Home' Forge : Vol 1 No 2 Contents 116 // wealth creator
at sharply lower costs. In some
definitions, a true disrupter is
capable of doing things at least 10
times better, cheaper or faster than its
Also, with the key barometer of
global tech stocks – the Nasdaq
Composite Index – trading near
record highs as Forge went to press,
the timing for tech listings on
the ASX could scarcely be better,
provided Australian share market
volatility does not spike higher.
The success of several tech listings
in the past two years has whetted
investor appetite for Australian
tech companies with a clear path
to profitability. There is an obvious
need for more listed tech stocks,
given that the ASX has a lower
weighting of listed tech companies
than many offshore equity markets
in developed countries.
Understand the risks
Backdoor listings also have
several drawbacks that technology
entrepreneurs and investors must
consider. The first is a lower profile.
Unlike IPOs, which are often heavily
marketed to broking firms, investors
and the media, backdoor listings
usually have far less fanfare.
There is no publicly available,
specialist information source for
backdoor listings, and most of
them are too small to be covered
by stockbroking analysts or the
media. Investors who want to buy
shares in potentially disruptive tech
companies via backdoor listings
should keep an eye on the ASX
company announcements platform,
or get advice from broking firms
that are active in this market.
Another issue is the potential baggage
that comes with a backdoor listing.
Unlike an IPO, a backdoor listing must
work within the existing corporate
structure and shareholder base, and
must seek shareholder approval for
key changes. In contrast, the IPO is
effectively a blank canvas to structure
the business as efficiently as possible.
The IPO vendor can attract a
strong base of long-term investors
and build a share register that is
aligned with its current and future
strategy. The backdoor listing can
target investors through capital
raisings, but it may have legacy
shareholder complications from
the previous business.
Legacy assets and legal problems are
other potential issues for backdoor
listings. The technology vendor
and its advisers should conduct
thorough due diligence on the listed
shell company before acquiring it,
but there could still be potential
legal claims or problems that relate
to the previous business, its assets
or its management.
Information risk is another
consideration. The information
memorandum that accompanies the
backdoor listing can provide less
information, and have less investor
market scrutiny, than the prospectus
that accompanies IPOs (although
they, too, can have problems).
Some fund managers complain
that backdoor listings, collectively,
provide insufficient information
on the company acquiring the shell
company, and its plans, to make
investment decisions. As such, most
micro-cap backdoor tech listings
should be considered speculative.
Performance is another issue.
Academic research shows that
backdoor listings typically
underperform IPOs and other listed
companies in their sector over time.
The biggest price gains are often in
the company being acquired (the
failed exploration company) as the
vendor pays a premium to acquire
the listed share and win over existing
In fairness, the latest rush of backdoor
listings has a different hue to previous
cycles. Many tech companies listing on
the ASX are reasonably established, in
part because they had to work harder
to raise capital and develop their
operations after the 2008–09 global
This tech boom has much more
substance than the previous incarnation
at the turn of the century, when
companies with little more than a
business plan raised capital and soared
upon listing. Having been badly burnt
the last time around, investors are more
sceptical about which tech companies
can build and monetise audiences, and
create strong profit growth.
Tech IPOs also popular
Investors concerned about investing
in technology through speculative
backdoor listings will have more tech
IPOs to choose from this year. Tech
IPOs were one of the best features of
the IPO market in the past two years,
adding to the diversity of floats
coming to market.
Tech IPOs on the ASX in 2014
collectively raised more than
$720 million of equity capital. They
include iSentia Group’s $284 million
IPO; 3P Learning’s $282 million
capital raising; and Vista Group
International’s $83 million IPO.
Floats of 8common, BPS Technology,
Urbanise.com and Rewardle
Holdings were others.
That followed almost $800 million
raised last year through the
OzForex Group, iSelect, Freelancer,
iBuy Group, Smartpay Holdings
and 99 Wuxian IPOs.
Freelancer ’s $15 million IPO in
November 2013 encouraged tech
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