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ASX IPO

Technology and International Stock Exchange Listings for US companies

An IPO is often the most important capital markets and wealth creation event in a corporate life cycle. Unmatched access to capital at a lower cost is a clear benefit in favour of an IPO, along with corporate branding opportunities and a host of other benefits.

Companies consider three things when choosing a listing location—the actual out-of-pocket costs for establishing and maintaining the listing, the effects on valuation and liquidity, and the nonfinancial benefits.

However, before addressing these substantial IPO listing considerations a US private company considering an IPO, with a value of less than US$1 billion must realise that it is almost certainly too small to list successfully in the USA these days. Moreover, the competitiveness of the US public market has been seriously challenged in recent years as indicated below:

  • The age of companies at time of a US IPO has increased (from ~6.5 to ~10.5 years);
  • The annual number of US IPOs decreased (from ~400 to ~100);
  • The valuation of US IPOs has increased more than 6x.

IPOs in the United States typically have significantly high expenses. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses are substantially higher than in many other countries.

In particular, companies trying to go public in the US are prone to litigation and enormous expense. Floats are fewer but larger, because by the time the company reaches a stage where it can afford to list, it is mature. For a technology company to list on Nasdaq, it needs to be circa US $ 1 billion to get any traction. Conversely, listing overseas, for example on the Australian Securities Exchange (ASX), can present itself as the ideal market for technology companies valued under US$ 1billion.

The Securities and Exchange Commission (SEC) regulatory compliance expenses are also significantly higher than internationally. These expenses can become very material for companies having a post-IPO market value of less than US$ 1billion. It is often felt that in the United States a small company has to pay too much in fees and discounts when it sells its stock to the public.

Destinations for US companies under US 1billion in value.

There are two self-contained regions that are popular with US companies wishing to go public, outside of the USA, which are Europe and Asia Pacific. However, Australia also represents an increasingly popular destination.

Why are foreign companies listing in Australia?

Australia’s large fast -growing pension pool, main board listing and earlier entry to globally recognised indices makes the ASX the exchange of choice for international companies. To date, more than 280 international companies are listed on ASX.

Access to growth capital is the major attraction of the ASX for international listings and this article explains how and why this is the case.
Australia has the fourth largest pension pool globally and also one of the fastest growing. Superannuation assets total A$2.6 trillion and this is predicted to grow to A$9.5 trillion by 2035.

The reason behind the size of the Australian pension pool is the compulsory superannuation system introduced by the Australian Federal Government in 1992. The sheer weight of this pool, where a large percentage is mandated to invest directly in ASX-listed securities, makes the Australian market an attractive venue for international companies looking to access capital for growth.

Why the ASX?

In addition to capital, an ASX listing offers a number of other benefits for an international company looking at global public markets. These include a highly active exchange, a main board listing and earlier entry to globally recognised indices.

The ASX is a very active exchange, typically exceeding 120 initial public offerings (IPOs) a year and trading volumes averaging $5.6 billion on a daily basis.

The ASX’s main board listing, provides a globally recognised robust regulatory environment and access to the full breadth of investors from retail to global institutions. Access to the main board for earlier-stage growth companies is in contrast to a junior board listing, typical in other jurisdictions, where full access to the investor base can be more limited.

Often, institutional investor mandates stipulate fund managers limit their investment to a globally recognised exchange and not extend to many secondary boards or smaller main boards, examples of which are the AIM market in the UK, TSX-V in Canada, GEM in Hong Kong and Catalist in Singapore.

Index inclusion is another key factor. ASX has two globally recognised S&P indices, the S&P/ASX 300 and S&P/ASX 200. The importance of index inclusion to a listed company is the access this provides to institutional investment, both passive and active.

Institutional mandates are typically mandated to a recognised index and when a company enters an index it will lead to extended investment reach, both domestic and global, as that index weight increases.

The institutional investment in the S&P/ASX 200 index is comprised of about 45 per cent from global asset managers and 55 per cent Australian, meaning companies listed on ASX can have a register of globally recognised investors at an earlier stage than other markets.

Achieving global reach.

In the past five years there has been an increase in the number of international companies listing on ASX. It is an attractive listing venue for international companies from a number of different markets but these can be broadly characterised by (i) companies located in a constrained home capital market and (ii) those where size can cause them to be lost in their home market.

Getting lost in your home market.

In contrast, companies from large capital markets such as the United States also benefit from the Australian market dynamics. The size of the US public markets means that earlier-stage companies, with annual revenues below US$100 million or valued at US$1 billion market capitalisation or less, struggle to foster investor attention.

The US private markets are the most active globally and feature high-profile companies such as Uber, Spotify and Airbnb who have held off listing until they are well beyond that size. As a result, there is a whole generation of companies that would prefer to access the public markets, versus private funding, at an earlier stage, but their home exchange cannot support this.

ASX is bridging the gap for companies in these larger markets who would like to use the public markets to raise growth capital and can use ASX as a springboard to reach a size where they would attract attention in their home market.

There are currently 47 US companies listed on ASX. The US cohort of companies range across industries but the recent trend has been in the software and technology sector.

Why are technology companies listing on the ASX?

Technology is the fastest growing sector on the ASX.

Numerous growth-stage technology companies from Australia, the Asia-pacific, the US, Europe and Israel are successfully listing on the ASX with good valuations and traction for scale. These listings illustrate a clear trend which has emerged, that is the ASX is increasingly being used by technology companies as either a stepping stone to a future dual listing on other exchanges or as a long-term listing venue.

Many young technology companies are listed on ASX. Usually, in the US and other major markets, such young companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

However, in Australia, retail investors accept investing in high-risk young firms that are still figuring-out their growth-model.

The key advantage for investors is that growth in the ASX technology sector, in both domestic and foreign companies, expands the universe of available investing options.

The ASX – A baby Nasdaq.

The ASX is targeting smaller tech companies that would not be able to list on the Nasdaq.

The ASX is positioning itself as a late-stage venture capital funding market with companies that have de-risked their model, have proven their revenue and are looking to scale their businesses and potentially go public to provide liquidity for their shareholders and acquisition currency.

Final Thoughts.

If a company is considering an IPO it will have recognised that it is one of the most important capital markets and wealth creation event in its’ corporate life cycle. That recognition should have extended to all of the factors that will influence the likely success of an IPO. Listing location should be high on that list of factors when formulating an IPO strategy. BlueMount Capital are experts in developing appropriate strategies and facilitating an IPO listing, particularly in Australia. BlueMount would welcome discussing with you how the capital raising opportunity which Australia represents can add value to your listing potential.
Data illustrating the ASX opportunity.

Technology valuations on the ASX.

Examples of US technology companies listed on ASX

Top Ten Technology “Unicorns” on the ASX

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

Len McDowall                                                         Alex Chen

Managing Director                                                Director and USA representative

Level 32 200 George St                                                1055 W 7th, 33rd Floor, Penthouse

Sydney 2000 Australia                                                Los Angeles CA 90017 USA

Telephone +61 2 8277 4112                                         Telephone +1 212 470 6997

Email sydney@bluemountcapital.com                    Email losangeles@bluemountcapital.com

 

Healthcare and International Stock Exchange Listings for US companies

An IPO is often the most important capital markets and wealth creation event in your corporate life cycle. Unmatched access to capital at a lower cost is a clear benefit in favour of an IPO, along with corporate branding opportunities and a host of other benefits.

Your company should consider three things when choosing a listing location—the actual out-of-pocket costs for establishing and maintaining the listing, the effects on valuation and liquidity, and the nonfinancial benefits. (A fuller discussion of the pros and cons of listing on the Australian Securities Exchange (ASX) versus the Nasdaq or NYSE can be found in the second of this series of BlueMount Capital’s articles: “International Stock Exchange Listings for US Companies”.)

However, a US private company considering an IPO, with a value of less than US$1 billion is too small to list successfully in the USA these days.

IPOs in the United States typically have significantly high expenses. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses are substantially higher than in many other countries.

Therefore, as a healthcare company, you should consider all of the relevant factors that all global Listing Exchanges’ offer before committing to what might appear to be the most obvious or easiest IPO route. Are you ready to engage in such considerations?

Why are healthcare companies listing on the ASX?

Are you aware that Australia has a strong healthcare, biotech and med-tech ecosystem with world-class healthcare companies, research facilities and informed investors? This Listing Exchange profile allows companies listing on the ASX to raise capital for both commercialisation and future growth.

With over sixty-five healthcare listings since 2013, the ASX also provides a unique platform to join an impressive peer group of both emerging and mature companies, across pharmaceuticals, medical technology, biotechnology, digital health, medical practice and pathology operations.

The ASX now has sixteen listed healthcare unicorns. In total there are 170 plus healthcare, biotech & med-tech companies listed on ASX with a combined market capitalisation of over A$248 billion.

With numerous growth-stage healthcare companies from Australia, Asia-pacific, the US and Europe successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged, the ASX is increasingly being used by healthcare companies as either a stepping stone to a future dual-listing on other exchanges or as a long-term listing venue. (A sample of examples of ASX Unicorns is provided in the table below.)

Many young healthcare companies are listed on the ASX. Usually, in the US and other major markets, such young  companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

However, in Australia, you may be surprised to learn that retail investors accept investing in high-risk young firms that are still figuring out their growth-model. The key advantage for investors is that growth in the ASX healthcare sector, in both domestic and foreign companies, expands the universe of available investment options, which in-turn creates a significant opportunity for healthcare companies like yours!

Observations based upon Healthcare Valuations on the ASX

When comparing the ASX with alternative global listing opportunities for healthcare sector companies, with between $50m and $1bn capitalisation, it is clear that the ASX is second only to the New York based exchanges in terms of the number of companies listing. However, both US exchanges have been trading far longer than the ASX and therefore have a large number are legacy listings. Moreover, these US Exchanges have experienced declining listing numbers and significant increases in qualifying listing valuations over the past ten years.

In the table above, you can see that the Nasdaq and NYSE have far higher median liquidity velocity ratios than the rest of the Exchanges for both larger and smaller healthcare stocks. The ASX is not the leader in terms of the other global Exchanges for small healthcare stocks, it is third behind Singapore and Toronto Stock Exchange, but for larger companies it is the leading Exchange based upon liquidity velocity. Market liquidity is important to your choice of Listing Exchange for a number of reasons, but primarily because it impacts how quickly you can open and close positions. In a liquid market, a seller will quickly find a buyer without having to cut the price of the asset to make it attractive.

Where the ASX outperforms all other exchanges, is in Median EV/Sales and Median P/S multiples where it is the most favourably priced compared to all the other exchanges for smaller healthcare companies

(Enterprise value-to-sales (EV/sales) is a financial ratio that measures how much it would cost to purchase a company’s value in terms of its sales. A lower EV/sales multiple indicates that a company is more attractive investment as it may be relatively undervalued.)

(The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value that financial markets have placed on each dollar of a company’s sales or revenues.)

Looking at the number of companies listed on each of the exchanges and comparing small to large healthcare companies, we can see the ASX is second largest for small, but tied in fourth place for larger capital raises.

From these figures, which lack a longitudinal dimension. it is hard to deduce that the ASX accommodates smaller company listings than larger ones. However, it is clear that the median market value of healthcare listed companies is lower.

In this regard it is clear that one of the ASX’s advantages over listing alternatives is the comparatively low level of market capitalisation required to list. Moreover, the comparatively high level of capitalisation, which it appears to be necessary to list on the Nasdaq, should suggest that for companies with comparatively low levels of capitalisation listing on the Nasdaq may prove difficult.

Final Thoughts

It is evident that the choice of global Listing Exchange, for your healthcare company when considering an IPO, is more complex than is first evident. Understanding how the performance of each Exchange may compliment, or not, the IPO profile of your company requires the appreciation of many factors if your company is to maximise its IPO opportunities. Therefore, if you are considering an IPO, why not contact BlueMount Capital and let them use their expertise to assist you in making the right Listing Exchange decision?

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone: +61 2 8277 4112

or

Alex Chen
Director, and USA Representative
Penthouse 1055 W 7th, 33rd Floor,
Los Angeles CA 90017 USA
Telephone: +1 212 470 6997

IPO in the United States? Remember, size matters!

Is your company large enough to IPO in the United States (U.S.)?

You know that when choosing a listing location three things should be considered

(1) the actual out-of-pocket costs for establishing and maintaining the listing;

(2) the effects of a listing location on your company’s valuation and liquidity; and

(3) the non-financial costs and benefits that are available in a particular listing location.

Given that an IPO will often be the most important capital markets and wealth creation event in your corporate life-cycle these considerations should be evaluated very carefully. Unmatched access to capital at a lower cost is a clear benefit of an IPO, along with corporate branding opportunities and a host of other benefits. However, these benefits become insignificant when the analysis that underpins your choice of listing jurisdiction is flawed.

IPOs in the U.S. typically cost significantly more than in other jurisdictions. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses will be substantially higher in the U.S. than in many other countries. Therefore, it is highly advisable to ensure that a full cost analysis of an IPO listing, in a particular jurisdiction, is completed and then compared with other locations. Our analysis would suggest that the costs and burdens of a U.S. IPO substantially exceed those of other countries.

Have you appreciated the full costs and benefits, including the intangibles, of a U.S. IPO listing as compared with other listing jurisdictions?

The New York Stock Exchange (NYSE) and NASDAQ are the most prestigious stock markets in the world and therefore represent obvious listing targets. However, the competitiveness of the U.S. public markets has been seriously challenged in recent years * in particular:

  • the valuation of U.S. IPOs has increased by more than six times – this significantly increases the valuation threshold you need to reach for the U.S. to be an IPO capital raising option;
  • the age of companies at the time of a U.S. IPO has increased from approximately six-point-five to ten-point-five years – this reflects the length of time companies require to reach an increasingly higher IPO valuation threshold; and
  • the annual number of U.S. IPOs has decreased from approximately 400 to 100 – this is a good indicator of the impact of the rising valuation threshold.

*Source: Dealogic Capital Markets/Capmktsreg.org

So, the U.S. market represents an increasingly shrinking opportunity for the smaller company seeking to IPO. Do you have a valuation greater than U.S one billion dollars? You don’t, then what are your alternatives?

Private equity is the next obvious choice however this is not necessarily the best alternative by which to grow a private company. Private equity funds tend to place lower valuations on their investee companies than the IPO marketplace. They also often impose shorter exit horizons. Moreover, because private equity investors can have different objectives from the founders of investee companies, there is a real possibility of founders losing control of their company. Were you aware that raising capital from the private equity market comes with some significant downside consequences?

Is raising capital from private equity markets really an attractive option for your company?

Because the presence of a strong IPO market permits founders and other entrepreneurs to retain control of a public company post an IPO, and to grow the company with less dilutive public equity, an IPO is still your most attractive route to investment capital. Unfortunately, this choice is increasingly unavailable to smaller companies.
Why is this the case? Underwriters are increasingly uninterested in comparatively smaller capital raises because:

  • many large institutional investors will not consider investments in companies having small post-IPO market valuations;
  • it becomes much more difficult to obtain coverage of the stock by securities analysts when post-IPO market valuations are projected to be low. As a result, there is a very real risk that these stocks will be deemed so-called orphan stocks (i.e. not followed by any securities analysts); and
  • smaller private companies planning an IPO typically have a higher risk threshold than larger companies in a similar position. Accordingly, smaller private companies are more frequently rejected by the largest most prestigious accounting firms for U.S. IPOs.

Therefore, if you are a U.S. private company considering an IPO, with a value of less than US$1 billion you are very likely to be considered to be too small to list successfully in the USA these days. Furthermore, the costs of funding such an IPO listing are simply uneconomic in the USA.

What are your alternatives?

With no easily accessible IPO market in the United States for smaller companies those U.S. private companies wishing to obtain growth capital are forced to seek private equity financing with all of its associated potential pitfalls.

There are however alternatives for US companies, who have a valuation of less than U.S. one billion dollars, wishing to go public, and are prepared to consider jurisdictions outside of the USA. These locations secure the benefits of an IPO capital raising strategy, importantly, with significantly lower costs. The two most promising jurisdictions are the self-contained regions of Europe and Asia-Pacific. In particular, within the high growth Asia-Pacific region, Australia represents an extremely popular choice.

Have you considered these alternative listing jurisdictions? What does your listing cost analysis of alternative listing jurisdictions tell you? Have you discussed your listing options with expert sources who can provide you with a balanced picture of the alternatives available to you? A well-developed business case building exercise should quickly identify that your company size does matter. Moreover, it matters more in some regions of the capital raising world than in others. Your size therefore will be a major influence in determining your IPO strategy including listing location.

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

For further information please contact;

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone +61 2 8277 4112
email sydney@bluemountcapital.com

Alex Chen
Director and USA representative
1055 W 7th, 33rd Floor, Penthouse
Los Angeles CA 90017 USA
Telephone +1 212 470 6997
email losangeles@bluemountcapital.com