled from the market in 2018 while at an advanced stage of execution, may be quickly re-ignited to exploit any favourable market windows in the forthcoming months.
Even though IPOs have partially lost their original industrial fundraising purpose, and the current low-rates environment companies may still find it more convenient to seek financing through debt capital markets, IPOs may still retain their appeal as an exit strategy for private equity investors, especially in the case of companies generating revenues on a global basis and, therefore, only partially affected by domestic market disruptions.
Another positive element is represented by SPACs, which have now become widely accepted as an alternative instrument to pursue listing objectives, with benefits in terms of both transaction timing and costs.
Moreover, the scope extension of the favourable tax regime applicable to investments in equities under the individual savings plans should represent an additional incentive for SMEs to go public, as retail investors would benefit from reduced tax rates on their investments in equity portfolios across several additional industries (including real estate companies, originally excluded from the exempted equities basket).
A number of successful, family-run SMEs, which still represent the core of the Italian economic system, may evaluate an IPO process in light factors such as, inter alia, succession issues in key management and executive roles, undercapitalisation, internationalisation and business expansion plans, and a renewal of fragmented shareholders' bases. Finally, the new offering and listing instruments provided under the New EU Prospectus Regulation (such as the Growth Prospectus for SMEs) may simplify the IPO process and incentivise companies seeking funds to pursue an IPO path.
The reprisal of the Italian IPO market is also expected to involve new sectors in addition to key national industries, with specific focus on new realities such as fintech companies (as attested by the forthcoming IPOs of Nexi and SIA, leading companies in the electronic payments industry).
1 Enrico Giordano and Federico Amoroso are partners at Chiomenti.
2 Press release published by the Italian Stock Exchange on 30 December 2014.
3 Press release published by the Italian Stock Exchange on 30 December 2015.
4 Press release published by the Italian Stock Exchange on 30 December 2016.
5 Press release published by the Italian Stock Exchange on 29 December 2017.
6 Press release published by the Italian Stock Exchange on 28 December 2018.