This article is very kindly contributed by Justin Walton, the former Head of Tax of John Laing, and now the founder of PLS. PLS provides outsourced tax leadership services to businesses needing regular access to a Head of Tax or Tax Director but without one in their business. Justin’s contact details are set out at the end of this article.
It may happen to you!
I am Justin Walton. When I joined my previous company in 2005, I would not have thought that 10 years later I would have helped the business to deliver three IPOs. I moved to John Laing from KPMG to broaden my tax experience, my experience of business and of the infrastructure sector and I had no expectation that I would get involved in working on an IPO during my time there, let alone three of them. Back then John Laing was listed on the London Stock Exchange as part of the FTSE 250. Within 18 months of me joining the group it was taken private. It remained private until early in 2015 when it returned to the London Stock Exchange. This IPO followed on from the launch of JLIF (John Laing Infrastructure Fund) in 2010 and JLEN (John Laing Environmental Assets Group) in 2014 and all three transactions completed within a little over four years.
It is my in-house experience as Head of Tax and, before that, as Tax Director working on these IPOs that I am sharing with you now. Why? Deals like this are not easy to work on and they require understanding, planning and a strong team. These are my own personal views but I hope that they help you if you are planning to set off along the IPO journey or currently have a transaction in progress.
Where to start
I believe that the three most important things to appreciate about handling the tax aspects of an IPO are that they are complex transactions, the process takes time and it requires excellent teamwork.
Complexity is inherent in an IPO. To start with there will be parties looking to exit their investment, parties looking to make an investment and then there is the group that is looking to be listed. All bases need to be covered ideally with somebody representing each of the parties from a tax perspective.
The clock starts on an IPO long before the go/no-go decision is taken. The business needs to be made ready for sale and the exiting investors will be looking at various options as part of their strategic planning. It is likely that they will run options right to the wire to get the best transaction they can. Once the IPO has happened there will be post-implementation actions to take.
Excellent teamwork is key. An IPO involves a myriad of people including the vendors, the in-house team, advisors and the new potential new investors with work streams cutting across them. Even just considering tax, the complexity of IPO transactions is such that several tax specialists should be involved.
My role is to make sure that we deal with the complexity well, that we work the transaction from an early stage through to the post completion stage and that all the internal and external tax specialists are playing the same tune so we complete the IPO successfully.
Preparing the ground
For me, the key to this stage is being close to the key decision makers within the business which you hopefully are and have been for some time. If you are close you have access to quality information at an early stage which means you can start planning early and put in place appropriate checks and balances along the way. You then need to maintain close contact with those decision makers throughout the process. Preparing early also means that you have time to ensure that the tax compliance and reporting of the business is up to date and that tax information is readily available to include in the transaction data room. Make sure that tax issues and risks are known, shared with key people and are dealt with or mitigated.
It is also important to have access to quality tax advisory support. Even where you have the strength in depth in your tax team to resource IPO work on top of people’s day jobs, it is really useful to get external perspective and ideas and importantly to get it from specialists with real working experience of such transactions. That said, procuring tax advisors for IPO work streams can be challenging. Which firms are best for your transaction? What does competitive pricing look like? How should the work be scoped, what must be included and what can be left out (i.e. handled internally)? What liability cover will the firms provide? Running a competitive procurement process can tease these things out and also help you find the tax advisory teams you will be happy working with over the extended period of time which an IPO covers.
The long haul
I like to start the process off with a kick-off meeting with the tax advisors shortly followed by a key parties meeting on tax. It is not possible, or sensible, to work in a tax vacuum. Having a tax to tax discussion first helps with clarity of thought and should enable you to ask the right questions of the non-tax members of the in-house team. A key parties meeting then helps in getting everyone on the same page in understanding the commercial imperatives, what can and cannot be done structurally and in handling interdependencies.
Phasing tax advisory work also helps. I mentioned checks and balances earlier as well as the myriad of people that are involved in an IPO. By phasing the tax advisory work it gives the tax lead the opportunity and time to ensure that the proposed corporate structure is and continues to be fit for purpose which is essential in the lead up to the issuance of the Prospectus.
As well as considering the tax aspects of the corporate structure and the step plan to deliver it, there is also work to do with the Reporting Accountants who would have their own tax team running the slide rule over the tax compliance status, issues and risks in the business and forecast working capital. Their reports are usually comprehensive covering all aspects of the business and good communication with their tax team is critical in ensuring no surprises. This is likely to be an iterative process and your work at the preparation stage should help in making it easier when it comes to working with the Reporting Accountant as you really need to know your business, the key tax judgements it makes and why.
This is the stage when it all happens and often things will need to be dealt with at short notice even when you are well prepared. Whether it is providing tax input for the Prospectus, helping senior business leaders with the tax aspects of their Q&A or ensuring that tax is appropriately addressed in the legal agreements, as you near the IPO itself there is plenty to do. Don’t forget, you also need to make sure that the transaction steps are being properly executed from a tax perspective.
After the event
Whilst you can breathe a big sigh of relief and celebrate when the IPO happens, that is not the end of things for the in-house tax team. All that work you did during the IPO process would have inevitably thrown up a list of things to do after the transaction. Maintaining that list along the way certainly helps in keeping some sense of perspective.
I have really enjoyed leading the tax work on IPOs as they have been amongst the most interesting experiences I have had as a tax advisor. Like with most things, having done something before certainly helps the next time you have to do it. An IPO for a business and its stakeholders is like a major family event such as a marriage or having children. Events like this happen infrequently but usually have long and far reaching implications. Like such events, they should be enjoyed at the time and reflected on with pride afterwards.
Justin Walton is the Founder and a Director of PLS which provides Outsourced Tax Leadership services to businesses needing regular access to a Head of Tax or Tax Director but without one in their business. Contact Justin at email@example.com on 0203 7419574 or on 07748 181494 if you would like an introductory meeting with him.