Pre-IPO Due Diligence: The Legal, Financial and Commercial Trifecta

Pre-IPO sponsor due diligence operates on three parallel tracks, and the sponsor’s liability under SFC Code of Conduct Paragraph 17 means that gaps on any of the three can delay or derail a listing. Legal due diligence covers: corporate structure (are all subsidiaries properly incorporated and in good standing?); material contracts (have all customer, supplier and financing agreements been reviewed for change-of-control provisions?); litigation (are there any pending or threatened claims?); intellectual property (is all material IP owned by the company, properly registered, and unencumbered?); and regulatory compliance (has the company complied with all applicable laws in all jurisdictions of operation?). Financial due diligence covers: historical financials (have the last three years of audited financials been prepared to IFRS standards?); internal controls (can the company demonstrate segregation of duties, approval hierarchies, and financial reporting processes that meet public-company standards?); and tax (are all tax filings current, and are there any outstanding tax audits or disputes?). Commercial due diligence covers: market position (what is the company’s market share, and is it sustainable?); customer concentration (does any single customer account for more than 20% of revenue?); supplier dependence; and business plan credibility (do the forward-looking projections in the prospectus have objective support?).