Public Companies and Equity Finance Law
Almost all businesses need to raise finance at some stage in their lifecycles. There are two principal ways of doing this: by borrowing money (debt finance) or by selling a stake (equity) in the business to an outside party - commonly referred to as equity finance.
One of the main ways for a privately-owned business to support faster growth is to convert itself into a public company and sell shares on a stock exchange – known as an Initial Public Offering (IPO). Once floated, the business becomes a public limited company (plc) and its shares are freely traded on the exchange where it was first listed.
Other forms of equity finance include Private Equity (PE), where private investment houses take a substantial stake in part or all of a business directly. PE houses always have an eye to future by seeking to get the business into a position so that its stake can be sold as part of an IPO, allowing it to repay the loans needed in the first place and realising a profit.
Public companies can raise further finance by undertaking a ‘secondary issue’, in which further shares are made available to the market.
All of these are complex financial transactions requiring numerous complex documentation to be compiled and agreed by lawyers acting for all sides raising any form of equity finance.
What does this type of lawyer do?
Lawyers working on IPOs and other equity finance transactions ensure that the process is legally valid and compliant with prevailing regulations while protecting the interests of their clients. In the case of an IPO, details of the share offer must be produced for scrutiny by potential investors – a prospectus. It is vitally important that the prospectus is factually accurate.
Trainees are likely to be involved on the more routine – but essential – aspects of the process, such as verification of the facts in the prospectus. Large volumes of information provided by the vendor will need to be scrutinised for anything which might affect the sale value, such as liabilities or outstanding debts.
With experience, associates become progressively more involved with the overall structure of the deal, as well as maintaining good relations between the client, the counterparty and their lawyers, as well as the array of other professionals (such as investment bankers) who are involved.
IPOs, PE investments and takeovers and other equity finance deals are often highly confidential until made public and invariably very high profile – so there is great pressure as deadlines approach. While it is part of the attraction for many of those working in this area, it is important to keep calm and be prepared to work long, hard hours. Given the global nature of business, there may well be unsocial hours needed to communicate with colleagues and contacts in other time zones.
Another consequence of the deals being large and technically demanding, is the need to work in close-knit teams. Several lawyers and others will usually work in any one firm on a major IPO; there is also the need to form productive working relationships with a range of other professionals, from the lawyers working for the other side to the investment banks, accountants and other professionals advising on the deal. This, again, can be highly stimulating but requires high levels of stamina, self-confidence, and strong powers of recall.
It is vital to uphold commercial confidentiality and ensure that each party only gains access to the information to which they are entitled. The client’s interests must always be upheld, but the law and applicable regulations must also always be observed.
What skills are required?
This practice area requires very strong analytical skills, including the ability to confidently handle large volumes of quantitative data. Taking the relevant elective in the LPC will both help you with getting a start in practice, and demonstrate your commitment.
You will be networking constantly with other driven professionals, so self-confidence and the ability to project a professional image at all times are essential.
Things can get very stressful as a deal builds to a climax, so as well as high energy levels, you will need the capacity to stay calm under intense pressure.
While the fallout from the recession can still be felt in the City, since 2014 the value of companies becoming public has grown significantly and looks set to remain more stable. And with bank financing still limited in its availability, companies are looking to other sources of funding such as private equity which was badly affected at the beginning of the recession but has also seen work increasing.
The student guides to careers in law have useful introductory sections:
- Chambers Student Guide: http://www.chambersstudent.co.uk
- Lawcareers.net: http://www.lawcareers.net
- Target Law: https://targetjobs.co.uk/career-sectors/law-solicitors
It is important to follow developments in corporate finance: