Why US technology companies are heading to Australia to IPO
BDO advised US technology company Life360 in connection with its recent successful IPO on Australia’s stock exchange (“ASX”). The Life360 IPO represents a trend of foreign companies choosing to IPO on the ASX that could gain further momentum as the exchange looks to solidify its position as one of the world’s premier destinations for technology companies.
“Over the last five years, we have had a great run with technology company listings, bringing the total to 200. Around 50 of those are foreign companies, and we are actively working to add more,” James Posnett, ASX Senior Manager of Listings Business Development, says.
BDO Australia Transactions Partner Sebastian Stevens has assisted the majority of foreign technology companies who have recently listed on the ASX.
“Technology companies are increasingly open to looking at international opportunities to raise capital. These options, exemplified by an IPO on the ASX, can have numerous advantages. For example, Australia’s investable capital and appetite for technology companies is very strong,“ he says.
Aftab Jamil, Assurance Partner and National Leader of Technology Industry Group at BDO USA, has worked closely with Sebastian Stevens on listings of US technology companies in Australia. He thinks there could soon be more American companies joining the exchange.
“The ASX can offer especially small to mid-cap US companies better and quicker access to the public capital market. At the same time, Australia is a bit like a home away from home with easily recognisable financial and regulatory frameworks,” he says.
Expanding technology presence on the ASX
The Australian Securities Exchange, to give the ASX its full name, saw 106 new listings in 2018, 123 in 2017, compared with 108 new listings in 2016 and 109 in 2015. The percentage of foreign IPOs on the ASX has been growing steadily from around 2.5 per cent in 2008 to around 25 per cent in 2016, 2017 and 2018.
Source: ASX, excludes debt, back door listings and stapled securities
Breaking down ASX-listed companies by category shows that Software & Services (153 listed companies) as the third biggest sector after the Materials (685) and Energy (182) sectors[PM1] . However, there is a total of 200 listed companies in the technology categories Software & Services, Technology Hardware & Equipment, and Semiconductor & Semiconductor Equipment, making technology the second largest category on the ASX.
Listings on the ASX split by company industry. Not including companies pending industry classification or companies where existing categories do not apply. Data: ASX. Graphics: BDO.
The ASX uses the S&P/MSCI GICS sector classification, which employs a relatively narrow definition for technology, meaning that there are also ‘tech’ companies in other sectors. For example, there are around 40 fintech companies listed on ASX, many of which fall in the financial sector classification. Looking at sub-industries, James Posnett points to Software-as-a-Service (SaaS), FinTech and health-tech/med-tech as showing particularly strong growth figures.
A total of 46 American companies have listed and raised capital on the ASX. Many, including the likes of Resmed (RMD) (medtech), , Revasum (semiconductors) and Livetiles (software) are technology-driven companies.
BDO Australia has consulted for a number of the recent companies in connection with their IPOs, including the largest technology IPO’s on the ASX for each of the last three years (at the time of publication) with Credible Labs Inc. in 2017, Pivotal in 2018 and Life360 in 2019.
“BDO provided us with strong technical expertise and worked professionally with our finance team and other advisers to deliver a quick turn-around and successful IPO for Credible,” Stephen Dash, Founder & CEO, Credible Labs Inc, said after the company’s IPO.
“BDO’s expertise in ASX listings and cross-border transactions really helped us to navigate the complex process and ensured a successful listing. The Corporate Finance, Tax and Audit teams were tireless in their efforts, working around the clock to complete the transaction. Working with BDO has been a great experience and I would not hesitate to recommend them,” Itamar Novick, Chief Business Officer, Life360, Inc, said.
The Australian Superannuation
Several factors are contributing to more foreign technology companies listing on the ASX.
Perhaps the largest is the Australian superannuation system, which is partly compulsory and encouraged through tax benefits. Employers contribute towards superannuation funds on behalf of their employees for their retirement. The current rate is 9.5% with a planned increase to 12% by 2025. Due to the superannuation funds’ structure, much of the capital is invested in Australian listed stocks and companies, making for a very fertile investment ecosystem.
“Australia is quite unique because there is US$2 trillion under management in the pension market. That’s the fourth largest pool in the world, after the US, UK and Japan, which is amazing considering that we are a country of just 25 million people. Around 25-30% of that capital heads to ASX-listed stocks,” James Posnett explains.
The pool of superannuation assets is forecast to grow faster than the Australian economy and by 2035 could be greater than $9 trillion.
A listing in Australia can also give companies larger exposure ahead of a listing than many would otherwise be able to create. While the Nasdaq stock exchange allows early-stage companies to list, investor and media attention can be hard to drum up for even medium-sized enterprises.
“The Australian economy has shown continuous growth for 27 years, a solid legislative environment and fertile, savvy investor ecosystem also add value. Especially in the shadow of looming tariff wars and political uncertainty, for example in the shape of Brexit,” Sebastian Stevens says.
He points out that especially small and mid-cap technology companies (market cap below $1 billion) can join the ranks of indexed companies, which, in turn, can help companies raise funds.
“Unless you have a certain size, it can at times be challenging to drum up investor and media interest ahead of and post an IPO on the Nasdaq. It’s a case of companies in the US technology sector, to some extent, struggling under the success of the industry as a whole,” Aftab Jamil adds.
TMT M&A Also Strong
Not only IPOs are showing strength in the Australian market. M&A data reveals stable activity levels in deal numbers within the technology, media and telecoms (TMT) sphere. 2018 set a high watermark in terms of combined deal value.
Data: MergerMarket Graph: BDO
Breaking the numbers down by sub-category shows computer software, computer services and internet/e-commerce as three of the best performing categories.
Biotechnology has also increased in activity with three IPOs in 2018, which is in line with the trends seen in the US where biotech stocks’ value passed $8 billion in 2018 for the first time. Australia punches above its weight in the biotech sector producing 3% of the world’s medical patents while being home to only 0.3% of the world’s population.
For Companies Considering The ASX
Going public can have a range of benefits for a company. For example, the disclosure requirements can help improve your operating efficiency, attract institutional investors and raise capital to expand operations.
Preparing for a possible IPO can be a complicated process with many steps. Some depend on your current situation, for example, if you have received investment from VCs or other sources, while others apply no matter what your situation is.
“Preparing for tomorrow, today, is the way you should be thinking about an IPO process. The rigour required around financial reporting, forecasting and systems as well as the time spent meeting potential investors and preparing your company is time-consuming and without proper preparation, you may risk losing focus on the day-to-day running of your business,” Sebastian Stevens says.
“Although there are many similarities, Australia still has a different investor culture, different regulations and a different legal framework. All things that need to be considered carefully ahead of an IPO,” Aftab Jamil says.
To hear more about listing on the ASX and how it might work for your company, please contact Sebastian Stevens or Aftab Jamil.
[PM1]Figures as of March 10th, 2019. Data from the official ASX list of listed companies.