Advisers enjoy strong flow of listings

When the ASX 200 plunged 36 per cent over a few weeks during March 2020 as a COVID-19-induced recession loomed, investors surely did not expect they would soon see a surging market in initial public offerings

But 2020 proved to be a strong year for Western Australian businesses listing on the stock exchange.

More than $340 million was raised in 32 IPOs, according to Business News Data & Insights.

That compared with $321 million from 18 listings in 2019.

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Steinepreis Paganin was legal adviser on 11 of the 2020 IPOs.

Managing partner Mark Foster said it was the busiest year since 2007.

“It was a tale of two periods,” he said.

“Early in the year, it was unprecedented in terms of lack of work, and after Easter, it got almost as busy as we’ve seen towards the back of the year.”

That was expected to continue into 2021, Mr Foster added.

Valuations were high, making it easier to raise capital.

Government stimulus and high commodity prices were supporting that confidence, Mr Foster said.

Bell Potter director of corporate finance Stephen Kite agreed the high iron ore and gold prices were a factor, as was stimulus.

The Reserve Bank of Australia unleashed about $130 billion to support economic activity during 2020.

“The biggest determinant is the amount of central bank stimulus … in the last year or so,” Mr Kite said.

It had provided a large pool of equity capital for ASX and other markets, he said.

Mr Kite agreed the IPO market had been very poor in the first six months of 2020.

“As the market matured and the recovery matured, and there was greater confidence, markets were ready to support activity,” he said.

While WA was usually dominated by smaller resources IPOs, he said there had been plenty of activity outside that sector.

One example was GenusPlus, a power provider that raised $33 million in a December listing, with Bell Potter advising.

Similarly, the two largest IPOs during 2020 were not resources companies, although both had strong resources links.

Duratec is an engineering and construction business with resources clients, while DUG Technology started life providing computing power for oil and gas.

Going green

Medical technology business Emerald Clinics, now trading as Emyria, listed in February 2020.

Emerald, Little Green Pharma, and Live Verdure were all 2020 IPOs which have a cannabis or hemp focus.

Emerald chair Stewart Washer said because cannabis had only recently been legalised for commercial purposes, the field was still maturing, but quickly.

That was demonstrated by the willingness of businesses to enter production without building medical evidence for use cases.

“[There] is a big glut of cannabis out there,” Mr Washer said.

“Production ran ahead of medical evidence.”

Similarly, while there was solid investor interest in cannabis, it was not at the level of two years ago when he said some weaker companies were backed.

“Investors are getting smarter,” Mr Washer said. 

The Emerald IPO started before Christmas 2019 and listed before COVID-19 hit markets.

Mr Washer said that led many funds to sell their stakes and putting downward pressure on the share price.

“We’re getting a stable following now,” he said.

HWL Ebsworth partner Shaun Hardcastle said there had been a renewed interest in cannabis.

The law firm advised on the InteliCare raising, another medtech business.

“WA is a bit of a hidden secret when it comes to medtech and biotech,” Mr Hardcastle told Business News.

“There’s a number of corporate advisers in WA that have a keen focus on medtech and biotech.”

InteliCare’s raising was an eight-week process challenged by the COVID-19 outbreak, Mr Hardcastle said, but this was mitigated because the company’s technology was probably made more relevant by the pandemic.

HWL advised on 10 IPOs nationally last year, he said, nine of which were out of the Perth office.

There was a strong pipeline for 2021, Mr Hardcastle said, and the firm had 10 to 15 good prospects.

While the IPO boom is engaging advisers, Argonaut executive chairman Eddie Rigg cautioned about the surge of junior miners coming to market.

“We didn’t see a lot of quality in there,” Mr Rigg said.

Gilbert + Tobin partner Justin Mannolini said the same question was asked during every market rally.

But he believes the tougher regulatory standards applied by the ASX in recent years have served to raise the bar for new listings.

“The IPO process is getting harder,” he said.

“The ASX is applying a much tougher filter.

“Companies we worked with had more work than they would have anticipated to ensure they had the systems and processes suitable for an ASX listing.”