Pre-IPO due diligence
In case of a planned initial public offering (IPO) by a company, due diligence is regularly carried out to assess the market maturity of the IPO candidate. Pursuant to §3, paragraph 1 of the WpPG, a provider of securities – with a few exceptions – must publish a securities prospectus providing information for investors. The lead bank, together with the accompanying issuing houses and their advisers, typically commissions due diligence covering the financial, tax, legal, commercial, IT, operational, environmental and human resource areas. The objective of the pre-IPO due diligence is to analyse the sustainability of the business model, the plausibility of planning and the disbursement capacity of the company. The investigations focus on market and competitive analysis, as well as on assessing potential opportunities and risks in the commercial and legal environment.
All information based on due diligence investigations in the prospectus must be complete and correct. In case of false information, the issuers and those supporting the issue (banks) may be liable to the investors for substantial damages pursuant to the Vermögensanlagengesetz (VermAnlG) (Asset investment act) or the VerkProspG (§20 et seq. of the VermAnlG, §13 of the VerkProspG).
BDO supports issuers and lead banks in the scope of pre-IPO due diligence by carefully examining all prospect information to counter any allegations in the context of grossly negligent action in advance. Opportunities and risks of IPO candidates are evaluated critically by BDO using probability of occurrence scenarios and sensitivity analyses with the aim of providing a high degree of founded information in the prospectus for the investors’ investment decision. BDO’s central task is that of ensuring a founded and complete information base in the prospectus, both in the interest of issuers and banks and of the investor, so as to avoid what is often lengthy and reputation-damaging litigation due to liability for the prospectus later on.