Ashurst M&A head Neil Pathak makes call to simplify IPO process to revive market
Hopes that Guzman y Gomez’s strong start to life on the ASX would jump start a dormant domestic market for listings failed to materialise. Could this work instead?
A shorter and more streamlined process for listing a company on the ASX may help to awaken a moribund market for initial public offerings, while also reducing market risks around the timing of a float.
That’s the view of Ashurst’s head of mergers and acquisitions, Neil Pathak, who on Monday called for regulators and industry participants to rethink how ASX listings were prepared and executed.
“The listing process needs to be shortened,” he said, noting the corporate regulator could also undertake more pre-vetting of prospectuses, as is the case in the US.
“Somehow shorten the process. When you are thinking about a secondary (capital) raising you can go from start to finish in two weeks including preparation time. Trying to do an IPO – it’s kind of like four months.”
Mr Pathak’s comments follow similar suggestions by investment banking stalwart and Barrenjoey co-executive chairman Guy Fowler last month, urging a simpler process of listing on the ASX.
Mr Fowler said the corporate regulator could look to offer companies a “honeymoon period” as they became publicly traded, particularly around prospectus forecasts, before those entities had to comply with all their obligations.
Mexican food chain Guzman y Gomez’s strong start to life on the ASX had stoked hopes the company’s float would enliven a largely dormant domestic market for sizeable listings.
That failed to materialise as higher interest rates, shaky investor sentiment and more recently volatile financial markets have continued to weigh on the IPO pipeline.
GYG’s shares closed at $28.50 on Monday, still above the $22 issue price, but a sharp decline on highs of $30.99.
Over the past five years the largest ASX floats ranked by the amount raised were those of Dalrymple Bay Infrastructure and property settlement group Pexa, London Stock Exchange Group data show. The market for ASX listings was cruelled by the unravelling of Nuix’s float and a notable gulf between the price expectations of vendors and investors.
This year Australian IPOs have raised just $US372.9m, up slightly on the August 5, 2023 tally of $US340.2m, but well down on $US3.9bn in floats at the same time in 2021, according to LSEG data.
There have been just 12 IPOs this year, the fewest since the depths of the Global Financial Crisis. Total equity capital markets activity has, however, increased so far this year, buoyed by secondary capital raisings.
Total ECM activity amounts to $US10.3bn so far this year, up 17 per cent on the same period in 2023.
Ashurst corporate transactions partner Patricia Paton said secondary raisings such as those to fund mergers and acquisitions were generally being supported by investors.
“For the right opportunity, be it a good asset or a growth story or new strategy, the existing investors are supportive of those types of deals,” she added.
There have been heightened concerns in the domestic market about a lack of IPOs to replace a spate of companies that have disappeared from the bourse due to mergers and acquisitions.
Over the past five years, they include Boral, Sydney Airport and Blackmores.
Mr Pathak said the theme of a shrinking listed market was a global one and he believed Australia was faring comparatively well.
In the Britain, for example, data suggests a 75 per cent drop in the number of listed companies compared to between 30 and 40 years ago.
“By those statistics the ASX comparison is actually quite favourable,” Mr Pathak said.
Investment bankers and lawyers will be closely monitoring profit reporting season for any opportunities to undertake secondary capital raisings.