The Australian IPO (initial public offering) market has seen mixed fortunes in recent years; 2019 saw fewer listings (92) than 2018 (132), while 2020 started ' unsurprisingly ' slowly, with only 22 listings as of 29 April, according to Lexology.
However, there are signs of a post-COVID-19 recovery. An article earlier this month published by Stockhead describes the current Australian IPO market as 'red hot,' with investors faced with illiquid capital markets 'on the lookout for more good opportunities in the IPO pipeline.'
A trend toward overseas companies choosing the ASX, Australia's stock exchange, for their IPOs has added to this activity; quoted last year, James Posnett, the ASX's Senior Manager of Listings Business Development, noted that of the 200 technology companies that had listed there in the last five years, around 50 had been foreign businesses. Speed of listings and, for US companies, the benefits of a common language and similar regulatory and financial regimes, have helped to drive this growth.
If you're considering an IPO on the ASX ' as an Australian or overseas company ' what do you need to evaluate? How can better legal entity management help you to transact more quickly and easily? And could entity management software increase the rigor of your approach and prepare your organization for a transaction?
How to Prepare for an IPO in Australia
If you intend to list on the ASX, there are various criteria you need to meet and steps you need to take first. These include:
- Passing a profits or assets test
- Meeting specific requirements around Board of Directors composition
- Satisfying shareholder spread and free float minimums
- Documenting a business plan
- Putting in place a suitable management team
- Identifying whether any restructuring is needed pre-IPO
- Getting your accounts, financial systems and corporate governance processes in order
- Deciding whether any pre-IPO funding is needed
- Lodging a prospectus, or in specific cases an information memorandum, with the Australian Securities and Investment Commission (ASIC)
Get Your Organization Ready for an IPO
Wherever you choose to list, there are some common challenges you will face and actions you need to take.
The market window for the offering may be small; being prepared to transact quickly ' and having everything in place to do so ' when the time's right is therefore essential. As IPO experts PwC note in their guide to the process, 'it's essential...for an organization to be ready to seize the opportunity and be realistic about what is required.'
If this is a journey you're planning, you need to:
Prepare Your Organization for the Listing
The prospectus or memorandum you submit to the ASX must legally contain information on certain matters. Specific disclosure requirements contained in the Corporations Act 2001, in ASIC guidance and in the ASX Listing Rules mean that organizations need to include information in their pre-IPO materials on their business model. This information includes: risks, investment overview, their board and management structure and remuneration, and the terms of the securities being offered to investors, among other items.
This demands a methodical approach to all your processes and systems; something that be helped hugely by having a centralized corporate record, powered by robust entity management software.
Plan for Due Diligence
The due diligence that goes on ahead of an IPO is significant.
Under Australian law, certain persons involved in the IPO process face serious civil and criminal liability if a prospectus is found to contain a misleading or deceptive statement, or omit information which is required to be included. This could be compounded by corporate reputational issues if a prospectus is found to be materially deficient and must be replaced or the IPO withdrawn.
These laws spotlight the importance of your ability to gather accurate and complete data on which to build your pre-IPO materials. Putting data from all your entities in order is essential pre-IPO. Your financial reporting needs to be unimpeachable. You must be able to evidence best-practice governance, risk and compliance.
Again, legal entity management software has proven invaluable here for many organizations. It enables them to centralize their corporate records and streamline the ways they maintain, store and access entity and subsidiary information.
Operate as a Public Company
The entity management requirements don't end with your listing ' far from it.
Once you've completed the IPO, you must operate under your new remit. Being a public company brings many new responsibilities around the following: corporate filings, transparency requirements, additional governance and compliance obligations, stakeholder communications and, often, an increased public profile. It may also drive changes to corporate structure, to simplify the management of all these new requirements.
The Benefits of Legal Entity Management Software
The prospect of an IPO heralds an exciting chapter in your organization's story. But as this brief outline shows, launching an IPO comes with significant challenges, particularly for organizations with complex or unwieldy entity structures.
As we've detailed above, there are several areas where legal entity management software can help organizations get their entity management data in order ' whether prior to an IPO or for general best practice.
Diligent Entities, our market-leading entity management software, is an integrated entity governance solution that enables organizations to embed best practice governance across multiple business units. To find out how Diligent's entity management solutions can help to make you IPO-ready, please contact us.