To list or not to list on the Australian Stock Exchange (ASX). That is the question many businesses looking to raise capital are asking themselves in 2022.
Why list on the ASX?
The Australian Stock Exchange is the 16th largest stock exchange in the world, with a market capitalisation of around $2.5 trillion as of August 2021. It is home to some of Australia’s largest companies, including Commonwealth Bank, BHP Billiton, and Woolworths.
Through listing on the ASX, companies benefit from a variety of advantages. Firstly, they gain access to a pool of large institutional investors interested in investing in Australian stocks. The primary benefit is that businesses can raise capital quickly and efficiently. Quick access to funds is often critical for smaller startups or early-stage companies that may not have the resources to pursue other options, such as venture capital or angel investment.
Benefits of listing on the ASX
The primary reason for listing a company is to raise capital. While listing offers access to additional capital, there are other advantages to consider.
Better access to capital
When you list your company on the ASX, you will have better access to capital. Specifically, selling shares to investors generates the funds you need to reinvest in your business to promote future growth.
IPO or RTO option
A backdoor listing is generally the cheaper, easier, and faster way to list on the ASX compared to an IPO. As the name backdoor suggests, you’re essentially “listing” through a previously listed entity, such as a shell company. Consequently, this shortcut dramatically reduces the costs and time typically needed to prepare for an IPO.
However, for any hopeful entrepreneurs hoping for fast-track meteoric growth, it’s worth noting that the ASX and ASIC uphold the same level of compliance whether a company is listing through an IPO or RTO process.
Increased visibility and credibility
Listing on the ASX will likely give your company increased visibility and credibility. Being listed on a major stock exchange shows that your company is legitimate and has met all the mandatory requirements. Accordingly, the boost in credibility is likely to attract new customers, partners, and talented employees.
Liquidity for shareholders
Not having to wait a long time to receive payment for their shares means investors are more willing to invest in your company, knowing that they can easily take advantage of an opportunity to cash out should they need it.
Finally, listing on the ASX can also provide some tax benefits. Tax offsets like the innovation patent and certain R&D tax concessions are available to some listed companies. Offsets like these are particularly valuable for startups and smaller companies needing additional support to grow their business.
Risks to consider
Listing to raise additional capital is a sound growth strategy, but there are also risks to consider, including:
- Increased competition from other companies trying to raise capital on the ASX
- Potential challenges in meeting listing requirements and compliance obligations
- Reduced level of control over company decisions and strategies
- Changes in market conditions may make it difficult to raise capital or sell shares at the desired price
- Director responsibilities and liabilities may impact the company’s bottom line
- High media exposure and public scrutiny can be challenging to manage and may negatively impact the business
These are just some of the risks involved in listing your company, and it’s essential to consider all factors carefully before making a final decision. However, doing your research and consulting expert advice to assess whether listing is right for your company is the all-important first step.
Listing on the Australian Stock Exchange certainly has advantages, including better access to capital, increased visibility and credibility, liquidity for shareholders, and tax benefits. While there are risks, the benefits often outweigh them.
Ultimately, listing comes down to assessing all the pros and cons and making an informed decision that is right for the future of your business.
Need more help?
Our CFO services team can assist with the transition and can also help you operate as a public entity prior to any ASX listing. Our services include (but are not limited to):
- Making sure that internal processes such as financial reporting, controls and information systems are robust
- Acting as an IFRS advisor – advise you on key accounting considerations including identifying and improving accounting and financial reporting systems that are at high risk of noncompliance with Australian Accounting Standards
- Assisting with the preparation of financial statements that are compliant with Australian Accounting Standards (Year end and half year), and
- Assisting with compliance with auditors and tax professionals.