Global trends broadly reflected in ASX activity.

In 2019, the global initial public offerings (IPO) market was down nine per cent year-on-year by capital raised, at US$204 billion and down 19 per cent by number, at 1,313 (Dealogic).

Nevertheless, several high-profile companies came to market, including state-owned giant Saudi Aramco – the largest IPO in history – raising a total of US$29.4 billion, beating Alibaba’s record US$25 billion in 2014, and generating more than Europe’s total IPO proceeds for the year.  

US-China-EU trade tensions, concerns about economic growth and other geopolitical issues – notably Brexit and social unrest in Hong Kong – affected IPO activity for much of the year. 

In the US, there were uncertainties around some large technology IPOs. Lyft and Uber Technologies listed in the first half of 2019 but performed badly in the aftermarket because of investor concerns about overblown valuations, lack of a clear path to profitability and corporate governance.  

These concerns were exemplified by the mishandled attempted IPO of SoftBank-backed WeWork in September, which resulted in a “resetting” of public and private market investor expectations for venture-backed IPOs. 

Overall, it was an average year for the global IPO market, ranking sixth by capital raised over the past decade.

Growth in ASX small and mid-caps 

ASX IPO activity broadly reflected the global trend. Capital raised was down 19 per cent year-on-year at $6.9 billion and new listings were down 30 per cent at 92 (includes all admissions to the Official List).

There were fewer large IPOs compared to 2018 and several floats were withdrawn at the beginning of the fourth quarter as investors applied more scrutiny to pricing, with markets at near record highs and an increase in market volatility. 

Overall, the year ranked seventh by capital raised over the past 10 years. While there was a drop in new listings, the average IPO size increased 18 per cent to $112 million because of fewer micro-cap listings – particularly junior mining explorers – and tech companies seeking IPOs at a later stage of development. 

Notably, price performance of ASX IPOs (+35 per cent) significantly outperformed the broader S&P/ASX 200 index (+18.4 per cent) and IPOs in the US markets (+19.6 per cent) in 2019, driven by some strong debuts of technology and, to a lesser extent, healthcare companies. 

Growth in small and mid-cap IPOs was the key theme of 2019: technology companies, cross-border listings and listed investment companies/trusts (LIC/LITs) featured strongly, as demonstrated by the largest new listings. 

Fintech business Tyro Payments was the largest IPO of the year by market capitalisation, backed by Tiger Global, TDM Growth Partners and Atlassian co-founder Mike Cannon-Brookes.

KKR Credit Income Fund and Magellan High Conviction Trust ranked in second and third places, offering investors diversification opportunities in fixed income and international equities respectively. 

Key cross-border tech IPOs included: 

• San Francisco-based location sharing app Life360.
• Dublin-based insurance software business FINEOS Corp.
• Washington state-based employee experience SaaS business Limeade.

All are of sufficient size and stage of development to attract continuing institutional investor support on ASX. 

Top new listings in 2019 by market capitalisation

Source: ASX

Tech sector trends

It was one of ASX’s strongest years for fintech IPOs. In addition to Tyro Payments and FINEOS Corp, there were listings in the “buy now, pay later” sub-category, including Israel-based Splitit Payments and US-based Sezzle Inc, and in the online lending space, including Prospa and MoneyMe. More than 50 fintech companies are now listed on ASX.

Although fintech is still an emerging industry, there are more than 620 active companies in Australia, according to a recent KPMG report, spanning a variety of sub-categories. As the industry continues to develop, expect increasing merger and acquisition activity, as well as capital raising in both the private and public markets.

The global venture capital industry has more than doubled assets under management over the past five years to around US$1 trillion and an increasing number of ASX IPOs are venture-backed by both local and foreign-based firms.  

Although very small in global terms, the Australian venture capital industry has developed rapidly, from US$2 billion in assets under management at the end of 2014 to more than US$8 billion in 2019, including dry powder (Preqin). This is likely to be complementary to the ASX IPO market, as portfolio companies seek liquidity events over time through trade sale or IPO.  

For example, such listings in 2019 included: 

• San Francisco-based software company Nitro, backed by Boston-based Battery Ventures and Melbourne-based Starfish Ventures.
• Whispir, backed by Telstra Ventures and Singapore-based Openspace Ventures.
• Prospa, backed by Australian firms Airtree Ventures and Square Peg.  

More venture-backed IPOs are expected as funds of older vintage approach maturity. 

New tech index

In December 2019 ASX announced it would launch a new technology index. The S&P/ASX All Technology Index (or S&P/ASX AllTech) has been designed to raise the profile of the ASX tech sector and, by extension, the attractiveness of the market for new tech listings. 

It will be broader in scope than the existing S&P/ASX 200 and 300 Info Tech indices, including tech companies outside the narrow GICS definition (Global Industry Classification Standard). 

The index will comprise companies in the GICS information technology sector plus other relevant sub-industries, such as internet and direct marketing retail, interactive media and services, and healthcare technology. 

Entry requirements will include market cap, free float and liquidity criteria. Full details on methodology and constituents will be available at the time of implementation on 24 February. 

Outlook

The macroeconomic environment should improve in 2020 as some of the geopolitical uncertainties of 2019 subside, such as global trade tensions and Brexit. Global levels of private capital are at a record high, but long-established reasons for companies to choose an IPO still apply; access to capital, liquidity and visibility are all enhanced in the public market.  

For small and mid-cap companies, an ASX listing is often a more favourable option to later-stage private funding rounds and other stock exchanges. With a strong pipeline, the key themes of technology, cross-border and LIC/LIT IPOs are most likely to continue in 2020.