Internationals looking to ASX to deliver on public listing strategy
For companies that have determined that public listing is their preferred strategy, the Australian Stock Exchange (ASX) provides a compelling opportunity, particularly international companies whose home listing criteria is too large or whose local market is less supportive of earlier stage companies.
A caveat in respect to the following discussion. Public listing is not necessarily right for all companies. Companies should seek the council of experienced advisers to assist in determining their ultimate capital strategy.
The ASX & Small Companies
The ASX is the 15th largest share exchange in the world with a total market capitalisation of A$1.6 trillion (US$1.3 trillion). Of particular interest for small companies:
- over 1,500 of the 2,200 plus companies listed on the Australian Stock Exchange (ASX) have a market capitalisation of under A$100 million (or US$70 million)
- 1,200 companies have a market capitalisation of under A$50 million (US$35 million).
The ASX is bridging the gap internationally for companies in large capital markets or whose home market is less supportive of earlier stage companies by providing the opportunity to list at an earlier stage of a company’s life cycle with a relatively low financial criteria:
- a profit test requiring A$1 million aggregated profit over the past three years and A$0.5 million over the past 12 months; or
- an asset test requiring A$4 million of net tangible assets or A$15million market capitalisation.
Note that the ASX also apply qualitative criteria such as the quality of key persons, scalability and growth considerations to listing approvals.
The lower financial criteria enable small companies and companies in earlier stages of their life cycle to list:
- on a globally recognised main board (the ASX does not have a secondary board)
- in a robust regulatory environment
- in a market with strong peer groups in most industry sectors
- in a market that is supportive of small and mid-cap companies
- and gain earlier access to internationally recognised indexes (S&P:ASX300 entry is at around a market cap of A$640 (under US$450).
The ASX has become the home for 280 international companies, 12% of total listings, from countries such as the United States, Israel, New Zealand, Singapore, Malaysia and Ireland.
The ASX is also characterised by deep foreign investment, 45% of ASX capital is attributable to foreign investors.
In 2018, there were 95 IPO’s of which 75 listed with a market cap of A$100 million or less raising in total A$710 million, an average of just under A$10 million, one of the highest levels of listings internationally.
Similarly, in 2017 there were 110 IPO’s of which 88 listed with a market capitalisation of under A$100 million.
Whilst the ASX is the world leader in resources, it is in tech and international listings where much of the growth is occurring.
Tech & the ASX
ASX technology listings have increased from 140 companies in 2013 to approximately 250 companies in 2019. The market has experienced many considerable success stories with companies such as Xero, Afterpay Touch, WiseTech, Appen and Altium the most well-known.
This has created momentum for further investor interest and further tech listings, both local, international, small and large. Naturally, in a growing market there will be varying degrees of quality and there will also be failures.
Australia presents a compelling case for growth companies:
- Australia has the 4th largest pension pool (behind USA, UK and Japan) which is forecast to reach A$10 trillion by 2030 and most funds are mandated to invest in the ASX
- a long history of supporting start-ups and growth companies in resources that has evolved into support for growth companies across the board and particularly tech and health
- located in Asia, the world’s fastest growing region
- daily volumes of circa A$5.6 billion per day
To discuss this further, please contact Mark Bailey from our Corporate Finance Advisory team.