IPO in Australia: A Solution to Raising Working or Expansion Capital for US Companies?

As discussed in this blog, there are multiple risk factors that may prevent a company from achieving sustainable profitability. Exit risk is one that many startup entrepreneurs do not consider nor completely understand. Yes, if you are focused on your exit plan, you are not focused on your business. Founders, however, must address two key questions: How will your investors receive a return on their investment? As your business scales, how will you raise large amounts of working or expansion capital?

Common types of exit strategies include strategic acquisitions, management buyouts, liquidation, and initial public offerings (IPO). Investopedia provides a good explanation on business exit strategy:

Which exit strategy an entrepreneur chooses depends on many factors, such as how much control or involvement (if any) he wants to retain in the business and whether he wants the company to continue to run in the same way or is willing to see it change going forward as long as he is paid a fair price for his ownership share. A strategic acquisition, for example, will relieve the founder of his or her ownership responsibilities, but will also mean giving up control. IPOs are often seen at the holy grail of exit strategies since they often bring with it the greatest prestige and highest payoff.

On June 18, 2019, I attended an event, "IPO in Australia - an Alternative to Series B and Beyond," which presented the the option of a U.S.-based company listing its shares on the Australian Securities Exchange (ASX). The panel featured the following individuals: Kate Galpin, Business Development Manager, Listings of ASX Limited; Daniel Hutchinson, Executive Director of Moelis Australia; James Posnett, Senior Manager, Listings Business Development at ASX Limited; and David Ryan, Partner with Australia DLA Piper. While the PowerPoint presentation may be viewed here, there are a few points that I found of particular interest.

With 2,200 listed companies and issuers, the ASX is home to some of the world's leading resource, finance and technology companies. It is a highly active capital market handling over 120 public listings annually and $4.5 billion of equities traded daily. And with a total market capitalization of around $1.5 trillion, its $47 trillion interest rate derivatives market is the largest in Asia and among the biggest in the world. Interestingly, the ASX hosts the fourth largest pool of pension funds globally.

As reflected in the chart to the right, the ASX is an active market for both early stage and mature companies. And barring 2009, the ASX has seen an annual increase the number of listed technology companies from 2007-2018 and ranks #3 globally in tech IPOs of companies with a market capitalization of $500 million and below. This statistic should be of particular interest to founders of American tech businesses and their investors as an option of listing its shares on an exchange other than the New York Stock Exchange or Nasdaq where listing companies typically have much larger market cap.

With respect to size and track record requirements to list on the ASX, the panel explains how the issuer must generate a minimum of $1 million aggregate profit over the past three years and $500,000 consolidated profit over the past 12 months. The assets test provides an alternative to the profit test where a company must have a minimum of $4 million in net tangible assets or a $15 million market cap. As reflected in the slide to the left, the ASX also obtain a minimum requirement to the number of shareholders (300) an issuer must have in order to list its shares in an IPO.

Addressing the connection U.S. companies must establish or maintain with the Commonwealth of Australia, the panelists noted it is not necessary for a company to setup operations in the country, a desire to access the substantial pool of capital in Australia is a sufficient business reason for listing on the ASX. In addition, an issuer must register as a "foreign company" in Australia and Australian resident directors are expected. Conveniently for American issuers, they report in Generally Accepted Accounting Principles (US GAAP) and US dollars (USD).

Lastly, I appreciated the way the panelists explained how ASX investors frame their decisions:

• Focused on business strategy;
• Large, addressable market;
• Solves market need or product validation;
• Track record of growth and execution;
• Backing and reputation of existing investors;
• Quality and incentivization of senior management;
• Investible size and a pathway to profitability;
• Growth funding vs. quantum of sell down by existing investors.

An insightful article, "Why IPO Is an Entry Strategy and Not an Exit Strategy?" lists five reasons why an "IPO can make for such a great entry strategy":

An IPO opens you up to the world

"When you make a public offering, you are essentially opening yourself up to the investing world, which can be a great thing. This will bring you added marketing opportunities, clients and even business deals across the world."

It brings stature

"A company that has gone public is usually seen as a larger company. Of course, there are a number of small companies that have gone public but they still seem more reliable and trustworthy than a regular company. There is a psychological effect to public companies, and it can only do you good."

Helps you get rid of financial bottlenecks

"It is always easier to rise funding when you go public. Whatever financial bottlenecks you might have, you can easily solve them when you have access to investors of all kinds. Public investors tend to be safer than other kinds, as there will be transparency from all sides."

Easy publicity and credibility

"There is nothing better than being able to gain some free publicity and credibility. When you go public, your name gets splashed across investment sites and stock news channels, which helps you to get more publicity."

Thank you to the four panelists for taking the time to present their valuable information to a group of entrepreneurs and investors in Seattle. The information presented should be given serious consideration to mitigate a company's exit risk. In addition to the aforementioned presentation, "Capital with confidence: A launch pad to accelerate your growth" contains additional information about listing with the ASX. An IPO on the Australian Securities Exchange may be a viable solution to expose issuers to a whole new world while bringing stature and resolving financial bottlenecks.

Is your business considering listing its shares in an IPO? If so, would you consider an IPO on the ASX?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Report Says the Rising Incidence of Cardiovascular Diseases Poses a Substantial Challenge to Asia-Pacific Markets

"Cardiovascular diseases (CVDs), disorders of the heart and blood vessels, are the leading global cause of death annually," says a published by The Economist Intelligence Unit (The EIU) and EIU Healthcare, its healthcare subsidiary. Commissioned by Amgen, an American biopharmaceutical company, Protecting the heart: Preventing cardiovascular disease in Asia further explains CVDs "levy a substantial financial toll on individuals, their households and the public finances. These include the costs of hospital treatment, long-term disease management and recurring incidence of heart attacks and stroke. They also include the costs of functional impairment and knock-on costs as families may lose breadwinners or have to withdraw other family members from the workforce to care for a CVD patient. Governments also lose tax revenue due to early retirement and mortality, and can be forced to reallocate public finances from other budgets to maintain an accessible healthcare system in the face of rising costs."

The report provides a study of the economic impact of CVD risk factors on the following Asian markets: Australia, China, Hong Kong, Japan, Singapore, South Korea, Taiwan and Thailand. Below are its key takeaways:

"The rising incidence of CVD poses a substantial challenge to Asia-Pacific markets. The rising incidence and expected treatment costs of CVDs challenge the sustainability of many healthcare financing models in the region. Early retirement and functional disability from rising CVD incidence also erode the tax base and put pressure on social service budgets. This can lead to fiscal constraints that have a regressive impact on citizens. Reducing risk factor incidence, which could reduce and even prevent CVDs, is a more preferable strategy.

"The four main modifiable cardiovascular risk factors pose a communications challenge for governments and health agencies. Because the effects of the four risk factors on cardiovascular health—smoking, hypertension, obesity and high cholesterol— can accumulate over many years, individuals have little to no knowledge that they have increased their risk for CVD until symptoms occur. This makes preventing these risk factors all the more challenging.

"Hypertension is the risk factor that contributes the highest cost. Hypertension is exerting the greatest population attributable cost across the eight markets with an estimated total of US$18bn annually, according to Economist Intelligence Unit estimates. Across the other estimated annual risk factor costs, high cholesterol contributes US$15bn, smoking US$11bn, and obesity $8bn.

"The costs of CVDs are not fixed. Greater awareness and policymaker attention can substantially reduce CVD costs as many obstacles and corresponding solutions have been identified as effective. For example, the World Heart Federation provides a number of roadmaps to manage CVD risks brought on by hypertension, high cholesterol and smoking. For the two “silent” risk factors, the pathways are similar: improve patient and physician awareness of key risk factors, increase access to diagnostic testing, empower patients with knowledge, and provide professional support and affordable drug access to manage their risks.

"Policy options for primary prevention include choice 'nudges.' Policy options for primary prevention of all risk factors include 'nudges' to positively influence dietary choices, such as improved food labeling or partnerships with companies to encourage food reformulation to remove unhealthy ingredients. Investment in green spaces in urban areas and subsidized access to health facilities can also encourage physical activity.

"Effective secondary prevention can also significantly affect costs and outcomes. The recurrence rates for people suffering from a CVD event are high. For instance, in Australia, the risk of a subsequent stroke is 43% in the ten years following the first event, and the mortality rates for known sufferers of CVDs are substantially higher than those not at high risk. Across the span of a first CVD event and one’s death, the cost for disease management and the treatment of secondary events can be significant. Prioritizing at-risk groups can also drive positive impacts on CVD cost management."

Based on my experience, I agree that "[t]he Asia-Pacifc's CVD burden sits within the broader context of a rise in NCDs (noncommunicable diseases), due partly to ageing populations and partly to economic transition. It is a threat to the health and financial security of citizens and a burden on the public finances. Efforts to increase access to healthcare over recent decades will be undermined if cost-cutting measures are required to balance the books."

The report encouragingly concludes that "many risk factors for CVDs are modifiable through primary and secondary preventions, across behavior, lifestyle and medical domains. Looking forward, a powerful CVD action plan is one that targets multiple points along the 'continuum' from primary prevention to cost-effective treatment methods and secondary prevention. Innovation in service delivery and greater leveraging of data, digital technology and wearable devices can also help optimize CVD detection and management in cost-effective ways."

What solutions are you seeing that are reducing the incidence of CVDs?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.