Introduction

We are happy to present our quarterly review of the mid-market IPOs on the ASX.

The focus of the analysis is on the current quarter and the immediately preceding 12 months with the aim of providing you with an overview of the current mid-market IPO activity. 

In our analysis we have looked at IPOs that had an enterprise value of less than $200m at the time of listing. We have also provided some further detail on the cost of IPOs broken down by market capitalisation and the performance of IPOs occurring in the last twelve months by significant sectors. 

Key highlights are: 

  • There were 25 IPOs for mid-market companies in the quarter, the second most in a quarter over the last five years. 
  • The Mining Related sector was the most active in the quarter with 10 IPOs. 
  • The Consumer Staples sector showed a significant increase in activity recording 5 IPOs in the quarter. Prior to this period the sector had only recorded 2 IPOs in the first half of FY2017. 
  • Mid-market companies raised $176m on the ASX in the quarter. 
  • The average IPO fundraising was $7.1m which is a 54% decrease on the previous quarter and 56% decrease compared to the average of $15.9m over the last 12 months. 
  • On average, transaction costs (excluding brokerage fees) decreased by 5% to $223,135. 

Overview

There were 25 IPOs in the mid-market this quarter, which is a 14% decrease from last quarter but a 150% increase compared to the same quarter last year. 

The number of IPOs has increased by 21% for the 12 month period. Historically, IPO activity is quiet in the third quarter of the financial year. The third quarter this year however, has seen significant IPO activity and the number completed was the second highest in the past four years. 

The total funds raised of $176m is lower than the prior quarter but relatively consistent with third quarter performances in the past four years. 

The average fundraising at $7.1m was 54% lower than the prior quarter and 56% lower than last 12 months average. 

The average enterprise value at IPO in the quarter was $26.4m which is down from $52.8m in the previous quarter and down from last year’s average in the same period of $43.2m. 

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Quarterly Activity 

Of the 25 IPOs in the quarter, Materials (which is captured under the Mining Related header), Consumer Staples, Healthcare and Information Technology were the most active sectors. 10, 5, 3 and 3 IPOs were recorded in each sector respectively. Of the $176m raised in the quarter, the Materials, Consumer Staples and Healthcare sectors accounted for approximately 70% of the total funds raised, with the Visioneering Technologies Inc, IPO in the Healthcare sector being largest for the quarter. 

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Sectors

To get a better representation of the activity in each sector we have analysed the number of IPOs and average fund raising per sector over the last 12 months. 

The Materials sector, which is aggregated with the Energy sector under the Mining Related banner, has overtaken the Information Technology sector as the most active in the market over the past 12 months. 21 total transactions have been recorded in the Materials sector, which had a particularly strong Q3 FY2017 with 10 transactions. 

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Performance over the last 12 months 

The spread in market capitalisation is quite wide across all industries for mid-market IPOs in the last year. The Consumer Discretionary sector was the least volatile while Industrials and Mining Related sectors were the most volatile in respect of the range of returns. 

Industrial related IPOs were the best performing over the last 12 months with an average return of 61.3%. The average return however is significantly influenced by Aurora Labs Limited that has had its market capitalisation increase by 327% since listing in August 2016 from $38.5m to $164.5m. 

Financials and Consumer Discretionary were the worst performing sectors with a decrease in average market capitalisation from IPO date of 4.7% and 8.1% respectively. 

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Costs

Certain costs in undertaking an IPO, being accounting and legal costs, are typically fixed regardless of the outcome. 

Fundraising costs, on the other hand, are generally paid on successful completion of the IPO and represent a percentage of proceeds raised. Accordingly, fundraising costs have been excluded from our analysis. 

A number of factors will impact the costs incurred, including how prepared the company is for the IPO, the complexity of its business and whether there are any related transactions. Over the last year, the fixed costs for an IPO have averaged $223,135 compared to $297,089 for the corresponding 12 month period in the prior year. 

The peak in transaction costs for companies with a market capitalisation at listing of $75-$150m is the result of Frontier Digital Ventures Limited’s IPO in August 2016. This IPO recorded legal costs of $1.0m which is significantly above the average legal fees for this size entity in the last 12 months of $400,056. 

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Methodology 

The analysis was prepared based on data sourced from S&P Capital IQ. Data analysed is for completed IPOs on the ASX, from 1 July 2012 to 31 March 2017, with an implied enterprise value of less than $200m. If no implied enterprise value was disclosed at the IPO filling date, transactions were adjusted to be the first enterprise value disclosed within the preceding 90 days. In the 47 occurrences where no enterprise value was disclosed during this period, it was calculated by adding total debt at the filing date to the number of shares offered multiplied by the offer price. Of the 47 occurrences that were manually adjusted there were 25 instances where the value was not within 25% of the market capitalisation at the IPO date.

Of the 228 transactions analysed for transaction costs there was sufficient data for 36% of the transactions to calculate the average accounting fees per transaction and there was sufficient data for 86% of the transactions to calculate the average legal fees per transaction. 

About Nexia 

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