It is natural and instinctive for business owners to consider all possible alternatives when making critical decisions affecting their business. The same careful assessment needs to be made by those
contemplating an IPO.
An important aspect of an IPO is selecting the most suitable public exchange platform. This requires critical analysis and consideration of a suite of factors. Some of these include:
1. Stage of development and scale of operations of the company. Does the company have an established business or is it still at the growth and development phase? If the latter, it may be more
suitable to pursue an IPO on a secondary exchange.
2. Capacity of the company to effectively cope with, or learn to cope with, the compliance responsibilities (i.e. governance, continuance disclosure, periodic reporting, to name a few). Our experience tells us those companies with less mature processes and procedures list on a secondary exchange in order to learn the ropes of being an Australian domiciled listed company and demonstrate their willingness to be a compliant and responsible corporate citizen. Listing on a secondary exchange also has the added benefits of incurring less compliance costs.
3. The pace and costs of effecting a listing. Anecdotally, the overall effort (i.e. monetary, human resources and time) needed to effect an IPO is less for those listing on secondary exchanges compared to the primary exchange.
A secondary exchange could also be more suitable for companies looking to effect a speedier IPO process.
4. The quantum of funds needed to be raised. All things being equal and subject to the company being suitable for listing on the primary exchange, the greater the funds to be raised, will translate
to the company seeking to list on the primary exchange.
5. Investors’ expectation post listing. Meeting investor expectations plays a key part in the overall IPO process. Some companies will not pursue an IPO process unless they are able to
list on the primary exchange, as demanded by their investors.
Market factors should also be taken into consideration when selecting an exchange platform. These include but are not limited to:
- The higher hurdles needed to become listed on the primary exchange in Australia. The ASX has made a number of changes in the past few years in an effort to ensure that only those companies of a particular standard to be an ASX listed company are admitted.
- Regulators’ expectations – this is especially so for those related to emerging market issuers (EMI). Does the company have the capacity to handle the compliance responsibilities and be a sound corporate citizen?
- The state of the economy, capital market and investment dynamics being played out and investment appetite for the company in question.
Reflecting on our own experience over the past 12 to 18 months, we have observed a greater spread between the Australian markets on which to pursue an IPO (i.e. ASX versus NSX/SSX).
More interestingly, there has been a willingness and acceptance by the less prepared companies to list on a secondary exchange in an effort to cope with the increased compliance responsibilities.
This article was originally published in the 2020 IPO Watch Report.