The small cap end of the Australian floats market has seen an increase in companies listed, from 21 in 2009 to 51 in 2010, according to HLB Mann Judd’s latest IPO Watch.
According to the report, there were 96 initial public offerings in 2010, up from 39 in 2009, and total funds raised jumped 105% to $6.076 million.
Geoff Webster, HLB Mann Judd partner in business services, says the small cap end of the market was particularly positive.
“Fifty-one of the companies that came on had a market capitalisation of $25 million or less. In 2009, there were only 21 of them,” Webster says.
“I think that’s tied up very much with the resource floats that are growing and there certainly seems to be a major increase coming through in this current year in floats.”
“The problem with anybody who’s not tied to the resources sector, or doesn’t have a story that’s aligned with it [is that] they need a brand or they need a point of difference or they need some sort of performance.”
According to Webster, the small cap end of the market is dependent on the company’s quality of management because investors will focus on the company’s track record.
“The other thing to look at is where the money’s going. If it’s just to pay out the seed funders and the shareholders, then that’s not good,” Webster says.
“If it’s to invest in the business, then that’s where the money should be going. Or if it’s to restructure the gearing levels, that’s another good thing.”
Webster says most successful entrants in the small cap end of the market go to either underwriters or brokers when they are preparing to float.
“The first step is they need to establish a relationship with a good broker or underwriter who will then make the appropriate introductions to maybe seed funders or even through to the IPO side of things if it’s a good enough proposition,” he says.
“If you go IPO, it’s a long and torturous process. If you talk to any of the companies that list, they don’t realise how draining on time and management resources [the process is].”
“A lot of private companies that have been successful find the transition to the governance side difficult, so it’s very important to have advisors who can put the governance requirements in place and explained to the vendors if they’re continuing on in a management role.”