Kirk currently chairs Forsyth Barr, a leading New Zealand asset manager, and is CEO of Bailador Technology Investments (ASX: BTI), a Listed Investment Company (LIC) on ASX that invests in high-growth privately owned technology companies.
One of those companies is Straker Translations (ASX: STG), an NZ-based tech company that sole listed on ASX in October 2018 through a $21-million Initial Public Offering. Valued at $79.4 million at IPO, Straker is now capitalised at $118 million[i].
These experiences have given Kirk insight into the pros and cons of NZ companies dual or sole listing on ASX. He is passionate about NZ building a larger ecosystem of locally listed tech companies but sees advantages in an ASX listing, in some circumstances.
“It depends on the company,” says Kirk. “If you are an NZ tech company with global ambition, a listing on ASX makes sense because it is a larger exchange that potentially provides more access to capital, greater research coverage, and index inclusion. However, if your company is well known in NZ, it absolutely makes sense to be listed in your home country.”
Kirk says company size is an important factor when choosing an exchange listing. “Just as Australian tech companies can get overlooked on the NASDAQ exchange because of their smaller relative size, so, too, can small NZ tech companies get overlooked on ASX. There’s a lot of NZ capital available for promising emerging NZ tech companies that list locally.”
ASX asked Kirk for his insights on dual or sole listings for NZ companies on ASX. Here is an extract of his response:
David Kirk: It’s ultimately about scale. A NZ company looking to raise, say, $50 million in an IPO can go to at least 20 to 30 institutional investors in Australia to find cornerstone investors. In NZ, there are probably seven or eight options. There is also a bigger pool of retail investors in Australia through Self-Managed Superannuation Funds and a larger ecosystem of broking research.
That’s not to downplay the strengths of NZ capital markets. But the reality is that Australia is a larger capital market and that is beneficial for NZ companies that need funds to grow.
DK: Obviously, when a company lists, it wants its share price to tick up over time. For that to happen, you need committed buyers who understand the story and are willing to maintain or increase their investment in the business over time. Listing on a larger exchange, or being listed on two exchanges, gives companies access to more potential buyers of their stock.
But that is only part of the story. A share price might go up on good news, then inevitably start to drift lower as some investors sell for whatever reason. Companies, particularly those that have recently listed, need to keep getting their news out to the widest possible audience. Having access to more investors via ASX helps in that regard.
DK: Often, companies with low liquidity struggle to trade near their fair value. The default position is for their shares to drift lower because there are not enough buyers.
Access to retail investors is especially important for share liquidity in small-cap companies. Cornerstone investors in a company typically invest for the longer term, and a founder may have a large shareholding. Retail investors add to the company’s share liquidity.
Companies should not think a dual listing guarantees good liquidity on both exchanges. I’ve learned over the years that one exchange can dominate trading in the company’s shares. Usually, this is based on where the shareholders are located. The company might find the vast bulk of its shares are traded on one exchange, with low trading volume on the other.
DK: Bailador believes a $100-million market capitalisation on listing is a good size in this market for tech companies that want to list. If you’re too far below that, you might not have the scale to attract institutional investors or enough liquidity in your shares.
We prefer to see tech companies become more established before they list on an exchange. That was the case with Straker Translations (Bailador held 20.4% of STI prior to listing) and is part of Bailador’s strategy with other tech companies we invest in.
DK: The company had a range of committed institutional investors in Australia and most of its growth was outside NZ. By contrast, Kathmandu Holdings is dual listed on NZX and ASX because it is well known in NZ and Australia through the Kathmandu and Rip Cirl brands, and has significant retail presence on both sides of the Tasman.
If a company mostly serves the NZ market, then I’d argue it ought to have a primary listing in its home market, perhaps with a secondary listing on ASX, depending on the company’s size.
DK: Trade Me was a 100% NZ company with an excellent customer base and brand in NZ. At the time, the board believed an ASX dual listing would give Trade Me some extra liquidity and broaden its shareholder base. That happened. Also, we were cognisant that some Australian fund managers can only invest in ASX-listed companies because of their investment mandate.
DK: There are no material governance changes for the board. A good company secretary will be across any differences in annual reports or continuous disclosure requirements. But a dual listing is very manageable from a governance perspective. The listing regimes and general director-liability rules are broadly similar across the Tasman.
There’s a bit of extra company cost and administration with a dual listing. But the investment is well worth it if the company attracts more investors and has higher share liquidity. Or eventually is included in sharemarket indices that funds follow.
DK: There has been some frustration and even criticism in NZ of companies that chose to sole list outside of NZ or consolidate their shares on one exchange. Mostly it is frustration from people who really care about seeing New Zealand capital markets thrive.
I, too, want to see a vibrant market of NZ-listed companies in tech and other sectors. That said, I’m broadly supportive of NZ companies that sole or dual list overseas if they need access to a larger exchange to source more capital and shareholders – or if most of their revenue is earned overseas.
[i] Market Capitalisation at Aug 17, 2021. Source: Morningstar