Accounting-software star Xero had a NZ$55-million market capitalisation when it listed NZX through an Initial Public Offering (IPO) in June 2007. The IPO raised $15 million.
When Xero dual-listed on ASX in November 2012, it was worth almost half a billion Australian dollars. In February 2018, when Xero transitioned to a sole ASX listing, leaving the NZX, its capitalisation was about A$4.5 billion.
Today, Xero is worth A$20.6 billion[i].
Along the way, Xero joined key ASX sharemarket indices, such as the S&P/ASX All Technology Index, and attracted twice as much broking coverage of its stock (compared to before its NZX delisting). Global investors, including index funds, joined Xero’s share register, boosting its liquidity.
Xero’s success shows the importance of aligning corporate strategy and an exchange listing. As the company targeted global markets, it wanted to reach global investors. Transitioning to a sole ASX listing exposed Xero to a much larger investor base in Australasia and overseas.
The New Zealand-domiciled company is a fascinating case study in how emerging NZ tech companies can transition through exchange listings as they grow – and the importance of investor relations in connecting tech companies with global investors.
Xero this year won the Australasian Investor Relations Association (AIRA) award for Best Overall Investor Relations (IR) by a Company within the S&P/ASX 200, best use of technology by an Australasian company, and Best Investor Day by an ASX-listed Company.
ASX asked Toby Langley, Executive General Manager of IR at Xero, about the company’s experience with a dual and now sole listing on ASX. And what other emerging NZ tech companies can learn from its approach to an exchange listing and IR.
Here is an edited extract of his response:
Toby Langley: Our time on NZX was critical to establishing Xero as a business and listed company. As such, transitioning to a sole ASX listing was a big step in Xero’s history and capital-management strategy.
The sole listing was followed by Xero’s inclusion in several high-profile equity-market indices, including the S&P/ASX 50, 100, and 200, as well as the MSCI Australia Index.
Liquidity in Xero’s shares has also increased, while new doors have been opened to a greater and more diverse range of international and technology-focused investors.
The shift to a sole listing also led to a step-change in our coverage from the sell side (broking analysts). We now have almost 20 covering analysts, more than doubling coverage before our NZX delisting.
Xero remains a proud New Zealand-domiciled company – this makes us who we are on a global stage and provides a competitive advantage.
TL: Xero’s experience has been positive, but it’s important that each company's circumstances and strategy are the main drivers of the decision.
When we decided to move to a sole ASX listing, we set a range of objectives we believe extended our global reach and appeal as a New Zealand company. These included:
TL: A fast-growing tech sector in Australasia is fuelling interest and looking to attract capital from global listed and unlisted markets. This is creating a vibrant community of technology companies Xero is excited to be part of.
Although there is a strong talent base, and incredible innovation, the local market opportunity in many categories is often more limited due to the relatively small population across Australasia. For a technology company to truly realise its long-term potential, to scale effectively, and to serve as many customers as possible, it needs to build a global business.
Global investors are often attractive partners for tech businesses. They can complement domestic investor involvement as they bring additional perspectives and context to the challenges and opportunities of a high-growth, global technology company operating outside the region. These perspectives and their involvement in a technology company's stock are valuable in building a supportive and diversified share register.
There is also a natural synergy between offering products and services that meet the needs of customers in typically larger international markets where investors are also based. A presence in an investor’s local market leads to greater familiarity with the product or service offered, as well as the market opportunity.
The ASX listing provides a great platform for Xero to access global investors, alongside the large domestic investor community that has been enhanced through technology-focused initiatives. The launch of the S&P/ASX All Tech Index last year has helped to increase global focus on the Australasian technology sector.
TL: The first step to transitioning to a new exchange is to be clear on what you are trying to achieve for the business and your capital-management plan, and why.
For a smaller or newer NZ company, a locally-based, familiar and supportive investor community may be exactly what it initially needs. In time, a larger, more liquid equity market may be more appropriate.
At Xero, we had a clear rationale for transitioning to a sole ASX listing, driven by the need to support our continued global growth.
Specific factors that made the ASX an attractive option for Xero included:
The second element, crucial when companies make updates to their capital-management approach, is to clearly communicate your rationale for change to all key stakeholders.
The third element is to set out a wider investor-engagement strategy that is ready to support the inevitably large shift in the share register. For the IR team, this means devising an intensive engagement program to help many new and prospective investors get to know Xero and the Xero investment case.
Proactive engagement should remain a key pillar of the ongoing IR strategy, but there is a particular need to focus on this to ensure a relatively smooth transition.
TL: One of our principles when engaging with investors is to ensure we immerse them in an authentic Xero customer and partner experience because Xero focuses strongly on the needs of our small-business customers and accounting and bookkeeping partners.
We prioritise bringing the Xero experience to life for investors and analysts through their inclusion in customer events, product demonstrations, group meetings with partners, and education sessions.
It has been challenging to offer these experiences in person due to Covid, but one example of innovation was the involvement of investors and analysts in a virtual event we hosted called Xero On Air. This was a customer-focused video-engagement series designed to update, inspire and connect our global and local communities. This took place in September 2020, and consisted of pre-recorded episodes available to stream on-demand on xero.com.
Alongside this content, we held a live investor Q&A session with management and a number of more specific live presentations focused on operational parts of the business using a group Zoom webinar.
TL: IR is a critical function for an emerging listed tech company. A newly listed company may not yet have the financial record to satisfy investors focused on more traditional value indicators. This can mean a greater emphasis on clear communication of how a company intends to invest and execute its strategy to create value over the long term. Without an IR function, this can require a significant investment of management time that is likely to be scarce due to the growth demands of the business itself.
Having a dedicated IR function can help to take some of the pressure off management by providing strong messaging and targeted communication of strategy to illustrate the long-term opportunity for the business. The IR team can operate as the ‘eyes and ears’ of the company within the listed environment, providing likely valuable feedback to a business taking its early steps as a listed company.
Some things that have worked well for Xero, which would be useful for a newly listed tech business to consider, include:
TL: Yes. Over the last few years, Xero’s welcomed a number of new international shareholders across Europe, the UK, and the US onto our register. These have included specialist technology investors as well as household-name institutional investors. Xero’s inclusion in an increasing number of globally relevant indices has also seen growing involvement of passive investors on the register.
We have also seen growing interest from thematic ETF investors that have selected Xero as compatible with their investment strategy. Examples are a global cloud-computing ETF and, more locally, an ETF that tracks the ASX/S&P All Tech Index. Xero is not alone in benefiting from this trend, with the wider technology sector also making positive progress.
TL: Ensure the location, amount, and type of capital raised make sense alongside the company’s current state and strategy. Companies will need to ask if a particular location exposes them to sufficient local investor support and how compatible this is likely to be with the business’ existing local market presence and intended corporate plan.
The other consideration, particularly for smaller companies, is that other forms of (private) capital may make more sense.
As a company scales and builds its profile, a public listing can bring useful benefits to its profile within the investor community and the general public. For emerging NZ companies yet to ‘break out’ beyond their local market presence, a local listing in NZ with a perhaps more familiar onshore investor base may fit the bill.
If the company needs to support a global operating presence or it knows it will need to raise new capital, a larger equity market may make more sense in the long run, but this might also bring additional costs.
Moreover, a shift in the listing location (if already listed in NZ) will likely require significant investment in promoting the company and stock to a new base of investors.
Xero listed in NZ at an early stage, which was unusual at the time. Rod Drury, our founder, had a strong and clear long-term vision for the company, but our operating progress up to that time had been limited.
The listing gave us an opportunity to establish a track record, form vital long-term relationships, and interact with the supportive local market while building scale and credibility that ultimately enabled Xero’s successful global push in subsequent years.
[i] At July 30, 2021. Source: ASX