The process of standardizing company business structures comprises three elements. First come the general guidelines, followed by what we can assist you with, and then finally — what your company is expected to do on its own by adhering to our recommendations.
At London Issuing we integrate and consolidate a company into one of our holdings only if we are confident that the applicant-company will contribute to the holding company’s reputation on the market. The company must have the resources to guarantee to guarantee shareholder value maximization.
When assessing eligibility of an applicant-company, the key question asked by London Issuing is always, «Do we really want our name to be associated with this company»?
An essential factor in making a decision in favor of an applicant-company is whether it demonstrates strong leadership striving to implement best corporate governance practice and to maintain effective communication with the market. Another advantage would be a sound strategy and a viable opportunity to create shareholder value as well as an ability to competently standardize finance and engineering.
Companies listed on the exchange are engaged in over forty different industries so most of the firms will have no difficulty finding their own niche. It would be preferable for a company to work in an area that shows significant medium-term growth. However, a company targeting a non-dynamic or a negative-dynamic market could also be attractive provided it boasts a strong leadership and works to increase its market share and active participation in the financial sector consolidation.
For certain types of businesses, such as agrarian, resource-related, IT, engineering or biotech companies — the most important factor would be their assets and a history of effective asset management. Before investment funds decide to invest in a company they will invariably consider the operation history of the holding company as a whole and of an individual company in particular.
At the same time, regardless of the business sector, we will conduct a thorough analysis of the company’s performance efficiency in previous years.
When considering a promising business/startup (which does not often happen in high risk environments we base our decision primarily on the character of the leadership, its strategy and the preliminary work it has undertaken.
As we work with smaller and developing companies, we do not require prospective holding participants to have a proven business history or a certain scale of operations; however, an aspiring applicant for holding incorporation (with the exception of companies that have not yet begun to generate profit, or possibly, extractive industries) is expected to demonstrate the following:
Stagnant growth or reaching a plateau is a disturbing sign for potential investors. Procuring funds during the initial public offering (IPO) to provide the company with order processing resources, or to guarantee quality management before further expanding the business, is a far more convincing argument in favor of supporting a company than mere increase in sales and marketing. A business is required to show a stable or growing net margin, while the total profit growth must match or exceed the sales volume.
Of no less significance is strict adherence to the global economic standard. Failure to demonstrate these dynamics shows a limited or insufficient capacity to guarantee cost-effective sales. Even if the total profit growth rate matches that of the sales volume, we have to make sure that direct costs are being correctly assigned to the products sold and do not fall within indirect cost. This is why the total profit index should only be considered alongside EBITDA and never as an isolated factor.
We conduct financial data analysis along with the company’s standardization reports for the preceding period which constitute a very significant portion of its business potential assessment. This information will be subject to a more detailed evaluation as part of the due diligence process.
The EBITDA margin may be quite helpful because it is a common standard demonstrating the effectiveness of core business activities; however, an accurate assessment of such effectiveness should also take into account the cost of asset utilization. Considering this indicator as an isolated factor may be confusing because at this point the costs could have been excluded through capitalization. Therefore, the EBITDA margin [performance indicator] needs to be considered along with sales volume, total profit, and net profit (or loss) before tax margins.
We also analyze balance sheets to ensure they correspond to the reported results of previous business activities. Increase in receivables turnover ratio may be a sign of debtor quality issues or lack of financial control. It may even raise doubts about the credibility of the sales volume data.
While analyzing the financial data for previous periods, we also focus on the following:
Despite the fact that the standardized financial reports serve as the most reliable and easily verifiable business history, London Issuing will also consider other aspects of the company’s previous activities when assessing its capability to manage its future growth. The following factors will be taken into account:
We judge a company, first of all, by the character of its leadership and the feasibility of verifying its conformity to international mandatory standards. To a significant extent, the financial data provide sufficiently clear evidence as to how the company is managed and thus how competent its executives are. Despite the fact that a company’s commercial success attests to quality leadership, in practice, they might be managing an inefficient company in a successful business sector.
As part of the company management assessment, we evaluate the competence level of the directors and sometimes of other key managers. The directors are required to fill out a questionnaire in which they provide data such as previous and current receivables, personal or business bankruptcy or insolvency information as well as their personal history.
One of the most important questions we ask you before you access one of the holdings as an economically sound project to be financed is whether your company has substantive competitive advantages that it can leverage in the future to create shareholder value.
Competitive advantages may take various forms, including — but not limited to — patents, copyright and other means of intellectual property protection.
Examples of the above-mentioned advantages may be the company brand, its employees, the time and resources spent on system building, process creation and entity generation or they may be a combination of all the above.
A company’s ability to use these advantages to promote itself depends greatly on having a good grasp on the future. The following points shall be considered in relation to this:
London Issuing considers fundraising and secondary stock turnover management one of its most essential tasks. In collaboration with you and your broker, we will have to determine if the investors are prepared to purchase the holding shares along with your company shares.
Is it sufficient for executing a successful IPO, secondary market fundraising and for maintaining effective stock turnover?
What are the advantages that your company is bringing to the holding when its shares are offered on the stock exchange?
One of the important elements of stock market entry is an alternatives review and determining that, despite the extra workload and costs that go along with the «project to be financed» status within a holding, the stock market is the right choice for your company.
Those who are considering standardizing their business structures and becoming a foreign investment project should begin with thinking through and appreciating the necessity of eliminating alternative solutions, such as raising non-public funds, a trade sale, debt financing and even an alternative market of capital stock. Although the official role of London Issuing is to monitor adherence to rules and regulations, we also aim to offer advice on corporate finance and standardization.
Traditionally, turning a company into an economically sound project to be financed is seen as the final stage in its evolution which signifies that the owner-manager is taking steps to leave the business. In our case, the situation is different: entering the stock market becomes a source of capital needed for future development and was initially created to solve the issue of insufficient funds (so often faced by many companies). Fundraising for a project to be financed, aimed at offering a holding company’s shares on the stock exchange, as the existing investors’ step towards leaving the business sector, is the reason why most investors will consider this quite unattractive.
