Block trades are a transaction involving a large portion of shares traded off market. This is typically conducted after the market close for a small discount to the closing price, or a short term VWAP (volume weighted average price).  

One use of a block trade is to facilitate a sell down by a single shareholder, typically a founder or large long-term holder of the stock, to other institutional investors. It allows existing holders to exit a portion, or all of their stock, at a single price. It also gives an opportunity to significant buyers with a positive view of the stock, usually institutional buyers, to build their position at a slightly discounted price. Block trades are a great way for long term, early-stage investors such as a VC fund, Private Equity firm or company founders, to realise their investment quickly, and at a good price.

Alexandra Cain: editor, Listed@ASX: What are the strategic reasons investors and founders do block trades in terms of pricing and liquidity? 

George BouAntoun, co-head, corporate finance, Unified Capital Partners: You have a controlled pricing environment. If a founder wants to sell down a stake, it’s typically a very large volume compared to the daily trading average volume of that stock. If a large sell order hits the screen in the ordinary course, that would send a signal to buyers, influencing their view on valuation, and ultimately bring down the price. With a founder block trade, you want to negotiate the outcome so you don't surprise the market with it. You typically use market participants on the buy side who are sophisticated and understand what they're getting into to agree a price for the transaction, without it affecting the market price for the stock. 

Jonas Troeber, head of equity capital markets, J.P. Morgan: It's important for potential buyers of the block to have clarity around what happens after the sell down particularly with any remaining stake that could be an overhang on the share price afterward. With most founder and strategic shareholder sell downs in Australia, the remaining position is subject to a form of escrow.  

Kyra Hannaford, executive director, equity capital markets, J.P. Morgan: Block trades are also important following an IPO to ensure free float and index inclusion. Only a proportion of shareholders’ stakes can be sold down at IPO.  S&P requires a minimum 30 per cent free float to be eligible for S&P/ASX index inclusion. Future sell downs increase the index weighting, providing an opportunity for investors to come into the stock. So, blocks are positive for the company and the investors.  

Philippa Stone, partner, Herbert Smith Freehills: We tend to think of an IPO and subsequent blocks as a whole. Founders, as well as private equity and major vendors, can't sell down 100 per cent of the business at the IPO, even if their ultimate objective is reasonable liquidity for their investment. The IPO is an important point to establish your presence in the market. Escrow typically comes off at the end of the forecast period or, maybe, if there's been sustained price improvement. That's when a more meaningful sell down can occur.  

Jonas: At the time of an IPO, vendors would want to have a high level of confidence that they can do a block trade successfully in the future. There needs to be a strategy in place that allows for a sell down over time.  

George: It’s that push and pull dynamic where, if you really want to get listed, sometimes you have to meet the market's expectations and not try and go too full in terms of value at the IPO, because the share price can go the other way and then you won't get the substantive blocks away. It’s important to understand how many buyers are out there.

Philippa: A cleansing statement allows a block to be executed where a controller is selling down and the company and the seller of the share parcel need to say they're not in possession of material non-public information. So, founders or other IPO sellers need to put in place arrangements with the company at IPO which will ensure they are able to call for this kind of cooperation. There might also be a need for coordinated selling by a number of vendors and it would be important to also put in place measures that permit that. Being thoughtful about whether the market will tolerate escrow release where there's sustained price improvement is also key.  

Sasha Conoplia, Senior Manager, ASX Listings: How do you have a conversation with founders or sellers about any potential discount? 

George: It depends if it’s underwritten. You can do a block without underwriting it and just going out to market and achieving the best negotiated price for the seller. If it's underwritten you have to take risk on the pricing outcome, so the discount gets a little bit wider. We have big sales teams that are typically in the flow of the stock we're trying to sell down. So we have an intimate understanding of demand for that stock. Buy and sell demand informs us on price. If you negotiate an outcome after market, there will usually be a slight discount, but it also depends on momentum in the stock. If the stock is on the way up and you're pricing that at a discount, it can be perceived as though you've taken advantage of the seller. So all these things factor into the price. Every block is different. 

Jonas: There’s a different objective behind each trade, which can influence timing. In some cases, founders want to monetise their position - some founders want to be opportunistic and for others they may have personal reasons for selling down a stake. 

Kyra: Once the vendor and bank determines how much they’re selling down, what their escrow is and the messaging, we launch the transaction with a term sheet. Then we build a book, and we allocate - buyers can bid at different volumes and in some cases different prices. 

Jonas: Most blocks are underwritten. Clients want to know they have sold part of their stake at a minimum price to us. So, no matter what happens in domestic or global markets - US trade or tariff announcements or whatever - their price doesn't change. It's very important.

George: We're very close with founders and we understand the stock intimately. Which means most of the time, we get to a pricing outcome we know we can achieve in the market. 

Jonas: The main discussion point with vendors is price and size and how much equity to sell as well as how the market will receive the trade and future blocks. 

George: Sophisticated vendors may not want to give any flexibility away, but they may need to. 

Philippa: The market may also not want to see the next block smash out next week, but they may be very happy and accepting of that next month, if everything's gone well, so you often need to think about some form of escrow or lockup assurance. Typically, you let the company know that you've done a block in their stock through an announcement, which also mentions any lockup assurance. That reassures people the trade is for, say. the private equity vendors and they're not fully leaving, they're still there and they still believe in the stock.  

Jonas: To give you a sense of our most common transactions, on a large book trade we usually see at least two or three months of lockup and in some cases six months is more appropriate. We've also seen as long as 12 months. What’s important is messaging to the market.

Listed@ASX: How do you construct the messaging when you have a founder or a strategic investor looking to sell? 

Kyra: It really varies and it depends on who it is and why they're selling and the recent share price performance. There are obviously positives in doing a block trade, such as liquidity and index inclusion. It can be an opportunity for funds that haven't been able to get set in the stock, to come in and take a position. If high-quality investors come in and start to build their position at that liquidity event, they are on the register, and hopefully continue buying in the aftermarket which provides support for the stock. There are always a variety of reasons as to why a founder sells down, but the message to investors depends on why they're selling and the lockup.  

George: Every block trade’s messaging is different. Often the market understands the founders don’t want to leave all their money in the business because they have to diversify their wealth. They've achieved their wealth-creation event, and as any family office would advise, you've got to diversify. You can't have your eggs all in one basket. Other founders go through divorces or they buy a house and need liquidity. We provide as much messaging around the trade as we can, but founders can be very private, too. 

But by-and-large, founder-led blocks go really well. Hence some institutions are setting up founder funds. On their numbers, when you've got a founder that has a significant stake and is still involved, nine times out of ten, the stock performs better post IPO.  

ASX is also the most liquid part of the Australian market, which is why we advise our clients to list their companies on ASX. We’re also speaking to some US companies about listing on ASX because the investor base is very sophisticated and can make an informed decision on a company’s value. 

Block trades are and continue to be an active part of the ASX market. If the process is managed and communicated well, they are an effective method for strategic, long-term holders and founders to access liquidity at size once escrow restrictions are lifted. Additionally, block trades allow a company to attract new institutional holders, and allow existing holders to access the liquidity to meaningfully increase their position in a stock that could otherwise take time in the after-market. 

SELECT BLOCK TRADES 2023-2025