Could listing on the ASX be for you?

Is listing for you?

The IPO market in Australia continues to be vibrant. In 2016 total capital raised at IPO on ASX was $8.5 billion across 133 listings and there has been over 100 listings in 2017 YTD, with more listings expected before the end of the year.

Technology and international listings have been two of the recent trends in the ASX IPO market. In terms of number of listed companies, tech sector listings have doubled in the last 3 years, now comprising over 200 companies, ranging from SaaS to Fintech to online marketplaces, and including global names such as Wisetech and Xero. International companies are increasingly finding the ASX an attractive listing venue and there are now 270 overseas companies listed. Companies choose to list on ASX both to access the capital in our market and to join strong industry peer groups; recent listings have been from a range of countries, including New Zealand, USA, Israel and Singapore. In his article Paul Greenberg, founder of Updater (ASX: UPD) describes his 5 reasons for listing on ASX – Instead of Taking Millions More Investor Money, Our 25-Person Company Chose to IPO.

Before listing your company on a public market, you’ll need to answer some questions about the future of your business. Your first step is to determine whether listing is appropriate, taking into account your company’s long-term strategic goals. Below we will look at some of the advantages and the challenges of being a listed company.

What are the minimum listing requirements?

Supporting early stage and mature companies, ASX Listing Rules set out requirements an organisation has to meet to list on ASX’s market. They are underpinned by principles that ensure the quality of the market ASX operates. To list on ASX, a company must satisfy minimum admission criteria, including structure, size and number of shareholders.

Admission Criteria Minimum Requirement
1. Number of shareholders Minimum 300 investors @ $2,000
2. Company Size Profit Test $1 million aggregated net profit over past 3 years + $500,000 consolidated profit over the last 12 months
OR
Asset Test $4 million Net Tangible Assets

OR

$15 million Market Capitalisation

3. Free Float 20%
What are some of the advantages of listing?

The world’s stock exchanges have been listing companies for hundreds of years. There are a multitude of benefits that can enhance your business.

Access a large pool of capital for growth

Companies listed on ASX are in an enviable position when it comes to access to capital with exposure to a broad network of investors in Australia and across the world.

Australia has one of the largest pools of investable funds in the world, and the largest in Asia-Pacific region, with $2.2 trillion thanks to our superannuation system. The pool of superannuation assets will grow faster than the economy and by 2035 it is forecast to be greater than $9 trillion[1].

International investors also represent ~45%[2] of the market cap of ASX listed companies as they look to get access to quality companies in one of the fastest growing regions in the world, but within a robust regulatory environment.

ASX is consistently ranked in the top ten exchanges globally for equity capital raising so whether your company’s growth strategy is based on acquisition, organic growth or a combination, a listing gives you the opportunity to raise capital at the IPO stage, and throughout its listing to fund future growth.

Importantly, follow-on capital raising for listed companies is greatly simplified, through reduced cost and time.

Listing on a public market also facilitates acquisitions by providing ‘currency’ in the form of a more diversified and liquid share capital base. Shares can be used as a means of payment in the takeover of other businesses instead of, or combined with, a cash component.

Total equity capital raised by exchange: 2014 to 2016 ($USb)[3]

A (secondary) market for your company’s shares

Post-listing trading stimulates liquidity in your company’s shares, and gives shareholders the opportunity to realise the value of their holdings. This can help broaden your shareholder base, because investors know that they can readily enter and exit their holdings. It also facilitates further capital raising.

Trading turnover of ASX’s equity market was $1.4 trillion in 2016. Liquidity is enhanced by a comprehensive range of indices used by institutional investors as a benchmark for investment fund performance, such as the S&P/ASX 200.

Higher public and investor profile

Listing generally means your company’s activities will receive greater media coverage, widening awareness of your products or services. Your company may also be covered in analyst reports and included in a share market index. This heightened profile may help sustain demand for your company’s shares and increase the standing of your business within its industry.

Improved valuation

Being listed generates an independent valuation by the market. The market values listed shares based on available information and expectations of future performance.

Greater efficiency

The requirement for more rigorous disclosure can improve systems, controls and management information, leading to greater operating efficiency of the business.

Institutional investment

Listed companies can attract professional and institutional investment due to increased transparency and trading liquidity. Institutional investors can bring increased business credibility, stability and wider business networks.  Having institutional shareholders may also increase your likelihood of getting capital supply in the future.

Alignment of employee/management commitment

Being listed simplifies the process and increases the benefit of remunerating your employees with shares. It can help align the interests of employees with the organisation’s goals by increasing their long-term commitment. Incentive schemes give employees an opportunity to share in your company’s growth, which helps to attract and retain high-quality employees.

Reassurance of customers and suppliers

Companies listed on ASX can find the perception of their financial and business strength improved. The rigorous due diligence process conducted as part of the listing process, and ongoing compliance with continuous disclosure rules, can reassure companies that deal with your company.

What are some of the challenges of being listed?

In deciding whether listing is appropriate for your company, you should also consider the potential drawbacks, obligations and costs of being a publicly listed company.

Costs and fees

There are costs involved in an IPO, maintaining a listing and raising additional capital. The total costs of listing are likely to include underwriting or brokerage fees, accounting, legal and other professional fees, as well as prospectus costs and ASX listing fees. The total costs of an IPO can generally vary from between 4% to 11% of capital raised.

Susceptibility to market conditions

No matter how well a business is run, the price and liquidity of its shares can be affected by market conditions beyond its control, including market rumour, general economic conditions or events within the same industry.

Disclosure and reporting requirements

Becoming listed involves a much higher degree of disclosure and corporate governance than may be required of a private organisation. This can involve additional management time and investment in information and compliance systems.

Media exposure

Heightened media exposure can be a benefit of listing, but there are times that greater media exposure may be unwelcome.

Reduced level of control

The sale of company shares inevitably involves ceding a degree of control to outside shareholders. This includes not undertaking certain corporate transactions – particularly those involving directors and substantial shareholders – without prior approval of shareholders. Depending on the proportion of equity original investors retain, there’s also the possibility your company may be subjected to takeover bids.

Management time

Being listed, and in particular the IPO process, can take up considerable management time which might otherwise be directed to running the business.

Director responsibilities

Management and directors of a private company may find they simply don’t like the implications of running a listed business. Greater disclosure of salaries, restrictions on share dealing, and the need to invest time and money in investor relations are all additional responsibilities of a listed company.

How can you get prepared for making a decision?

Directors and managers need to examine a wide range of factors to gauge the organisation’s readiness for listing. Professional advisers are usually used to help understand matters, which include:

  • What are the organisation’s long-term goals and strategies?
  • Are there skill gaps at senior management and board level? If so, how will these be filled in a listed environment?
  • Are directors and senior managers prepared for greater disclosure, accountability and transparency?
  • Is the organisation’s culture ready for listing?
  • Are there any tax considerations?
  • Are strategies in place to retain key employees and customers?
  • What initiatives (e.g. acquisitions) need to be completed before listing?
  • Are the operational, financial and management information systems robust enough for a listed company?
  • Have you taken account of good corporate governance practices?
  • Is the timing right for a listing, in terms of the business and market conditions?
  • Do you understand what investors and the market require from you?
  • Are you ready to open your company to the discipline of the capital market?

The next steps

There are a number of strategic considerations in any financing decision and, ultimately, it has to be right for the company. As Australia’s primary capital market, ASX offers companies an attractive opportunity to raise capital in the public markets to further their growth ambitions.

To find out more

Visit the ASX

Talk to Deloitte Private

Deloitte Private’s deep experience solving complex issues with private companies and family enterprises, blended with the broad expertise of an integrated global firm, gives our clients a critical advantage when they are considering financing options.

Talk to us to find out more

Tara Hill, Lead Partner, Deloitte Private Deals

Joshua Tanchel, Lead Partner Deloitte Technology Fast 50

Visit Deloitte


[1]Source: Deloitte

[2]Source: ABS 5232.0, Table 32, Mar Qtr 2014

[3]Source: ASX, Dealogic December 2016


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