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How do I invest in a company about to list on the stock market?

Fredrik Johansson, Head of Investments, Private Wealth  Management & Family Office
Fredrik Johansson, Head of Investments, Private Wealth Management & Family Office

Last year was a record year for IPOs, in new listings on the Swedish stock exchange lists as well as the number of companies SEB helped to get listed. Customers showed great interest and had many questions about subscribing for shares in listings in which we participate. Fredrik Johansson, our head of investments, explains the listing climate and how you can participate.

At present, it is more attractive for companies to go public and get listed on the stock exchange rather than selling to a competitor or a venture capital company. The stock market has been very strong in recent years. With today’s low interest rates, many people choose to invest in equity shares and funds instead of leaving the money in a savings account. The willingness to take risks may continue to be high, making it still favourable for companies to raise capital via the stock exchange.

Volvo Cars - one of Sweden’s largest IPOs

When SEB last year helped Volvo Cars get listed on Nasdaq Stockholm, it was an exceptional event. The IPO was one of the largest in Sweden’s financial history. We rarely see listings of this type of a larger company that receives such a significant share of the index on the Stockholm Stock Exchange. But last year was a record year for listings, both in cases where SEB helped in the listing process and in the number of total listings in Sweden and globally. At the turn of the year, some 3,000 companies, including 116 in Sweden, had raised approximately SEK 5.13 trillion through IPOs (Source: Dealogic).

One trend we see is how more and more companies with digital solutions as well as companies in renewable energy are choosing to be listed. Another trend is the Special Purpose Acquisition Company (SPAC), which lists in order to raise capital to be able to buy an unlisted company.

At SEB, we and our Equity Capital Markets (ECM) and Corporate Finance departments have a tradition of helping large companies in their listing processes, but the pressure and interest in listing has meant we now also participate in smaller companies’ listings. This gives you as a customer access to interesting IPOs and the opportunity to subscribe for shares already when the company is listed. Of the 36 companies of a larger nature that went public last year, SEB was an advisor to 14 of them.

SEB helps companies through the entire listing process

Various departments of SEB’s organisation and expertise offer help with valuation, dialogue with Nasdaq or other stock exchanges, prospectus writing, company presentations, discussions with investors and much more. Several weeks before the listing, the company in question sends out an Intention to Float (ITF) – a press release stating the company plans an IPO. By then, work with the listing has been ongoing for months together with lawyers and advisers to show the company meets the requirements necessary to be listed on the stock exchange. When the company is listed and goes from private to public, it will adhere to very different requirements for regulations and transparency, at the same time as it will be easier to trade – an unlisted holding is much more difficult to sell.

When a company is listed, a listing prospectus is also prepared, which forms the basis for decisions for an investment in the listing. In the prospectus, you will find details about the company and its operations as well as a description of potential risks. In addition, you can find practical instructions regarding the listing such as price/minimum investment size and through which banks you can subscribe for shares in the company. Shortly after the prospectus is published, the possibility of placing orders for both institutions and private individuals opens up. The order books are usually kept open for 1-2 weeks. Sometimes the subscription period can close prematurely, so it is good not to wait until the last day if you are interested.

Price per share is set either as a fixed price before listing, or as an interval. Depending on demand for the share before the company is listed, the price ends up in the upper or lower part of the interval when listed.

The listing company itself decides how the allocation is to be distributed, and often the company prefers a large proportion of long-term investors, such as institutions. If many people are interested in the share, the listing can be oversubscribed and you will receive fewer shares than you have applied for as more people will share the pie.

On the day of listing, those who signed up will receive shares in the company according to their allotment in connection with the opening of trading in the share.

A reputable company that is listed historically often sees some price increase in connection with the listing. Some who subscribed for the share have a more short-term perspective on ownership and want to capture the potential rise, others think more long-term. However, as not all companies see an initial price increase in connection with listing, it is smart to always have a longer investment horizon for shareholdings, regardless whether subscription takes place prior to a stock exchange listing or if a purchase is made when the company is listed. Companies receive official investment recommendations and analyses only a few weeks after listing. This means that as a private individual, it can be difficult to get an idea of the company’s value in connection with the listing.

The value of a share can both increase and decrease. It is not certain you will get back your invested capital. Complete information about a listing is given in the prospectus which, after its publication, is usually available on each company’s website.

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