Posted: 18 Mar. 2022 10 min. read

Is it time to float? Why, when and how to max a Tech IPO

Is it time to float? Why, when and how to max a Tech IPO

Listing shares through an Initial Public Offering (IPO) on ASX can be a momentous opportunity for growing companies, especially to be part of Australia’s fast-growing S&P/ASX All Technology Index (XTX). We chatted with Sasha Conoplia, Business Development Manager at ASX Listings to get the latest on Australia’s tech sector and discover what it takes to make a successful IPO.

Fast facts:

  • The S&P/ASX All Technology Index (XTX) launched in February 2020
  • More than 100 tech companies have listed on ASX in the past five years
  • 15 XTX companies have made the Tech Fast 50 winners’ list in the past five years
  • 67 new Australian tech companies have eclipsed $100m market cap in the past ten years

Australia’s technology sector is growing at pace, pushing its global profile to new heights. Sixty-seven new local tech companies have reached a market capitalisation of more than $100 million over the past 10 years and there are more than thirty ASX-listed ‘tech unicorns’ with a market capitalisation greater than $1 billion. The momentum continues with local start-ups receiving a record $10 billion of angel and venture capital investment in 2021 alone.

Top 10 ASX listed Tech companies by market capitalisation[1]

According to Sasha, the latest crop of Tech Fast 50 companies is further encouragement of what the Australian tech sector can achieve.

“It’s exciting to see the breadth and depth of the Deloitte Tech Fast 50 nominees,” he said.

“This illustrates the quality and quantity of fast-growing Australian tech companies across a broad range of sectors including communications, digital media, fintech, cleantech, healthtech, medtech, e-commerce and software. Technology is converging across a range of growth sectors – what was only a vision five years ago is now a reality.”

Setting the benchmark with an all-technology index

The S&P/ASX All Technology Index (XTX) launched in February 2020 to showcase the diverse range of local and offshore tech companies listed on the ASX and has a total market capitalisation around $190 billion. Sasha believes the index is mutually beneficial for Australian investors, companies and the tech sector.

“The XTX provides investors with exposure to this fast-growing sector, broadens the diversity of ASX’s offering and is representative of the wide range of technology businesses listed in Australia, including several companies based overseas.

“Having a dedicated technology index provides a benchmark to which tech companies can aspire to, as well as cementing the sector’s importance to ASX and the investment community.”

Indeed, 15 XTX-listed companies have featured in the Tech Fast 50 winners’ list in the past five years.

The XTX also has a minimum market capitalisation of $120 million, a lower benchmark than major markets in the United States, United Kingdom and Asia.

“Early index inclusion in the XTX helps your company attract investment, turnover and liquidity from domestic and global institutional investors, ETF investors and managers, as well as bringing research coverage and company promotion opportunities,” he said.

XTX themes and trends

The launch of the XTX in February 2020 coincided with the start of the pandemic in Australia and the subsequent acceleration of digital transformation. This acceleration resulted in a stellar year for the new index which rocketed up 45 percent.

The on/off lockdowns of 2021 and associated economic impacts meant last year was a rollercoaster, but the software sector and companies in the interactive media communications space proved more resilient. Software and related services sectors are still dominating the XTX with 58 percent of index members and 64 percent by market capitalisation.

“This illustrates Australia’s tech sector focus on SaaS-related activities and continued growth and adoption of software solutions to provide digital efficiency, scalable growth, competitive advantage and reduction of longer-term hardware costs,” Sasha said.

Early 2022 also saw the ASX secondary listing of Block Inc (NYSE:SQ, ASX: SQ2) pursuant to its acquisition of Afterpay. This was a strong endorsement of the ASX tech sector globally. It is also a positive reflection of the Afterpay journey, demonstrating how high-growth companies can use an ASX listing to fund their development from an early stage right through to becoming multi-billion-dollar success stories.

Despite a rocky 2021 and start to 2022, Australian tech companies still hold plenty of appeal for investors.

“There continues to be an excess of cash and liquidity looking for a quality home – valuations may be more closely scrutinised with current geopolitical and economic events, but quality tech companies will continue to attract investors,” Sasha said.

Float like a butterfly, sting like a bee: why and when companies go public

More than 100 tech companies have listed on the ASX in the past five years, looking for an efficient way to raise growth capital. But as Sasha explains, the benefits go further.  

“Listing also offers a viable exit strategy or liquidity event for founders, management, VCs or PEs to strategically sell down part or all of their holding.

“SiteMinder (ASX:SDR) raised $627m as part of their $1.36 billion ASX IPO in late 2021. Its IPO provided growth funding and a liquidity event for the founders and early investors, including the ability for Silicon Valley-based growth equity firm TCV, which had been invested since 2013, to exit their 22 percent stake.

“Once listed, ASX provides a straightforward and efficient framework for follow-on capital raisings. In fact ASX had the most secondary capital raisings by number (1,000-plus) of any global exchange for the second year in a row, showing how well utilised and accepted follow-on capital raisings are in the Australian market.”

In 2021, ASX-listed tech companies raised $3.8 billion of IPO capital across 30 new listings, representing 28 percent of total IPO capital raised and $4.8 billion of secondary capital.

 “Listing also raises a company’s profile, helps to attract institutional investment, is easier to offer equity rewards, incentives and retentions to staff and creates a perception of financial strength and reassurance to suppliers and customers.”

But when is the best time to start the process? Sasha believes companies should be on the front foot.

“The key is to engage early with ASX – it’s never too early to have a conversation,” he said.

“This could be several years before the IPO takes place. It’s important to plan ahead to ensure your company is well setup and you understand ASX listing requirements, financials, board, capital structure, et cetera. ASX can also help connect you to corporate advisers specialising in your sector.”

How to prepare for a successful IPO – the key ingredients

  • A clear, understandable market and compelling growth story
  • Potential for global operations and scale
  • A backable team with a track record of meeting key milestones
  • Strong support from foundation and/or cornerstone investors
  • Revenue and good year-on-year growth
  • Significant assets (tangible and/or intangible) with a clear path to revenue
  • Experienced advisers appointed to guide through the listing process
  • Commitment and resources for ongoing investor relations and PR programs
  • Understanding an IPO is a fundraising event and the start of your journey – enjoy ringing the bell!

“ASX is a proud supporter of the Deloitte Tech Fast 50 Awards over the past eight years. The awards showcase and recognise the talent, innovation and success of the Australian tech sector, particularly those with strong revenue growth, great leadership and rising stars.  

“ASX is a big supporter of the growth in the Australian tech sector.  It’s fantastic to see 15 of the Tech Fast 50 nominees already listed on ASX and we look forward to working with – and welcoming many more – to the boards of ASX to help Australian tech companies achieve their strategic goals and success in both the local and global marketplace.”

Mark your calendars and join us LIVE

We will be broadcasting the Tech Fast 50 event live on April 7. The link will go live at 9 am, but the awards evening will commence at 5:30pm. Be sure to follow the below process and share it with your teams, so you can join the winners as they celebrate their success.

  1. Type the following URL into your browser: techfast502021.anzpac.chime.live
  2. Click ‘Register’ and fill out the form.
  3. Once you have successfully submitted the form, you will be asked to verify your details and then automatically logged in.

More about the author

Joshua Tanchel

Joshua Tanchel

Partner, Technology Fast 50 Australia Lead

Joshua is a partner in Deloitte Private and leads the Sydney Deloitte middle market technology program, which includes the Deloitte Technology Fast 50 program. He also sits on the Deloitte technology, media and telecommunications industry group national executive leadership team. Joshua has over 20 years' experience working with technology growth companies from start up to exit/IPO in both an audit and strategic advisory role, understanding their lifecycle needs and matching this to the broad capability of Deloitte. His areas of specialisation include audit, accounting, investigating accountants reports and business advisory.