Earlier this year, the Australian Securities Exchange and BIOTechNZ hosted an event for emerging New Zealand life science companies at The University of Otago in Dunedin.
Blair Harrison, head of ASX’s NZ office, spoke about the opportunities for NZ life science companies to raise capital and list on ASX through an Initial Public Offering (IPO).
“The response was terrific,” says Harrison. “For years, the pathway for life science companies has been to commercialise a technology and be acquired by a larger biotech firm. Now, life science companies recognise that raising capital through an exchange listing can help them retain their intellectual property and identity – and potentially build greater value.”
More NZ life science companies are doing just that. Aroa Biosurgery (ASX: ARX), an NZ soft-tissue regeneration company, raised $45 million through an IPO on ASX in July 2020. Aroa CEO Brian Ward told ASX in June: “The big eye-opener for me was the amount of support from Australian institutional investors for emerging NZ healthcare companies.”
Harrison says other innovative NZ sectors, such as agritech, suit an ASX listing. In June, ASX co-hosted an event for agritech companies with AgriTech NZ and AusAgriTech in Tauranga at the Bay of Plenty. The event featured Tenacious Ventures, Australia’s first agri-food tech venture-capital (VC) firm, and Finistere Ventures, a NZ VC firm based in Silicon Valley.
“NZ agri-related technology, from hardware to software, has exceptional potential,” says Harrison. “There’s a lot of interest among Australian institutional investors in Trans-Tasman agritech companies that can support and enable higher agricultural productivity. I expect to see more NZ agritech companies listing on ASX in the next few years, given investor demand.”
Information technology companies in NZ are also candidates for an ASX listing, says Harrison. “I meet with so many IT companies from NZ that are ‘born global’ from day one. Often, most of their sales are from the US or Europe, with little revenue from NZ or Australia. They have a global product and want to target global investors. As a global exchange, ASX can help fast-growing NZ IT companies reach offshore investors.”
Harrison says there is strong investor appetite in Australia for emerging NZ tech companies valued at $100 million or more after listing. “Typically, these companies are growing their revenue by at least 20-30% annually, but may not yet be profitable. ASX is developing a large ecosystem of emerging tech companies. Investors want more of them on the exchange.”
Many NZ tech companies have the right attributes for Australian fund managers, says Harrison. “I’m continually impressed with the quality of emerging companies in NZ, across life sciences, agritech, information technology, and other sectors. Typically, these companies are well-managed and well-governed from day one.
“They form boards and attract experienced directors early in their journey and surround themselves with good advisers. They collect and report good data, which helps fund managers conduct due diligence.”
Harrison says more NZ emerging companies are listing on ASX at their IPO and choosing a sole listing rather than a dual listing with NZX. Eighteen of 63 NZ companies listed on ASX now have a sole listing. Recent sole listings include Aroa Biosurgery and Laybuy Group Holdings (ASX: LBY). In early 2018, Xero (ASX: XRO) transitioned to a sole listing on ASX after being dual-listed on NZX and ASX. Most NZ companies sole listed on ASX are from the information technology, life science, and materials sectors. Many are capitalised at $100 million or less.
Harrison says the traditional model with listings is changing. “Previously, a NZ company that sought capital through public markets would automatically list on NZX. As the company grew, it might dual list on ASX and NZX to raise more capital and increase its liquidity. Today, NZ companies that are genuinely global are going straight to a sole listing on ASX.”
A sole listing on ASX enhances the potential of index inclusion for NZ companies. Early entry into a globally recognised index, such as the S&P/ASX 300 index, can attract institutional capital to a company sooner, which, in turn, can boost share turnover and amplify share demand.
NZ life science and technology companies, such as Xero, Laybuy, Pushpay Holdings (ASX: PPH), and Volpara Health Technologies (ASX: VPT) are part of the S&P/All Tech Index. That means index funds that replicate returns in the All Tech Index have to hold those companies.
Harrison says a dual listing can make it harder for emerging NZ companies to achieve index inclusion because their liquidity is split across two exchanges. Standard & Poor’s, for example, only assesses the ASX liquidity of a New Zealand company when assessing its eligibility for the S&P/ASX All Tech Index. The company’s NZX liquidity is not included.
“A dual listing makes sense if the NZ company is well known in its home market and can attract significant liquidity from local investors,” says Harrison. “However, if an NZ company sells mostly into global markets, it’s better off with a sole listing that can aid earlier index inclusion, attract global investors and potentially amplify liquidity.”
Harrison says a sole or dual listing on ASX can have higher costs and corporate-governance requirements (compared to a sole NZX listing). “The reason for that is companies are accessing a capital pool in Australia that is five times the size of that in NZ. For a globally focused NZ company, the benefits of listing on a global exchange far outweigh the extra costs.”
Ten NZ companies have listed on ASX in the past 18 months, taking the total to 63. Harrison expects at least another five NZ companies to sole or dual list on ASX in FY22. “The pipeline for NZ companies listing on ASX is strong. That’s partly because of general buoyancy in global equity markets and IPOs.”
The average daily traded volume of ASX-listed NZ companies now exceeds total liquidity on NZX. ASX market share of NZ equities trading increased to 56% in 2020. “Liquidity begets liquidity,” says Harrison. “As more NZ companies dual list on ASX, more of the liquidity in those companies will move from NXZ to ASX over time. Institutional investors go where the liquidity is, so that means fund managers buying NZ companies on ASX.”
As a proud New Zealander, Harrison wants NZ companies to star on a global stage and become larger businesses. “Great NZ-domiciled companies, such as Xero, have transitioned from a NZX listing to dual listing on ASX, to now a sole listing on ASX. In doing so, they never lost sight of their NZ heritage or values. The reality is, they grew to the stage where they needed a larger exchange.”
Harrison does not see an exchange listing as a binary choice for NZ companies. “NZX will always have an important role for well-known, established NZ companies in that market. For NZ companies with a global focus, a dual or sole listing on ASX might make more sense. It’s important that NZ companies understand the listing options available to them.”
Harrison quips that every time a NZ company makes an ASX index, an Australian company is knocked out. “We’ve seen exceptional NZ companies, such as Xero, become much larger businesses after their listing on ASX. There are many impressive, high-growth NZ companies that can follow in their footsteps through an ASX listing.”