Description
Half-time lead
Deloitte 2015 IPO market update
September 2015
In collaboration with
. At the close of the first half (1H15), floats on the ASX
raised $2.5bn (with market capitalisation of $5.4bn)
through 30 IPOs. While this exceeded the 22 listings
for 1H14, funds raised failed to surpass the $4.6bn
of that period ($8.5bn market capitalisation including
Spotless Group, Genworth, Asaleo and SG Fleet),
a drop of 53% in average listing values.
With market fundamentals largely unchanged (albeit
with fewer behemoth listings such as the $5.7bn
Medibank IPO in November 2014) IPO proceeds should
find it easier to meet their targets going into the second
half of 2015, which is expected to see a number of
sizeable listings, including Link Market Services, Genesis
Care, IDP Education and Wellard Group.
Macroeconomic overview
As the global experiment with cheap credit continues,
the macroeconomic environment remains one of
opposing forces when it comes to listings. Although the
US is edging closer to its first interest rate hike, that does
not appear to be true of Europe or Japan, and much of
Asia is busily easing policy.
Low rates will not be here forever – although change is
not imminent and cheap credit will be around for a while
longer yet – but when they do unwind, it will be a wild
ride for many markets. The Reserve Bank of Australia
may not cut again in this cycle, as it is a bit spooked
by housing prices.
Also, low interest rates continue to support equity, amplified by the dollar, which has made the Australian market more attractive for foreign Ian Turner, Head of Transaction Services ASX public listings $14,000 35 $13,000 $12,000 30 $11,000 $10,000 25 $9,000 $8,000 20 $7,000 $6,000 15 $5,000 $4,000 Number of listings Despite these differences, half-on-half year comparisons show that debut growth improved, with 1H14 listings achieving average returns of 7.3% and 1H15 returning 19.1%. Additionally, ASX performance to June was up 0.4% in comparison with the same period last year. There were a further 18 listings over the course of the last two months to the date of this report, including Costa, Pepper Group and Amaysim, that continue to exceed market expectations. "2014 listings have continued to build on their performance and significantly outperformed the ASX. Despite global volatility, we are seeing strong investor confidence given the quality of IPOs — you only have to look at the 1H 2015 listings and their impressive performance.” Market capitalisation ($m) First half at a glance Following a year of record listings, initial public offerings (IPOs) on the ASX have settled into more modest territory in the first half of 2015, with a growing appetite for stocks that offer a balance between income and capital returns as market volatility rears its head once again. 10 $3,000 $2,000 5 $1,000 $0 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 2013 Market capitalisation ($m) Qtr3 2014 Qtr4 Qtr1 Qtr2 0 2015 Number of listings investors.
On the other hand, a modest Australian economic outlook will dampen future cash flow expectations of companies relying on domestic demand. Expected US interest rate rises in the foreseeable future are likely to see a shift in global funds back to the US. While such capital flight is unlikely to affect Australia as much as other nations, it will play a role in increased financial market volatility that is starting to emerge. CFOs of Australia’s largest listed companies, however, appear to weigh the positive factors most heavily. The Deloitte CFO Survey1 has reported a more positive outlook in the last six months, with significant improvement in net optimism. What’s more, 20% The Deloitte CFO Survey targets the CFOs of major Australian listed companies. It has been conducted on a quarterly basis since Q3 2009. http://www2.deloitte.com/au/en/pages/about-deloitte/articles/cfo-survey-2015.html 1 2 .
investor appetite for tech runs high, buyers are cautious and may limit investments to tech firms with robust operating models, profit history, and strong balance sheets, as opposed to early-stage companies. ASX listings by sectors (1H15) 50% 47% 47% 45% 40% Trending sectors: Financial services and property Financial services stood out for its 21% share of listing values. With six IPOs, the sector had the second largest number of listings by industry, and one of the largest IPOs for the half year with the $550m float of Eclipx Group. 35% 30% 27% 25% 20% 20% 21% 18% 16% Listing volume Capital raised 2% 1% 7% 3% 0% 3% 3% 0% 0% 0% Agriculture 1%1% 7% Commerical services 3% Energy & resources 2% Retail Property & construction Financial services TMT 0% 7% 7% 3% 5% Consumer services 10% 13% 12% 10% 10% Healthcare 9% Infrastructure & logistics 15% Property and construction companies also received strong investor support, with the sector accounting for 16% of listing values. Public listings are being driven by companies looking to profit from macro-trends in the economy, primarily Australia’s property boom and ageing population. Market capitalisation of CFOs expect to increase equity issuance in the next 12 months, while more than half of respondents perceive equity to be an attractive source of funding – a substantial improvement compared to this time last year. Tech’s time to shine The technology, media, and telecommunications (TMT) industry led listings for 1H15, accounting for 47% of listing values, and 27% of all IPOs. Favourable conditions are adding to confidence among tech companies and financial sponsors that an IPO presents an attractive option to raising growth capital and establishing a profile on public exchanges.
TMT activity was led by the $2.1bn listing of accounting software developer MYOB Group, followed by the floats of billboard operator QMS Media and bespoke software developer Touchcorp. The remaining listings had an average market capitalisation of c.$50m, underscoring the trend of young, small-cap technology firms finding their place on the ASX. While Gateway Lifestyle, a developer of modular estates for the elderly and those approaching retirement, buttressed IPO figures in the sector with its $500m listing.
The company’s chief executive said fragmentation within the industry gives the company abundant opportunity to acquire properties and developers, providing ample scope for growth and expansion, a trend likely to encourage activity from other companies within the industry. Performance update: The class of 2014 Following our 2015 IPO report, the majority of listings for the class of 2014 continue to show impressive growth. The top ten IPOs [overleaf] based on share price performance at December 2014 have for the most part continued to significantly increase gains into 1H 2015. The average performance of all companies that listed in 2014 during the first half of 2015 was 12.7%. Listings of healthcare and financial services companies, two stand-out sectors in 2014 with average performances of 11.4% and 16.4% respectively, posted striking differences in returns at the close of 1H15. "Raising their attractiveness (value) is one component to encourage investors, but companies that want to be truly effective will make the proposition simple with a well-articulated story to their business. Stocks that struggled to go public this year were typically not well understood by the market.” Tapan Verma, Director 3 .
The class of 2014 - Performance update, top 10 IPOs >$75m in 2014 Company name Listing date Industry Beacon Lighting Group Ltd 15-Apr-14 Retail IPH Ltd 19-Nov-14 Bellamy’s Australia Ltd As of 31 Dec 2014 As of 30 June 2015 127.3% 203.0% Commercial services 66.7% 123.8% 05-Aug-14 Retail 65.0% 337.0% Mantra Group Ltd 20-Jun-14 Consumer services CVC Capital Partners 61.1% 90.0% Victor Group Holdings Ltd 09-May-14 TMT 40.0% - Pacific Smiles Group Ltd 21-Nov-14 Healthcare TDA Asset Management 38.5% 80.8% Burson Group Ltd 24-Apr-14 Retail Quadrant 37.4% 86.8% Genworth Mortgage Insurance Australia Ltd 20-May-14 Financial services 37.4% 18.5% Isentia Group Ltd 05-Jun-14 TMT Quadrant 35.8% 83.8% Healthscope Ltd 28-Jul-14 Healthcare TPG and Carlyle Group 29.5% 29.5% While healthcare IPOs increased average performance to 29.2%, largely on the heels of growth in Pacific Smiles Group and Regis Healthcare, financial services saw industry and company gains evaporate. Private equity owner 2014 listings performance update, by sector FY 2014 1H 2015 Commercial services 46.3% 98.1% Performance in tech IPOs continued to post growth from averages of 12.9% in 2014 to 26.2% as of 1H15, while an apparent boom in retail resulted in a dramatic increase from 10.4% to 79.8%. Retail 10.4% 79.8% (26.8%) 33.5% Healthcare 11.4% 29.2% Consumer services 33.1% 27.3% Listings in 2015 Despite the recent turbulence in global markets, there have been a total of 48 listings (36 in 2014) up to the date of this report, raising $4.4bn and representing a total market capitalisation of $8.4bn. Technology and financial services listings continue to drive investor appetite and represent 50% of all 2015 listings. TMT 12.9% 26.2% Property & construction 17.9% 2.0% Financial services 16.4% 0% Energy & resources (83.3%) (11.2%) Education (35.3%) (37.7%) The IPO market continues to significantly outperform the ASX 200, demonstrated further by strong growth of stocks including Eclipx (34.8%) and the recent listing of Pepper Group (29.2%), amongst others. Of the 48 listings in 2015, 21 had a market capitalisation in excess of $75m, generating an average share price performance gain of 7.2%. In comparison, the ASX 200 has continued to be subject to market volatility on the back of international uncertainty, dropping 4.1% over the period to 21 August 2015. Private equity steals the show With just five floats during 1H 2015 with a market capitalisation of $3.6bn and accounting for 67% of Sector Infrastructure & logistics total listing values for the half year, private equity once again shines. This surpassed full-year deal statistics for 2014, when private equity exits and equity sales via IPO accounted for 46% of listing values and 40% of volumes. Performance of private equity-backed companies have, on the whole, witnessed positive growth, with average share price movement of 19.6% from listing date to the date of this report.
Of the five listings, only accounting software company MYOB, owned by Bain Capital, saw a drop in the stock price, posting a loss of 13.4% since listing in May 2015, with concerns over the growing market share of Xero and other cloud-based platforms. 4 . Performance of >$75m listings for 2015, to 21 August 2015 140% 120% 120.0% 100% 80% 62.9% 60% 50.0% 40% 34.8% 33.3% 29.2% 29.2% 27.1% 24.4% 24.0% 20% 21.7% Argo Global Wealth XPD Defender Costa Soccer Equities Group (4.5%) (5.0%) 13.0% GARDA 0.0% 0% Superloop Future Martin Fibre Aircraft Eclipx Mitula QMS Media Pepper Touch- Amaysim corp Kina Adairs Gateway Shriro (1.0%) (6.0%) (6.7%) AFG (7.5%) -20% Comparing exchanges: Hong Kong and Singapore While the ASX continues to hold investor interest, Hong Kong has maintained its position as one of the top stock exchanges in the Asia-Pacific region by listing volume and value. In 1H15, the HKEx had 46 listings raising $22.2bn (HK$127bn), and expectations hold that these figures could double by year end. The exchange featured two of the world’s top IPOs, in the listing of China-based Huatai Securities and GF Securities, and a promising pipeline is also forming as other Chinese financing service providers follow suit with plans to IPO in 2H15. MG Unit MYOB (9.5%) (13.4%) Private equity-backed IPO performance (21 August 2015) Private equity ï¬rm Anacacia Capital Ironbridge Capital Catalyst Investment Managers Alceon Group, Quattro Capital Group, PortNordica Bain Capital Listing date 07-Jan-15 22-Apr-15 17-Jun-15 11-Jun-15 04-May-15 60% 55.0% 50% 40% 34.8% 30% 21.7% By contrast, IPOs in Singapore all but ground to a halt, with public listings raising just $1.1bn in 1H15. This was a year-on-year decline of 54%. 20% Asian issuers set sights on ASX The Chinese government’s freeze on IPOs on China’s main exchanges and the aftermath over the last two months could cause some companies to reconsider their listing options in favour of an ASX listing when seeking to go public.
This provides an alternative to smaller Chinese companies wanting to avoid the cost and free float requirements of other Asian exchanges. In some of Asia’s larger exchanges, these figures can be quite high, with Hong Kong requiring 25% and Singapore ranging from 12-25%. -10% 0% Listing on the ASX gives Asian companies global exposure, and a market and brand profile. It can also provide companies, especially smaller privately-held businesses from China and companies from New 13.0% 10% MYOB Group Ltd Appen Ltd Eclipx Group Ltd Adairs Ltd Gateway Lifestyle Group -20% (13.4%) Zealand looking for a dual listing, with better access to debt markets and a boost to liquidity as an option for funding growth and broadening the potential investor and capital base. Backdoor listings and reverse takeovers A backdoor listing reduces the costs of becoming a public company. The listings are facilitated when an ASX aspirant strikes a deal with a failed or failing listed company looking for a way to repurpose its administrative shell to unlock some value for its shareholders. 5 .
Tax value considerations Significant cash tax savings can be added through proper analysis of tax opportunities and risks associated with an IPO. To the extent any cash savings or tax benefits arise, it is possible to recognise them in the prospectus over the forecast period, which can impact the value proposition for the listed group. A key consideration relevant to cash flows and forecasts is the treatment of transaction costs. Depending on the nature of the cost and listing structure, some costs may be immediately deductible for Australian income tax purposes (a 30% tax benefit for corporate groups), while others may be deductible over five years. Transaction costs can give rise to immediate significant one-off GST cash refunds. As such, proper consideration can maximise GST recovery while also ensuring appropriate documentation for lodgement purposes. Other tax benefits impacting the forecast period can include the resetting of the tax value of underlying tax advantaged assets (such as inventory or depreciable assets) to market value and/or tax attributes such as losses. To maximise shareholder value, distribution strategies and the ability to best utilise franking credits (in terms of exiting shareholders or for investors over the forecast period) are also important and can be impacted by specific tax outcomes. Incentive and share option plans The value proposition for senior management and employees in relation to the listed group should be considered early on in the IPO timeline. Any plan should appropriately incentivise and reward key stakeholders, while managing tax outcomes and documentation requirements.
This may include short term incentive plans such as bonus structures or longer term executive incentive equity plans. Unlike IPOs, backdoor listings are usually not noticed. Brokers rarely promote them and there is no central information source that tracks recent and upcoming backdoor listings or analyses their aggregate performance. They quietly list and stay below the market radar. Tech companies are taking advantage of failing exploration/mining companies, utilising these companies as shells to facilitate a backdoor listing. This has attracted the Australian Securities and Investments Commission’s attention, which is concerned about sufficient and appropriate disclosure. Outlook: 2H15 and 2016 As 2016 approaches, global economic factors are likely to weigh heavily on investor sentiment whilst also posing challenges to company management.
Despite volatility and pricing expectation gaps, there continues to be a very healthy pipeline of c.40 IPOs for the remainder of the year and into early 2016. Sustained performance of 2014 and 2015 listings demonstrates the quality of stocks that are coming to market. As a result of resolutions over the Greek Crisis, a continuing low cash rate, restrictions and market intervention on the Chinese exchange, the ASX will in our view continue to prove an attractive proposition for growth and capital access — once the dust from the recent market volatility settles. There are a number of complexities with implementing incentive plans, which should be considered early to ensure appropriate design and implementation and disclosure in the prospectus from an accounting and tax perspective. “It is encouraging to see that listings in the last two years have held their own, which reflects the quality that investors have come to expect. There’s a lot of positive news coming out of this reporting season with the vast majority of 2014 listings exceeding their prospectus forecasts.” Ian Turner, Head of Transaction Services 6 .
About Mergermarket Mergermarket is an unparalleled, independent mergers and acquisitions (M&A) proprietary intelligence tool. Unlike any other service of its kind, Mergermarket provides a complete overview of the M&A market by offering both a forward-looking intelligence database and a historical deals database, achieving real revenues for Mergermarket clients. Remark, the events and publications arm of the Mergermarket Group, offers a range of publishing, research and events services that enable clients to enhance their own profile, and to develop new business opportunities with their target audience. For more information please contact: Nathan Ho Business Development Manager, Remark Asia nathan.ho@mergermarket.com +852 2158 9789 . Deloitte contacts IPO Transaction & Tax Services Ian Turner Partner – Head of Transaction Services Tel: +61 2 9322 7048 Email: iaturner@deloitte.com.au Tapan Verma Director – Transaction Services Tel: +61 2 9322 7252 Email: tapanverma@deloitte.com.au Trisha Barton Partner – Mergers and Acquisitions Tax Tel: +61 3 9671 6644 Email: trbarton@deloitte.com.au John O’Mahony Partner – Deloitte Access Economics Tel: +61 2 9322 7877 Email: joomahony@deloitte.com.au Kristian Kolding Director – Deloitte Access Economics Tel: +61 2 8260 4089 Email: kkolding@deloitte.com.au Contributors Alexander Halhead Senior Analyst – Transaction Services Tel: +61 2 9322 5315 Email: alexhalhead@deloitte.com.au Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s approximately 200,000 professionals are committed to becoming the standard of excellence. About Deloitte Australia In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country.
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Also, low interest rates continue to support equity, amplified by the dollar, which has made the Australian market more attractive for foreign Ian Turner, Head of Transaction Services ASX public listings $14,000 35 $13,000 $12,000 30 $11,000 $10,000 25 $9,000 $8,000 20 $7,000 $6,000 15 $5,000 $4,000 Number of listings Despite these differences, half-on-half year comparisons show that debut growth improved, with 1H14 listings achieving average returns of 7.3% and 1H15 returning 19.1%. Additionally, ASX performance to June was up 0.4% in comparison with the same period last year. There were a further 18 listings over the course of the last two months to the date of this report, including Costa, Pepper Group and Amaysim, that continue to exceed market expectations. "2014 listings have continued to build on their performance and significantly outperformed the ASX. Despite global volatility, we are seeing strong investor confidence given the quality of IPOs — you only have to look at the 1H 2015 listings and their impressive performance.” Market capitalisation ($m) First half at a glance Following a year of record listings, initial public offerings (IPOs) on the ASX have settled into more modest territory in the first half of 2015, with a growing appetite for stocks that offer a balance between income and capital returns as market volatility rears its head once again. 10 $3,000 $2,000 5 $1,000 $0 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 2013 Market capitalisation ($m) Qtr3 2014 Qtr4 Qtr1 Qtr2 0 2015 Number of listings investors.
On the other hand, a modest Australian economic outlook will dampen future cash flow expectations of companies relying on domestic demand. Expected US interest rate rises in the foreseeable future are likely to see a shift in global funds back to the US. While such capital flight is unlikely to affect Australia as much as other nations, it will play a role in increased financial market volatility that is starting to emerge. CFOs of Australia’s largest listed companies, however, appear to weigh the positive factors most heavily. The Deloitte CFO Survey1 has reported a more positive outlook in the last six months, with significant improvement in net optimism. What’s more, 20% The Deloitte CFO Survey targets the CFOs of major Australian listed companies. It has been conducted on a quarterly basis since Q3 2009. http://www2.deloitte.com/au/en/pages/about-deloitte/articles/cfo-survey-2015.html 1 2 .
investor appetite for tech runs high, buyers are cautious and may limit investments to tech firms with robust operating models, profit history, and strong balance sheets, as opposed to early-stage companies. ASX listings by sectors (1H15) 50% 47% 47% 45% 40% Trending sectors: Financial services and property Financial services stood out for its 21% share of listing values. With six IPOs, the sector had the second largest number of listings by industry, and one of the largest IPOs for the half year with the $550m float of Eclipx Group. 35% 30% 27% 25% 20% 20% 21% 18% 16% Listing volume Capital raised 2% 1% 7% 3% 0% 3% 3% 0% 0% 0% Agriculture 1%1% 7% Commerical services 3% Energy & resources 2% Retail Property & construction Financial services TMT 0% 7% 7% 3% 5% Consumer services 10% 13% 12% 10% 10% Healthcare 9% Infrastructure & logistics 15% Property and construction companies also received strong investor support, with the sector accounting for 16% of listing values. Public listings are being driven by companies looking to profit from macro-trends in the economy, primarily Australia’s property boom and ageing population. Market capitalisation of CFOs expect to increase equity issuance in the next 12 months, while more than half of respondents perceive equity to be an attractive source of funding – a substantial improvement compared to this time last year. Tech’s time to shine The technology, media, and telecommunications (TMT) industry led listings for 1H15, accounting for 47% of listing values, and 27% of all IPOs. Favourable conditions are adding to confidence among tech companies and financial sponsors that an IPO presents an attractive option to raising growth capital and establishing a profile on public exchanges.
TMT activity was led by the $2.1bn listing of accounting software developer MYOB Group, followed by the floats of billboard operator QMS Media and bespoke software developer Touchcorp. The remaining listings had an average market capitalisation of c.$50m, underscoring the trend of young, small-cap technology firms finding their place on the ASX. While Gateway Lifestyle, a developer of modular estates for the elderly and those approaching retirement, buttressed IPO figures in the sector with its $500m listing.
The company’s chief executive said fragmentation within the industry gives the company abundant opportunity to acquire properties and developers, providing ample scope for growth and expansion, a trend likely to encourage activity from other companies within the industry. Performance update: The class of 2014 Following our 2015 IPO report, the majority of listings for the class of 2014 continue to show impressive growth. The top ten IPOs [overleaf] based on share price performance at December 2014 have for the most part continued to significantly increase gains into 1H 2015. The average performance of all companies that listed in 2014 during the first half of 2015 was 12.7%. Listings of healthcare and financial services companies, two stand-out sectors in 2014 with average performances of 11.4% and 16.4% respectively, posted striking differences in returns at the close of 1H15. "Raising their attractiveness (value) is one component to encourage investors, but companies that want to be truly effective will make the proposition simple with a well-articulated story to their business. Stocks that struggled to go public this year were typically not well understood by the market.” Tapan Verma, Director 3 .
The class of 2014 - Performance update, top 10 IPOs >$75m in 2014 Company name Listing date Industry Beacon Lighting Group Ltd 15-Apr-14 Retail IPH Ltd 19-Nov-14 Bellamy’s Australia Ltd As of 31 Dec 2014 As of 30 June 2015 127.3% 203.0% Commercial services 66.7% 123.8% 05-Aug-14 Retail 65.0% 337.0% Mantra Group Ltd 20-Jun-14 Consumer services CVC Capital Partners 61.1% 90.0% Victor Group Holdings Ltd 09-May-14 TMT 40.0% - Pacific Smiles Group Ltd 21-Nov-14 Healthcare TDA Asset Management 38.5% 80.8% Burson Group Ltd 24-Apr-14 Retail Quadrant 37.4% 86.8% Genworth Mortgage Insurance Australia Ltd 20-May-14 Financial services 37.4% 18.5% Isentia Group Ltd 05-Jun-14 TMT Quadrant 35.8% 83.8% Healthscope Ltd 28-Jul-14 Healthcare TPG and Carlyle Group 29.5% 29.5% While healthcare IPOs increased average performance to 29.2%, largely on the heels of growth in Pacific Smiles Group and Regis Healthcare, financial services saw industry and company gains evaporate. Private equity owner 2014 listings performance update, by sector FY 2014 1H 2015 Commercial services 46.3% 98.1% Performance in tech IPOs continued to post growth from averages of 12.9% in 2014 to 26.2% as of 1H15, while an apparent boom in retail resulted in a dramatic increase from 10.4% to 79.8%. Retail 10.4% 79.8% (26.8%) 33.5% Healthcare 11.4% 29.2% Consumer services 33.1% 27.3% Listings in 2015 Despite the recent turbulence in global markets, there have been a total of 48 listings (36 in 2014) up to the date of this report, raising $4.4bn and representing a total market capitalisation of $8.4bn. Technology and financial services listings continue to drive investor appetite and represent 50% of all 2015 listings. TMT 12.9% 26.2% Property & construction 17.9% 2.0% Financial services 16.4% 0% Energy & resources (83.3%) (11.2%) Education (35.3%) (37.7%) The IPO market continues to significantly outperform the ASX 200, demonstrated further by strong growth of stocks including Eclipx (34.8%) and the recent listing of Pepper Group (29.2%), amongst others. Of the 48 listings in 2015, 21 had a market capitalisation in excess of $75m, generating an average share price performance gain of 7.2%. In comparison, the ASX 200 has continued to be subject to market volatility on the back of international uncertainty, dropping 4.1% over the period to 21 August 2015. Private equity steals the show With just five floats during 1H 2015 with a market capitalisation of $3.6bn and accounting for 67% of Sector Infrastructure & logistics total listing values for the half year, private equity once again shines. This surpassed full-year deal statistics for 2014, when private equity exits and equity sales via IPO accounted for 46% of listing values and 40% of volumes. Performance of private equity-backed companies have, on the whole, witnessed positive growth, with average share price movement of 19.6% from listing date to the date of this report.
Of the five listings, only accounting software company MYOB, owned by Bain Capital, saw a drop in the stock price, posting a loss of 13.4% since listing in May 2015, with concerns over the growing market share of Xero and other cloud-based platforms. 4 . Performance of >$75m listings for 2015, to 21 August 2015 140% 120% 120.0% 100% 80% 62.9% 60% 50.0% 40% 34.8% 33.3% 29.2% 29.2% 27.1% 24.4% 24.0% 20% 21.7% Argo Global Wealth XPD Defender Costa Soccer Equities Group (4.5%) (5.0%) 13.0% GARDA 0.0% 0% Superloop Future Martin Fibre Aircraft Eclipx Mitula QMS Media Pepper Touch- Amaysim corp Kina Adairs Gateway Shriro (1.0%) (6.0%) (6.7%) AFG (7.5%) -20% Comparing exchanges: Hong Kong and Singapore While the ASX continues to hold investor interest, Hong Kong has maintained its position as one of the top stock exchanges in the Asia-Pacific region by listing volume and value. In 1H15, the HKEx had 46 listings raising $22.2bn (HK$127bn), and expectations hold that these figures could double by year end. The exchange featured two of the world’s top IPOs, in the listing of China-based Huatai Securities and GF Securities, and a promising pipeline is also forming as other Chinese financing service providers follow suit with plans to IPO in 2H15. MG Unit MYOB (9.5%) (13.4%) Private equity-backed IPO performance (21 August 2015) Private equity ï¬rm Anacacia Capital Ironbridge Capital Catalyst Investment Managers Alceon Group, Quattro Capital Group, PortNordica Bain Capital Listing date 07-Jan-15 22-Apr-15 17-Jun-15 11-Jun-15 04-May-15 60% 55.0% 50% 40% 34.8% 30% 21.7% By contrast, IPOs in Singapore all but ground to a halt, with public listings raising just $1.1bn in 1H15. This was a year-on-year decline of 54%. 20% Asian issuers set sights on ASX The Chinese government’s freeze on IPOs on China’s main exchanges and the aftermath over the last two months could cause some companies to reconsider their listing options in favour of an ASX listing when seeking to go public.
This provides an alternative to smaller Chinese companies wanting to avoid the cost and free float requirements of other Asian exchanges. In some of Asia’s larger exchanges, these figures can be quite high, with Hong Kong requiring 25% and Singapore ranging from 12-25%. -10% 0% Listing on the ASX gives Asian companies global exposure, and a market and brand profile. It can also provide companies, especially smaller privately-held businesses from China and companies from New 13.0% 10% MYOB Group Ltd Appen Ltd Eclipx Group Ltd Adairs Ltd Gateway Lifestyle Group -20% (13.4%) Zealand looking for a dual listing, with better access to debt markets and a boost to liquidity as an option for funding growth and broadening the potential investor and capital base. Backdoor listings and reverse takeovers A backdoor listing reduces the costs of becoming a public company. The listings are facilitated when an ASX aspirant strikes a deal with a failed or failing listed company looking for a way to repurpose its administrative shell to unlock some value for its shareholders. 5 .
Tax value considerations Significant cash tax savings can be added through proper analysis of tax opportunities and risks associated with an IPO. To the extent any cash savings or tax benefits arise, it is possible to recognise them in the prospectus over the forecast period, which can impact the value proposition for the listed group. A key consideration relevant to cash flows and forecasts is the treatment of transaction costs. Depending on the nature of the cost and listing structure, some costs may be immediately deductible for Australian income tax purposes (a 30% tax benefit for corporate groups), while others may be deductible over five years. Transaction costs can give rise to immediate significant one-off GST cash refunds. As such, proper consideration can maximise GST recovery while also ensuring appropriate documentation for lodgement purposes. Other tax benefits impacting the forecast period can include the resetting of the tax value of underlying tax advantaged assets (such as inventory or depreciable assets) to market value and/or tax attributes such as losses. To maximise shareholder value, distribution strategies and the ability to best utilise franking credits (in terms of exiting shareholders or for investors over the forecast period) are also important and can be impacted by specific tax outcomes. Incentive and share option plans The value proposition for senior management and employees in relation to the listed group should be considered early on in the IPO timeline. Any plan should appropriately incentivise and reward key stakeholders, while managing tax outcomes and documentation requirements.
This may include short term incentive plans such as bonus structures or longer term executive incentive equity plans. Unlike IPOs, backdoor listings are usually not noticed. Brokers rarely promote them and there is no central information source that tracks recent and upcoming backdoor listings or analyses their aggregate performance. They quietly list and stay below the market radar. Tech companies are taking advantage of failing exploration/mining companies, utilising these companies as shells to facilitate a backdoor listing. This has attracted the Australian Securities and Investments Commission’s attention, which is concerned about sufficient and appropriate disclosure. Outlook: 2H15 and 2016 As 2016 approaches, global economic factors are likely to weigh heavily on investor sentiment whilst also posing challenges to company management.
Despite volatility and pricing expectation gaps, there continues to be a very healthy pipeline of c.40 IPOs for the remainder of the year and into early 2016. Sustained performance of 2014 and 2015 listings demonstrates the quality of stocks that are coming to market. As a result of resolutions over the Greek Crisis, a continuing low cash rate, restrictions and market intervention on the Chinese exchange, the ASX will in our view continue to prove an attractive proposition for growth and capital access — once the dust from the recent market volatility settles. There are a number of complexities with implementing incentive plans, which should be considered early to ensure appropriate design and implementation and disclosure in the prospectus from an accounting and tax perspective. “It is encouraging to see that listings in the last two years have held their own, which reflects the quality that investors have come to expect. There’s a lot of positive news coming out of this reporting season with the vast majority of 2014 listings exceeding their prospectus forecasts.” Ian Turner, Head of Transaction Services 6 .
About Mergermarket Mergermarket is an unparalleled, independent mergers and acquisitions (M&A) proprietary intelligence tool. Unlike any other service of its kind, Mergermarket provides a complete overview of the M&A market by offering both a forward-looking intelligence database and a historical deals database, achieving real revenues for Mergermarket clients. Remark, the events and publications arm of the Mergermarket Group, offers a range of publishing, research and events services that enable clients to enhance their own profile, and to develop new business opportunities with their target audience. For more information please contact: Nathan Ho Business Development Manager, Remark Asia nathan.ho@mergermarket.com +852 2158 9789 . Deloitte contacts IPO Transaction & Tax Services Ian Turner Partner – Head of Transaction Services Tel: +61 2 9322 7048 Email: iaturner@deloitte.com.au Tapan Verma Director – Transaction Services Tel: +61 2 9322 7252 Email: tapanverma@deloitte.com.au Trisha Barton Partner – Mergers and Acquisitions Tax Tel: +61 3 9671 6644 Email: trbarton@deloitte.com.au John O’Mahony Partner – Deloitte Access Economics Tel: +61 2 9322 7877 Email: joomahony@deloitte.com.au Kristian Kolding Director – Deloitte Access Economics Tel: +61 2 8260 4089 Email: kkolding@deloitte.com.au Contributors Alexander Halhead Senior Analyst – Transaction Services Tel: +61 2 9322 5315 Email: alexhalhead@deloitte.com.au Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s approximately 200,000 professionals are committed to becoming the standard of excellence. About Deloitte Australia In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country.
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