Backdoor Listings Rise on Australian Stock Exchange

A new Bloomberg report highlighted a rising trend in Australia in which emergent technology companies are listing on the country's main exchange, ASX, instead of Nasdaq, via a backdoor listing or reverse takeover. The report revealed that there were 30 backdoor listings in 2014, a great deal of which involves tech firms. In 2013, the figures stood at 19.

"With Australia’s economy slowing, the country is encouraging local and foreign companies to consider entering the equity market by acquiring a publicly traded company," the report said. It added that a number of tech companies in the U.S. call to inquire about listing on the ASX on a day-to-day basis.

A prime example that entered the exchange recently through the said strategy was three-year-old tech start-up 1-Page, which acquired an ailing nickel mining company listed on the ASX. According to the report, more backdoor listings like this could be the shot in the arm that miners in Australia need to redeem their share values. Sluggish Chinese demand has hurt iron ore prices, which plummeted by as much as 50 percent in the past year.

Good thing, too, that regulators are receptive to the activity. The report said that regulators have "tried to remove hurdles to backdoor listings" to lift the mining stocks-heavy ASX by relaxing its rule of requiring companies to trade at a minimum share price of 20 cents.

Reverse mergers are also a route of choice of start-up technology companies in the United Kingdom. For instance, spoken word streaming service Audioboom (LSE:BOOM), listed on the London Stock Exchange's Alternative Investment Market platform through a reverse takeover of cash shell One Delta PLC. The company issued £174.5 million [$336.5 million] in new shares and 19 million warrants through the deal, Morningstar reported.

Speaking to The Financial Times, Rob Proctor, chief executive of Audioboom, said the deal would help the company expand its business. "I don’t think there are many small-cap social media propositions on the market, so it’s pretty exciting for investors," he told the paper last year when the company revealed its plans of listing on the AIM.

According to Investopedia, a reverse takeover or backdoor listing is a great strategy for private companies that are planning to go public but do not meet the criteria for listing on an exchange. The process is less time-consuming and inexpensive, not to mention that investors can "enjoy greater liquidity." Another benefit of a backdoor listing is that it provides the company flexibility in selecting financing options.

Contact the writer: a.lu@ibtimes.com.au