Increased IPO Activity on ASX, Buoyed by Improved Investor Sentiment
Australia’s initial public offerings (IPO) market displayed strong growth in 2017 compared with the previous year. A total of 110 IPOs were completed on the Australian Securities Exchange (ASX) in 2017, compared to the previous five-year average of 83 listings. Heavily driven by small-cap IPOs, total funds raised in 2017 did, however, decline from $7.5 billion in 2016 to $4.1 billion in 2017.
After a surge in IPOs over the last few years, technology companies are now the third largest sector on the ASX by number with 207 listings. While 2016 saw the highest number of technology listings since the dotcom boom of 1999-2000, 2017 continued to be a strong year for tech IPOs with 18 new listings raising over $235 million and with a combined market capitalisation of over $1.08 billion.
Small-cap stocks dominate IPO market on ASX
Over the past two years there has been a notable increase in small-cap companies listings on the ASX, indicating a reversal of the trend of large-cap companies dominating the IPO market in 2014 and 2015. In 2017, 80% of all new listings consisted of companies with market capitalisations of less than $100 million at the time of listing.
Since 2016, the technology sector has seen a total of 48 IPOs, of which 83% were companies with market capitalisations of less than $100 million. In 2017, 16 of the 18 technology companies listed had market capitalisations of less than $100 million. The market cap brackets of $10–25 million and $25–50 million were the two most active segments.
In 2017 and 2016, the largest IPOs in the small-cap segment were of Audinate Group and Dreamscape Networks, the former raised $21.0 million in 2017 and the latter $25 million in 2016.
Tech companies’ valuations on listing
The valuations of tech companies appear to have decreased on average over the last two years. In 2016, companies achieved a median revenue multiple of 10.2x. This was almost halved to a median revenue multiple of 5.8x in 2017. Whilst it is difficult to pinpoint the exact cause of this decrease, it would appear that an increased focus on sustainability and operational performance has played a key role.
Of the 18 technology IPOs on the ASX in 2017, three were foreign firms (Mobilicom and Elsight from Israel and Credible Labs from the US).
The ASX is expected to witness a surge in demand from foreign tech companies for listing on the bourse through 2018 as it aims to be the world’s top junior tech exchange for companies that are too small for the NASDAQ and New York Stock Exchange. A higher number of tech firms from the US, Israel, New Zealand, Singapore, Malaysia, Germany and Ireland are expected to appear on the ASX in the coming years.
The ASX is an appealing choice for tech companies looking to list outside of the major US exchanges as it offers:
- Access to local and global institutional investors;
- Earlier entry to a globally recognised index, with a minimum market cap requirement of around $300 million for the S&P/ASX 300 index; and
- Flexible and efficient capital-raising opportunities with the main board listing.