Reform, Resistance and the Decline of IPOs
A number of inter‑related factors may explain Australia’s subdued IPO market in 2024 and into 2025.
First, global market volatility and macroeconomic uncertainty deter both new issuers and investors from activating IPO exit strategies. Many potential IPO candidates remain in private hands longer, backed by capital provided by the private markets or private equity.
Second, increased availability of private capital allows promising firms to stay private longer and raise the necessary funding outside of the public scrutiny which comes with an IPO.
Third, stringent regulatory and compliance requirements – including governance standards, remuneration reporting obligations, prospectus scrutiny and transparency – raise the cost and lead time for accessing public equity. Small‑cap companies often struggle to manage these burdens while managing the business and delivering investor returns.
Fourth, Australia’s structural disadvantages in comparison to more flexible overseas markets, eg the prohibition against dual‑class shares, make the ASX less attractive to founder‑led growth firms.
Together, these conditions have contributed to subdued IPO activity, prompting ASX urgency to address reforms.
Some proposed reforms to revive listings
The ASX introduced a number of changes to the ASX Listing rules (Applying for Admission) that took effect on 30 May 2025 which, in some cases, formalised long‑standing ASX practices and clarified expectations for early‑stage applicants.
These revisions are the first substantive update since 2019 and bring greater transparency to the criteria surrounding the suitability of corporate structures and business maturity, while streamlining the process.
Background
Historically the ASX was the go-to place for early stage companies such as mining, tech, bio tech and medical tech to raise money. This well trodden path involved, in the case of mining companies, raising capital at an early stage to fund initial exploration and in the case of tech companies, getting hold of some promising Intellectual Property, doing some initial research and then spinning it off into the public markets to raise capital to conduct further research as a prelude to initial trials.
Over time this has become an increasingly difficult road to travel for smaller and early stage companies as the ASX has increased its scrutiny and toughened its criteria for admission to listing.
In light of this it is not surprising that there is now a dearth of new smaller listings and that the need for capital that was once provided by the ASX has now been filled by the private market sector.
Facing one of the lowest IPO volumes in over a decade, with just $2 billion raised in 2024, with $1.3 billion attributable to a single listing, the ASX initiated consultation papers proposing some key reforms.
Among the various proposals, the one that has perhaps garnered the most public attention is the ASX’s proposal to limit ASIC’s exposure period extension to seven days and allow retail investor participation during the exposure period, aiming to reduce regulatory delay and broaden inclusive investor access.
While on its face this is a welcome development, there are two very important caveats which effectively mean that this change will not apply to a large number of potential new listings and therefore will not address the fundamental problem of encouraging new listings.
The first caveat is that it only applies to companies with an expected market capitalisation on listing of more than $100 million. It is stating the obvious to point out that almost all early stage mining and tech companies will have a market capitalisation of less than $100m.
The second and more nuanced, caveat is that it only applies to those companies that will not have any securities that are subject to an ASX imposed escrow. Again, this will have an outsized impact on mining and tech companies, even where their market capitalisation is more than $100m. Typically these types of companies will have a number of shareholders including founders, directors and early stage investors who will be obliged to accept an ASX imposed escrow, which in some cases can last up to 2 years. This is notwithstanding that they may have no intention of selling post IPO.
It is counter intuitive and difficult to see the connection between fast tracking the listing process for more established companies on the one hand and linking its availability to situations where there is no escrow, but the fact remains that the ASX has done so.
It remains to be seen whether this change will have any material impact on the number of new IPOs.
Dual Class Shares
Another change under consideration is the proposed introduction of dual‑class share structures. The ASX is contemplating permitting dual‑class share structures, aligning for example with London and New York, to attract founder‑led or innovative companies that might otherwise list overseas.
Dual-class share structures involve issuing different classes of shares, each with distinct voting rights and, in some cases, by extension, economic rights. Typically, one class grants enhanced voting power to company founders or insiders, while the other offers reduced, limited or no voting rights to public investors. This arrangement enables founders to access public markets to raise capital without having their voting power diluted and potentially, over time, relinquishing control over the company.
This is contentious. While some listing candidates view dual‑class as a competitive differentiator, investors warn that it cements control in the hands of a few, weakens accountability and elevates the risk of founder entrenchment. Proponents argue that dual-class shares allow visionary founders and charismatic leaders to pursue long-term objectives without succumbing to short-term market pressures. Past scandals involving strongly out-spoken founders both in Australia and overseas have heightened scepticism of this argument.
Investor advocacy groups emphasise that Australia previously abandoned dual‑class shares. They urge that any re‑introduction must come with robust oversight, mandatory sunset clauses or voting thresholds and clear disclosure to protect non‑founder shareholders.
The US experience is interesting. Alphabet Inc., the parent company of Google, operates under a three-class share structure. Meta Platforms (formerly Facebook) has a dual-class share structure granting CEO Mark Zuckerberg outsized voting power. News Corp also operates under a dual-class share structure that gives the Murdoch family significant control over the company. Berkshire Hathaway, led by Warren Buffett, utilizes a two-class share system with Class A shares possessing much greater voting power than Class B shares. By contrast, Elon Musk’s Tesla and Jeff Bezos’s Amazon do not have dual-class share structures. Tesla and Amazon both have a single-class share structure, meaning each share carries equal voting rights.
For the ASX, the challenge lies in striking a balance between making the market attractive for high-growth, founder-led companies of all sizes and ensuring that investor protections remain robust.
How Could the ASX Enhance Flexibility?
To restore vibrancy to its listing pipeline while maintaining strong governance, the ASX should consider the following flexible reforms:
- Implement tiered governance models: allow small cap companies to list with modified reporting obligations including for remuneration.
- Permit conditional or transitional dual‑class structures with safeguards such as sunset provisions, voting veto rights for key decisions, or higher public float thresholds. This could attract growth‑oriented issuers without permanently entrenching control.
- Adopt scaled free float and capital raising thresholds. For smaller issuers, allow lower free float but require staged minimums over time backed by liquidity commitments or lock‑up arrangements.
- The reforms aimed at streamlining the exposure period and regulatory reviews should apply to companies with a market capitalisation of less than $100 million and be independent of any ASX escrow obligations.
ASX’s recent update to its guidance is welcome. However, a broader challenge remains, financial markets are evolving, listing volumes are low and smaller issuers are disproportionately burdened. The ASX’s proposed IPO reforms do not address the unique issues and problems faced by small cap companies. Investors are worried about the lack of tailored relief for small‑cap issuers.
ASX must balance flexibility with investor protection. This can be achieved through a nuanced and graded regime more appropriate for early‑stage companies. If implemented effectively, such reforms could help reignite Australia’s listing market while preserving credibility in its regulatory framework.
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