There are many advantages to listing a company on a stock exchange such as the ASX — just ask the 2,300-plus businesses currently listed.
Compared with being private, a public listing offers far greater access to capital for growth, much stronger investor interest, and improved valuation and compliance.
To join the bourse, however, companies must meet a range of requirements, and James Posnett, general manager of listings at the ASX, recommends considered forethought before making the leap.
Before listing
“There are quite a few things to think about, and it’s all about getting your house in order before proceeding with the listing process," Posnett told Proactive.
“Things to think about include, have you got an experienced board? Do you have a director with ASX experience? Are your accounts audited?
“This is what I speak about with founders - even if you weren’t listing, these are things you should be doing as a good private company as you mature.”
Listing requirements
To list on the ASX, companies need to pass a series of stringent requirements laid out by the ASX.
As Posnett explained, there are three basic requirements: size, free float and assets or profit.
“Companies need to pass either the profit test or the asset test,” he stated.
“For profit, companies need $1 million in aggregated profit from continuing operations over the past three years, with $500,000 in consolidated profit from continuing operations over the past 12 months.
“For the asset test, companies need $4 million in net tangible assets or to show they would have a market capitalisation of $15 million post-listing.
“There is also the free float, which is an assessment of how many of your shares are in public hands.
“You can’t be solely founder-owned, you have to place shares in the hands of people who aren’t insiders, and we ask for 20% of shares to be in free float.
“We also require a spread of shareholders, 300 minimum post-raise with at least $2,000 invested each.”
Access to capital
One of the biggest benefits to listing on the ASX is the easier access to capital, Posnett explained.
“The reason most companies list in the first place is to access capital that they need for growth,” he said.
“In private markets, raising even relatively small amounts of money can take months, whereas via the ASX it can be as quick as a few days.
“The bigger you are the more likely you are to begin to attract institutional investors, and being listed increases your reputation for compliance as you need to meet the stringent requirements of being a listed entity.”
Listed companies can access capital from primary and secondary markets.
“Primary markets reflect when new capital is raised via new shares issued, such as through an IPO or follow-on raisins such as rights issues or share placements,” Posnett said.
“Secondary markets are where existing shares are traded on the daily by investors.”
Posnett says about $9 billion is raised via primary markets annually, and about $50 billion via secondary markets.
Proactive recently broke down how and why companies raise capital.
A number of companies have hit the ASX in the past month, including International Graphite Ltd (ASX:IG6), which raised $10 million and acquired the Springdale Graphite Project in southern Western Australia, while Far East Gold Ltd (ASX:FEG) raised $12 million to progress its gold and copper in Indonesia and Australia.