In the context of an initial public offering, a company undertakes a significant transition to become a quoted company. Topics such as disclosure, transparency and reporting obligations require the development of new systems and procedures which will be a significant adjustment for boards and senior leadership teams. In the context of increased private capital investment but limited opportunities for shareholders to realise their investments, alternatives and interim steps to the traditional exit route of an IPO (amongst other options) bear consideration.
The UK has launched the concept of PISCES, a “Private Intermittent Securities and Capital Exchange System”. We have set out below a brief introduction to PISCES and why it may be an option either to solve an immediate need for shareholder liquidity or as part of a longer-term strategy en route to an IPO.
What is PISCES?
PISCES is a regulated secondary market (i.e. existing shares only) operated by an operator such as the London Stock Exchange PLC, which is open to institutional investors, employees of the company and certain classes of sophisticated investors.
How does PISCES work?
PISCES is a multilateral system which provides periodic trading windows and therefore periodic liquidity to shareholders.
Companies on PISCES may set a minimum price at which trades in their shares can take place. This will protect against the value of companies being eroded by use of the system.
How is PISCES different to an IPO?
PISCES is not a replacement for an IPO. Rather it is intended to provide greater liquidity for private companies on a periodic basis within a limited group of investors (i.e. institutional and professional investors and employees of the company). There is, therefore, the ability to restrict access to the company’s shares and information about the company. Companies may also decide to restrict the eligibility of certain types of investor to buy their shares.
The typical disclosure, transparency and reporting obligations associated with an IPO are significantly reduced, leaving management with greater time to focus on the business. Yet, certain information must be disclosed to potential investors in advance of a trading window which allows the company to prepare for the higher level of reporting and disclosure requirements of a public company. There will be no continuous disclosure requirement.
Which companies can join PISCES?
PISCES will be open to any company, wherever incorporated, provided that its shares are freely transferable and that it does not already have shares admitted to trading on any public market.
What are the key use cases for PISCES?
It is envisaged that PISCES will be advantageous to a number of groups, including:
- existing shareholders seeking liquidity without the need for a liquidity event (e.g. an M&A process), providing a managed way for investors to recycle their capital into the next investment;
- third party investors who wish to gain exposure to a wider remit of private companies prior to IPO but may not be willing to invest in wholly illiquid private companies and therefore value the periodic trading windows; and
- companies wishing to increase the value of employee share option awards through increased likelihood of realising value outside of liquidity events and employees seeking to realise value from employee share option awards.
Why could PISCES help prepare for IPO?
Transitioning from a private company to a public company in a single transaction can be disruptive as it demands significant management time and attention. This can be difficult for earlier stage companies or companies unaccustomed to public markets.
Instead, PISCES offers a structure for potential liquidity at an earlier stage in a company’s growth journey and allows a company to develop its engagement with the requirements of the public markets in an evolving fashion. Early-stage investors have the opportunity to realise their investment and new investors can support the company’s growth, reducing pent-up demand for a liquidity event that may otherwise be required to happen at an inopportune moment.
If you would like to discuss whether PISCES would be suitable for your company, please contact David Lee, Nigel Gordon or Mufit Arapoglu in our capital markets team.
