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Australia IPO process: How to list your company on ASX.

Posted in .
Updated May 9, 2024
Australia IPO process: How to list your company on ASX

For many Australian businesses, achieving an Initial Public Offering (IPO) on the ASX is a major milestone. It represents a significant step towards heightened visibility, access to substantial capital, and increased investor interest.

However, the ASX listing process can be complex and demands thorough preparation and strict adherence to regulations. This article serves as a practical guide for businesses in Australia looking to navigate the complexities of the ASX IPO journey effectively.

Key takeaways

  • Listing your company on the ASX in Australia offers several benefits, including access to capital for growth initiatives and strategic investments, enhanced visibility, credibility, and market reputation for publicly listed companies, liquidity and exit opportunities for shareholders, and valuation benchmarking through market valuation.
  • Depending on the company’s profile, additional benefits of listing may include increased company profile and attraction of top-tier talent, expanded board representation, and enhanced corporate governance standards.
  • The ASX listing requirements entail specific criteria such as the number of shareholders, free float, company size (profit test or assets test), and working capital. Additionally, companies must prepare comprehensive documentation, including a prospectus and audited financial statements, and adhere to ASX Corporate Governance Principles to meet regulatory standards.

Benefits of listing in Australia

When companies decide to go public through IPOs, they gain access to a broad spectrum of investors, ranging from institutional funds to individual shareholders. This influx of capital serves as a catalyst for various growth initiatives, enabling companies to fuel expansion plans and pursue strategic investments that might have been challenging to finance otherwise.

One notable advantage of becoming publicly listed is the heightened visibility and credibility it brings. Being part of the stock exchange attracts media attention. It increases analyst scrutiny, boosting the company’s market reputation and enhancing its credibility among stakeholders, including customers, suppliers, and potential partners.

Another significant benefit of going public is the liquidity it offers to existing shareholders. By trading their shares on the public market, investors can easily buy or sell their stakes, providing them with an exit strategy and the ability to monetise their investments. This liquidity aspect also serves as a magnet for new investors, assuring them of the ability to convert their holdings into cash when needed.

Furthermore, being a publicly traded company subjects it to market valuation, which serves as a valuable benchmark for performance evaluation. This valuation process not only provides insights into the company’s financial health but also facilitates comparability with industry peers, allowing investors and analysts to make informed decisions based on relative valuations and performance metrics.

Depending on the company’s profile and stage of development, additional benefits of listing may include:

  • Increased company profile: Being listed on the ASX can significantly enhance a company’s profile, increasing its visibility and credibility in the market.
  • Attraction of ASX-level talent: Publicly listed companies often find it easier to attract and retain top-tier directors and executives drawn by the prestige and opportunities associated with ASX-listed firms.
  • Expanded board representation: Listing can lead to a broader representation on the board, bringing in diverse expertise and perspectives.
  • Enhanced corporate governance: Public listing often necessitates higher standards of corporate governance, promoting transparency and accountability within the organisation.

However, there are important considerations to weigh before deciding to list:

  • Control dilution: Listing can result in the dilution of control for existing directors and shareholders, particularly founders, as external investors and stakeholders become part of the ownership structure.
  • Market price determination: The price of shares post-listing is subject to market forces and may not always align with previous fixed subscription prices, potentially affecting valuation perceptions.
  • Compliance costs: Creating and maintaining the compliance framework required by ASX-listed companies can be a significant ongoing cost, including regulatory filings, audits, and governance procedures.
  • Disclosure obligations: Listed companies are subject to a continuous disclosure regime and extensive disclosure requirements, necessitating regular reporting and transparency about company operations and financial performance.
  • Time and financial commitment: The process of listing itself involves substantial time and financial resources, with ASX suggesting a minimum timeline of five months from engaging a lead manager, lawyer, and accountant to completion.

Who lists on the ASX?

There are over 2,300 companies listed on the ASX, with market caps ranging from A$24,000 to over A$200 billion, including many well-known Australian companies.

On average, around 120 companies list on the ASX each year via a process called an Initial Public Offer (IPO), and a similar number of companies are delisted for a variety of reasons. The most common reasons for delisting are at the entity’s request or due to the entity being unwilling or unable to comply with the Listing Rules.

Like many things in life, an IPO does not ensure success. In common with all stock markets, the ASX is volatile, especially for newly listed and small companies. For illustration, in mid-2022, 17 (30%) of IPOs in that year had gained value, and 39 (70%) of IPOs had lost value, with the highest return of 263% and the largest fall of 93%.

You won’t read about companies that consider the listing process and then choose to continue as private companies. However, many large private companies in Australia have revenues exceeding $1 billion.

What is required to list on the ASX?

At its simplest, the admission criteria to list on the ASX include:

Admission criteriaGeneral requirement
Number of shareholdersMinimum 300 non-affiliated investors at AUD2,000 each
Free float20% (i.e. shares that are not restricted, not escrowed and not held by directors, related parties and their associates)
Company size
Profit testAUD1 million aggregated profit from continuing operations over the past three years + AUD500,000 consolidated profit from continuing operations over the last 12 months
OR
Assets testAUD4 million net tangible assets
OR
AUD15 million market capitalisationBoth inc. AUD1.5 million of working capital.

Listing also requires a comprehensive prospectus supported by a thorough due diligence process and a governance framework to satisfy the ASX Listing Rules, which includes the Corporate Governance Principles and Recommendations.

The company must be serious about establishing and operating according to the governance frameworks expected of a listed company as set out in the ASX Corporate Governance Principles and Recommendations. These are summarised as eight principles:

  1. Lay solid foundations for management and oversight:
    A listed entity should clearly delineate the respective roles and responsibilities of its board and management and regularly review their performance.
  2. Structure the board to be effective and add value:
    The board of a listed entity should be of an appropriate size and collectively have the skills, commitment and knowledge of the entity and the industry in which it operates to enable it to discharge its duties effectively and add value.
  3. Instil a culture of acting lawfully, ethically and responsibly:
    A listed entity should instil and continually reinforce a culture of lawful, ethical, and responsible action across the organisation.
  4. Safeguard the integrity of corporate reports:
    A listed entity should have appropriate processes to verify the integrity of its corporate reports.
  5. Make timely and balanced disclosure:
    A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities.
  6. Respect the rights of security holders:
    A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights as security holders effectively.
  7. Recognise and manage risk: A listed entity should establish a sound risk management framework and periodically review its effectiveness.
  8. Remunerate fairly and responsibly:
    A listed entity should pay director remuneration sufficient to attract and retain high-quality directors and design its executive remuneration to attract, retain, and motivate high-quality senior executives and align their interests with the creation of value for security holders and with the entity’s values and risk appetite.

If the company is not prepared to subscribe and operate according to these principles, it should not seek to list on the ASX.

The documentation required to list includes (but is not limited to):

  • Prospectus (commonly 150-200 pages)
  • Audited financial statements for the past three financial years
  • Documents required by ASX Principles and Recommendations:
    • Corporate Governance Statement
    • Board Charter
    • Audit Committee Charter
    • Risk Committee Charter
      (audit and risk committees may be combined)
    • Nomination Committee Charter
    • Remuneration Committee Charter
      (rem. and nom. committees may be combined)
    • Anti-bribery and Anti-corruption Policy
    • Code of Conduct
    • Continuous Disclosure Policy
    • Diversity Policy
    • Privacy Policy
    • Risk Management Policy
    • Securities Dealing Policy
    • Values
    • Whistle-blower Policy

Process for listing on the ASX

ASX 7-step listing processEstimated time
(weeks)
1. Appoint your advisors (lead manager, lawyer, accountant, Acclime)1
2. Prepare for the IPO9
3. Commence institutional marketing3
4. Lodge the prospectus with ASIC2
5. ASX process the listing application6
6. Offer opens and commerce marketing to retail investors3-5
7. Offer closes, company listed on ASX and trading commences2
Total26-28

The total cost of an IPO can range up to 7% of the amount raised.

Understanding the Australia IPO process

1. Preparation and assessment

Before embarking on an IPO journey, companies must assess their readiness and suitability for going public. Company leadership must determine if an ASX listing aligns with long-term strategic goals. Key considerations include:

  • Financial readiness: Does the company possess a compelling financial track record and robust future growth prospects?
  • Compliance preparedness: Can the company comfortably meet the ongoing disclosure and governance requirements of a public entity?
  • Management capability: Does the leadership team possess the experience and temperament to handle the heightened public profile and investor relations complexities?

Assuming a positive self-assessment, the next crucial step involves assembling a capable team of advisors. This team typically comprises:

  • Lawyers: Specialising in corporate and securities law to navigate the legal intricacies of the listing process.
  • Investment bankers: Providing expertise in IPO structuring, investor marketing, and deal execution.
  • Accountants: Ensuring financial statements adhere to strict accounting standards and assisting with due diligence.
  • Public relations specialists: Crafting a compelling company narrative for investors and the media.

2. Due diligence and disclosure

One of the critical phases in an IPO is conducting thorough due diligence to ensure all material information about the company is accurate and disclosed to potential investors. This includes financial statements, operational metrics, legal compliance, risk factors, and future projections. Transparency and clarity in disclosure are paramount to building investor confidence and meeting regulatory requirements.

3. Financial structuring and valuation

Determining the offer price and the number of shares to be issued requires careful financial structuring and valuation analysis. Investment banks are vital in assisting companies with pricing strategies, considering market demand, comparable company valuations, industry trends, and investor sentiment. Achieving an optimal valuation is crucial to attracting investor interest and maximising proceeds from the IPO.

4. Regulatory compliance and listing requirements

Companies planning to list on the ASX, or other Australian exchanges must comply with stringent regulatory standards and listing requirements. This includes meeting minimum capitalisation thresholds, having a solid management team, maintaining corporate governance standards, and adhering to continuous disclosure obligations. Working closely with legal advisors and regulatory authorities is essential to navigate the regulatory landscape effectively.

5. Marketing and roadshow

Leading up to the IPO, companies engage in a comprehensive marketing and roadshow campaign to generate interest from institutional and retail investors. This involves presenting the investment proposition, showcasing the company’s strengths and growth potential, and addressing investor inquiries and concerns. Effective communication and investor outreach are critical drivers of a successful IPO.

6. Pricing and allocation

The pricing of the IPO shares is finalised based on investor feedback, demand levels, and market conditions. Investment banks and underwriters are crucial in pricing negotiations and allocating shares to institutional and retail investors. Balancing pricing expectations with market dynamics is essential to achieving a successful IPO debut and sustaining investor support post-listing.

7. Listing and trading

On the day of listing, the company’s shares are officially traded on the exchange, marking the culmination of the IPO process. The opening trading price, trading volume, and investor sentiment are closely monitored during the initial trading sessions. Companies must maintain transparency and timely communication with investors post-listing to build long-term shareholder value and market confidence.

Ongoing listing requirements

Once listed, a company must comply with the relevant provisions of the Corporations Act and the listing rules at all times. The ASX has a right to suspend trading in a company’s securities if it breaches the Listing Rules and to delist a company for continued or more severe violations.

Some of the key listing rules include:

  • Continuous disclosure obligations (even where the news may be detrimental to the company)
  • Transactions with related parties (particularly directors and their associates)
  • Periodic reporting (half-year report, full-year report and quarterly reports for at least the first eight quarters after listing)
  • Satisfactory structure, operations and financial condition for a listed entity
  • Sufficient spread of shareholders

Conclusion

Companies list on the ASX every year, but the process is not for the faint-hearted. The board and management must determine that listing is a beneficial or necessary step in the company’s broader strategy. Depending on the company’s size and maturity, the process will take at least five months, with significant involvement from management and support from a lead manager, lawyers, accountants, and Acclime.

List confidently on ASX with Acclime

Acclime can offer invaluable assistance throughout the ASX listing process. Our team of experts can guide companies through the complexities of regulatory compliance, financial reporting requirements, and investor relations, ensuring a smooth and successful IPO.


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About Acclime.

Acclime helps established multinational companies and startups start and operate their business in Australia and beyond. By seamlessly navigating our clients through the complexities of the local regulatory systems, we maximise opportunities while ensuring compliance.

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