Join the club: The ASX hopes IPOs will heat up from next year

More companies are expected to join the Australian Stock Exchange in 2025, with Marley Spoon the latest to depart the local bourse that has been dwindling for two years as companies look elsewhere to secure investment dollars.

ASX listings general manager James Posnett said he was speaking with several companies mulling a float and that there was “no shortage of demand” for investment opportunities.

“The pipeline is building quite nicely now, and I would say my view is [that we are] through the worst or the lowest part of the cycle,” he said.

The number of companies on the ASX has been dwindling – but this trend is expected to turn around next year.

“Certainly by the start of next year, we’ll start seeing a lot more activity. We’re getting interest now, but it obviously takes a few months to execute an IPO.”

In fiscal 2024, the number of companies that have delisted from the Australian Stock Exchange (156, following 119 the previous year) has well exceeded the number of companies joining it (56, following 57 the previous year).

Marley Spoon is the latest to join this list and will officially delist from the ASX on Monday. The company will instead relist on the Frankfurt Stock Exchange, with local chief Rolf Weber previously indicating that European investors had greater appetite for meal kit delivery businesses than Australians. Other notable companies that recently departed the ASX this year include construction giant Boral and building materials company CSR, both of which were bought out.

ASX listing general manager James Posnett.Credit: Natalie Boog

Despite the rise in delistings, Posnett said burrito chain Guzman y Gomez’s blockbuster debut – in which its market value soared to more than $3 billion in its maiden session – generated a lot of interest and pointed out that the overall value of the sharemarket had grown. Net new capital for the 2024 financial year was $27.8 billion, nearly double that of the prior year.

“We think about the value of the new companies coming on, but then we also think about companies that are already listed doing follow-on offerings [that] will issue new shares. That expands the size of the market as well.”

Higher interest rates have deterred small-cap companies from joining the exchange but uncertainty around when rates will start falling is starting to clear up, according to HLB Mann Judd corporate advisory partner Marcus Ohm. “When interest rates are higher, valuations come down. And for some companies, that means valuations are not that attractive,” he said.

Companies are also going elsewhere for funding: cashed-up private equity investors seem more appealing than dealing with the hassle of continuous disclosure obligations associated with being a listed company, Ohm said.

The rising number of corporate takeovers has also resulted in companies such as United Malt Group and software company Altium delisting from the bourse after being acquired by foreign giants. Meanwhile, sagging commodity prices, particularly in lithium and rare earths, have meant the timing hasn’t been right for some junior mining companies.

Ohm said he thought the number of floats could increase within a few months, with the fourth quarter of the calendar year typically seeing more IPO activity and a higher likelihood of interest rate cuts driving a more positive outlook. “Macro factors really drive sentiment. It’s critical in the IPO market,” he said.

“As far as the ASX goes, we’ve basically got one of the better exchanges in the world … we’ve actually got very high standards in terms of the types of companies we’ll let list on the ASX.”

Stock exchange operator ASX Limited is being hauled to the Federal Court by corporate regulator ASIC for allegedly misleading the market about the progress of its CHESS project, which was delayed five times before being ultimately killed off.

Investment manager Roger Montgomery believes there are structural problems that the ASX could fix that would make it more attractive for companies to float.

“If there’s an IPO, [investors] have got to commit to money early and commit to funding an IPO or committing to buy shares. But it could be three months before the thing lists – what happens in the intervening period? It’s a massive risk, so we’ve got to shorten that time between fund managers committing and the company listing.”

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