05/10/2015 - 05:39

How long will the RTO boom last?

05/10/2015 - 05:39

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The keen investor interest in tech stocks will hopefully be more than a passing trend.

How long will the RTO boom last?

The keen investor interest in tech stocks will hopefully be more than a passing trend.

In April 2013, agricultural investment company AACL Holdings lodged an ASX announcement that raised a few eyebrows.

AACL revealed plans to acquire local tech business Moboom, which was developing website content for smart phones.

The Moboom announcement brought back memories of the backdoor listings, or reverse takeovers, that occurred in the dot.com boom of the 1990s.

That was, of course, followed by the tech wreck, which prompted many tech companies to once again reinvent themselves as minerals explorers.

The Moboom announcement proved to be a false dawn for the latest wave of backdoor listings.

The deal was terminated four months later, but by then AACL had signed a new agreement with app development and app financing company Applabs Technologies.

The Applabs deal struck a chord with investors, who were keen to tip in $3 million ahead of its relisting in December 2013.

Applabs became the first of 36 tech firms to complete a backdoor listing over the past two years, according to Business News research.

This trend has been a boon for tech firms that were shunned by Australian investors during the decade-long resources boom.

That was a decade when angel investors, private equity and venture capital funds were about the only option for tech entrepreneurs – and they were thin on the ground in Australia.

Nirvana was striking a deal in Silicon Valley.

Yet, we now have tech firms in Silicon Valley coming to the Australian market to raise growth capital.

What a strange turn of events.

The pin-up success story for backdoor listings is US firm 1-Page.

It listed in October last year after raising $8.5 million at 20 cents per share – those shares are now trading at $4.60 each.

But it hasn’t all been smooth sailing. Applabs, for instance, is trading at around 9 cents per share after hitting a high of about 25 cents early last year.

And for all the deals that have been completed, Business News has counted 14 that were announced but later terminated.

Those setbacks are not slowing the market.

There are another 24 deals that have been announced, including 10 in the September quarter.

There are several factors driving the trend.

One is the need for dozens of cash-strapped exploration companies to find a new focus.

Unless they have a compelling story, or extremely strong networks, it is near impossible for explorers to raise fresh capital.

A second factor is the willingness of investors to have a punt on risky ventures – but not bet the house.

The 36 completed backdoor listings have collectively raised a total of $186 million – that can be life changing for the recipients, and is a bigger boost than any government has delivered to the tech sector in recent years, but is barely a drop in the Australian capital markets ocean.

 A third factor is the ability of local dealmakers to connect the emerging tech firms with shell companies and new investors.

The longevity of this trend will to some degree depend on the duration of the commodities downturn.

A sustained bounce in commodity prices – whenever that happens – is sure to revive investor interest in mining and exploration plays.

It also depends on the ability of tech companies to deliver on their promise.

The prospect of that happening is much better than during the dot.com boom, when many flimsy companies listed on the ASX.

The latest wave includes many businesses led by experienced technology executives with a track record of success.

Some of those people, like Rob Newman and Justin Miller, are leading startup businesses.

Others, like Paul Ostergaard, at Norwood Systems and Mark Woschnak, at rent.com.au, have already invested millions of dollars over several years building businesses with products and customers.

Collectively, entrepreneurs like these, with backing from judicious investors, are the best chance Western Australia has to develop technology into something more than a fringe sector.

 


STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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