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To List or Not To List?

Wednesday, April 07, 2021
Why would you want to be listed?

There are 3 fundamental reasons why a company would want to list or remain listed on a traditional stock exchange:

  1. Raise new equity capital,
  2. Provide liquidity for shareholders; i.e. a marketplace to buy/sell securities, and
  3. Diversify shareholder base.
Sometimes companies are criticised for going public ‘too early’ or because the money raised at IPO didn’t get put to good use or because the company lacked the skills to manage the stock exchange’s disclosure obligations. In a widely regarded investment book, “The Intelligent Investor”, Benjamin Graham wrote:

“In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle.”

As is often the case, the reality of being listed on a traditional Stock Exchange is sometimes very different from the initial expectations, as summarised below.
 
 


A company looking to list on a traditional Stock Exchange should closely examine the reality of what is required to become and remain listed. There is no guarantee of raising new capital nor sourcing liquidity for a strong, supportive and long-term shareholder base. Furthermore, it is important to consider some of the other key issues that a listed company may face:

  1. High Listing Costs: The costs to IPO and then remain listed on a traditional Stock Exchange can be material especially for smaller companies including up to $1M for listing and $500,000p.a. for annual fees, compliance and financial reporting, etc.
  2. Fragmented Market: Over 75% of companies listed on the ASX have a market capitalisation of less than $2.9M. They struggle for market relevance, broker support and liquidity.
  3. Additional Resources: Publicly listed companies need to add costly infrastructure and overheads to ensure compliance with Listing Rules including continuous disclosure, audit and information transparency.                                                                                                         Importantly, senior management of listed companies can become too focused on short-term share price performance rather than the long term success of the company.
  4. Strategic & Operational Focus: Publicly listed companies often alter their focus to align with material financial and operational announcements to the market - this can be high-maintenance and, at times, detrimental to a business where the Board and management alter their behaviour, decision-making and execution to minimise any potential adverse impacts of announcements to the share price.
  5. Shareholder Activism, Class Actions and Takeovers: Publicly listed companies often attract undue attention from shareholder activists, short sellers, litigation-funded class actions and opportunistic takeover offers which distract management’s attention away from the underlying business.
  6. Diversity, Gender Targets, Social Responsibility and Social Licence to Operate: Stock Exchanges are increasing their influence over what types of businesses can list and how a company must operate in relation to diversity, gender targets, social responsibility and what is now termed the ‘social licence to operate’. These over-arching controls have the potential to dramatically alter the focus and operation of the business and add increased risk of litigation for actual or perceived non-compliance.
This leads us to the question is private the new public?

Traditionally the fragmented private market has left little opportunity for investors to get involved with private companies and no real alternative for companies to delay going public.

PrimaryMarkets has developed a global Trading Platform that solves a number of these issues while also providing founders, shareholders and companies with an alternative to going public, namely listing on PrimaryMarkets Secondary Trading Platform which enables the buying and selling of shares.

A listing on the PrimaryMarkets Platform provides companies and investors with a number of benefits including:
  1. Flexible Share Trading Rules: These are fully customisable to suit a companies particular needs.
  2. Low Cost Listing: The costs of listing and remaining listed are materially lower than all traditional stock exchanges.
  3. Investor Resources: Dedicated information provided by the company including financials, investor presentations, research notes, press releases etc which provides potential investors with relevant company and investment information.
  4. Global Investor Network: Access to PrimayMarkets global Investor network of over 110,000, potential investors.
  5. Transaction Controls: Timing, conditions of sale and access to trading in the company’s shares can be determined and controlled by the company.
  6. Transparency: Full see through management and monitoring of all transactions and integrated processes for settlement and Share registration including via an inhouse share registry offering.
Investors now also have an opportunity to gain access to fast growing private unlisted companies with significant wealth creation opportunities.

As an example, Virtual Gaming Word (VGW), an online gaming company, founded by one of Australia’s latest billionaires Laurence Escalante, has experienced very strong share price growth and value accretion on the PrimaryMarkets Platform (refer graph below) driven in part by the direct visibility to PrimaryMarkets global network of over 110,000 potential investors, including PE firms, family offices and sophisticated investors.

 

As the economic implications of COVID-19 play out over time and the ASX listing process becomes more protracted and expensive for smaller companies it is likely we will continue to see more companies delay the IPO process and the need for liquidity among shareholders will become more acute and therefore important.

Additionally, the impact of low interest rates and the search for new capital growth opportunities for investors will continue to be an opportunity for both investors and companies in the unlisted space.

As a result, PrimaryMarkets, which offers a genuine alternative to an IPO, will become increasingly relevant as a genuine opportunity for companies and investors to secure liquidity.

If you would like to know more information, please contact us.

 

 

 

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