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Cornerstone Agreements

The impact of the COVID-19 pandemic, both on capital markets and on the economy in general, may well lead to greater importance for the success of IPOs. A post-IPO lock is clearly a good marketing tool for the issuer, as it shows the strength of the keystone investor`s commitment. It also avoids any public relations embarrassment if an investor benefits from a sale after a rise in the share price on the listing. The fact that lock-ups are currently not a regular feature of a cornerstone investment in European IPOs supports the view that secured participation in the IPO is generally more valuable to the issuer and selling shareholders than any guaranteed attribution promise to the investor. This may affect the liquidity of equities and, despite the potential benefit of a quality investor guaranteeing the investment, be unattractive to other potential investors. Concerns about liquidity can be reinforced if an investor of the cornerstone agrees to a blockage. What are the main characteristics of a cornerstone investment? The market environment in the second half of 2019 seemed to support this thesis, with the support of four of the largest European IPOs in 2019, including two of the largest UK IPOs (Trainline and Network International), by keystone investors. One of the disadvantages of any Cornerstone investment is that it puts a considerable number of shares in the hands of an investor and does not give any breadth to the shareholder register. Since all essential information relating to the issuer must be included in the prospectus, the standard approach is to make available to the investor a draft prospectus (first in a well-prepared draft and then, before the conclusion of the Cornerstone investment contract, the version to be approved by the competent authority) and other important marketing materials. Investors will have different views on the usefulness of an appointed director. Given the restrictions on the exchange of inside information provided for in the EU Market Abuse Regulation (596/2014) and the need to control the exchange of information between the Director and the nominating investor, a representative of the Board of Directors may not provide the information that an investor might expect.