The ASX is on track to end 2024 with fewer listed companies than it kicked the year off with, signalling a significant shift towards private markets.
ASX Group’s November activity report showed that the total number of listings has fallen from 2,191 at the beginning of the year to 2,121 by the end of November – a net loss of 70 listings.
According to EQT, this multi-year contraction that Australia’s largest exchange has observed signals a shift in companies choosing to stay private for longer or opting to delist, highlighting the growing appeal of private markets.
Global initial public offering (IPO) activity further reflects this trend. In 1Q22, global IPO fundraising totalled US$54.6 billion, a figure that shrank to just US$24.9 billion in 3Q24.
“With a month remaining in the year, it’s evident that the pivot towards private market assets continues to gain momentum,” Martin Donnelly, managing director of client relations at EQT Capital Raising, said.
“This trend reflects broader structural changes, as companies increasingly find private markets to be a more attractive pathway for growth and access to capital.”
According to him, the steep ascent in costs and intricacies entailed in transitioning to a publicly traded entity continues to deter companies from considering an IPO.
“Companies have not vanished or stopped being created; instead, they are increasingly turning to private capital as a more attractive alternative to public capital. This is due to labyrinthine regulatory prerequisites, onerous compliance standards, and the potential for heightened scrutiny from stakeholders,” Donnelly said.
Donnelly said that this trend is not isolated to Australia, with global exchanges similarly observing a trend of increased delistings and a shift towards private markets.
“In the United States, the number of companies listed on the Nasdaq and NYSE has been declining, with many firms opting for private funding due to less regulatory scrutiny and greater flexibility. Europe is also experiencing a surge in private equity activity, as companies delist from exchanges such as Euronext,” he said.
This shift in corporate strategy also presents opportunities for investors wanting to chase new avenues of growth and value creation, the managing director said.
“Investors who limit their portfolios to public markets are missing out on a growing share of the opportunity set,” Donnelly said.
“Private markets provide exposure to sectors and companies driving innovation and economic growth, particularly in the absence of IPO activity.”
Opportunities abound for small caps
A recent note from PrimaryMarkets pointed to smaller listed companies, in particular, having to bear the brunt of increasing cost of compliance, challenges in raising capital, and a growing focus on short-term performance.
“Companies list on the stock exchange primarily to raise capital and provide liquidity for their shareholders. For larger companies, these goals are often met continuously, making staying listed a logical decision,” said Jamie Green, executive chairman of PrimaryMarkets.
“However, for smaller companies, the reality is often different. Capital can remain elusive even while listed and shares can become highly illiquid, trading sporadically. Faced with these challenges, many smaller firms conclude that the costs and compliance obligations of remaining listed are not an effective use of shareholders’ funds.”
According to Green, delisting also enhances a company’s operational flexibility.
“Publicly listed firms face intense scrutiny from investors and analysts, creating pressure to deliver short-term results, typically reflected in quarterly earnings. This focus can sometimes undermine long-term strategic plans,” Green said.
