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A continuation of 2022 and global trends for IPOs

Consistent with trends in global capital markets and continuing on from similar trends in 2022, the Australian IPO market was muted in 2023. The number of IPOs was down for a second year in a row, representing the lowest number of total IPOs in a calendar year since we started collecting IPO data in 2016.

The continuation of this trend demonstrates the headwinds issuers have faced in raising capital since early 2022 with another year of high inflation and rapid increases in interest rates across the globe contributing to uncertainty in global and Australian capital markets.

Number of IPOs 2018-2023

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Capital raised by market capitalisation and per IPO 2018-2023

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Market capitalisation, capital raised and number of IPOs 2023

However, green shoots are emerging. There was a strong uptick in amount of capital raised in the second half of 2023 (380% higher than in the first half). Much of this was attributable to the capital raised by Redox Limited towards the middle of the year.

Further, the aggregate market capitalisation of new listings in 2023 increased from 2022 levels by nearly $2 billion. This was also partly due to the IPO of Redox – the largest IPO since November 2021 and the largest IPO in 2023 by some margin. Redox raised $402 million in primary capital and listed on ASX with a market capitalisation at listing of $1.3 billion, comprising approximately 45% of the total aggregate market capitalisation for IPOs in 2023. Herbert Smith Freehills acted for Redox on this IPO.

Whilst the balance of the IPOs were typically IPOs with a market capitalisation of less than $50 million, the average market capitalisation for an IPO was still significantly higher in 2023 (around 8 times) compared to 2022.

Despite a number of prospective issuers delaying their IPO plans for a second year in a row, we see a path forward for issuers seeking to list on ASX emerging in 2024 given the projected direction of various macro economic settings. As outlined further below, the successful path to an IPO in 2023 typically involved a higher level of underwriting and escrow.

Raising for acquisitions

In 2023, there were three IPOs that raised more than $50 million: Redox Limited, Nido Education Limited and Brazilian Rare Earths Limited.

Of the IPOs, each adopted the features referenced above in respect of higher levels of underwriting and escrow. In addition, a significant portion of the capital raised by each three issuer was raised to fund acquisitions:

  • $73 million of the $99 million raised by Nido Education was for the purpose of providing Nido Education with capital to complete the acquisition of a further 24 education centres (to complement its existing 28 centres);
  •  $12 million of the $50 million raised by Brazilian Rare Earths  was for the purpose of providing Brazilian Rare Earths with capital to complete the acquisition of a bauxite exploration tenement; and
  • $24 million of the $402 million raised by Redox was raised for the purposes of working capital and growth strategies, which included acquisition opportunities.

Escrow – a push for certainty

Market wide

Reflective of the headwinds for IPOs in 2023, the average number of ordinary securities subject to escrow increased to 45% of total outstanding ordinary securities, whether imposed by the ASX or voluntarily restricted by the issuer. This trend is reflective of the stronger demand we have seen from prospective investors for escrow of investors retaining stakes in issuers on listing.  Whilst the market wants to see founders and other pre-IPO investors retain a meaningful interest in the performance of the issuer in the period following listing, we consider the increased level of escrow to also be tied to the market sentiment and the challenges in the current environment so we would expect the current figures to be something of a high water mark, which will fluctuate in years to come depending on the directions of those factors.

Issuers with a market capitalisation of less than $100 million most frequently escrowed 20-40% of their ordinary securities, while issuers with market capitalisations of $100 million or more tended to adopt higher ranges of escrow, from 40-80%. Redox, the largest listing of the year, had approximately 70% of its ordinary securities in escrow. Escrow was typically released in two or three tranches. See below in relation to escrow periods and release.

Timing of Escrow Release

Every IPO in this segment scheduled the release of restricted securities in between one to three tranches. Those tranches were most commonly timed from the date of quotation, but in some circumstances expired in line with the release of subsequent financial results. The vast majority of restricted securities were scheduled to become unrestricted within 24 months of the listing date, and escrow for all IPOs in the >$100 million category expired in an 18 or 24 month period. The average release profile of IPOs is set out below.

Average restricted security release profile 2023 IPOs

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The release of Redox’s shares occurred in two tranches – one after 12 months (which represented ~34% of total shares on issue), and another after 24 months (which represented ~36% of shares on issue). 

The second largest IPO – Brazilian Rare Earths – released the bulk of its escrowed securities in one large tranche, amounting to ~63% of shares on issue, at 24 months. The Nido Education IPO similarly released 52% of the total shares on issue in one tranche at 24 months. However, this was not necessarily the case across the board for listings exceeding the $100 million category. VHM Limited, the third largest IPO, released a 12% tranche after 6 months, an 18% tranche after 12 months, and a 24% tranche after 24 months. 

A handful of other IPOs with a market capitalisation of $100 million or more also spread out the release of restricted securities, with one releasing the majority of shares at 3 to 6 months (Acusensus Limited), and another doing so at 24 months (Curvebeam AI Limited). The escrow periods all expired due to timing milestones being met, and there were no examples of early release for performance related reasons in this category (noting there was an early release trigger for at least one issuer in the small-cap category). 

Recognising that small-caps comprised the majority of listings for the year and tend to have a lower amount of escrow, around half of all floated entities had less than 40% of their total outstanding securities restricted upon listing. 

Restricted securities by market capitalisation

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Average restricted securities profile >$100 million market cap

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Large IPOs

Escrow arrangements featured in all six IPOs with a market capitalisation on listing of over $100 million. Unsurprisingly, these arrangements were predominantly issuer imposed, with only one of the IPOs subject solely to ASX imposed restrictions. The balance adopted voluntary restrictions, two being subject to both mandatory and voluntary restrictions. On average, ~67% of the total outstanding securities of these larger IPOs were restricted as at the listing date. 

Average escrow % 2021-2023

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Approximately 65% of the total number of IPOs for the year were subject to mandatory escrow, with another 23% being subject to a mix of mandatory and voluntary. The ASX only imposes mandatory escrows in certain circumstances and usually when the relevant company does not have the requisite track record of profitability or revenue acceptable to ASX. This implies that for a large number of IPOs this year, companies were unable to demonstrate the requisite level of profitability or revenue to satisfy ASX that mandatory escrow did not need to apply. This is likely due to the volume of new early stage companies listing (such as in the mining exploration, life sciences or tech sectors), making it more difficult to satisfy ASX that mandatory escrow should not apply.

Underwriting – a further push for certainty

As a further push for certainty in the face of IPO headwinds, the percentage of underwritten IPOs increased dramatically in 2023 as compared to 2022, increasing from 7% to 25% of all IPOs, being even more notable for those with market capitalisations over $100 million, increasing from 50% to 75%. As with 2022 and 2021, the majority of the IPOs which were underwritten in 2023 had market capitalisations exceeding the $100 million mark and continued to be reflective of the desire of issuers for greater certainty for valuable listings. 

Percentage of all IPOs underwritten 2023

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Percentage of underwritten IPOs over $100M market capitalisation 2018-2023

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Sector spotlights

Materials and energy resources listings comprised the majority of IPOs in 2023 (~75%), consistent with the larger portion of mid and small market capitalisation IPOs and at similar levels to those recorded in 2022. The nature of these listings have yet again reflected ongoing strength of the ASX in attracting materials and energy resources sector companies to its boards.

Listings relating to health care, biomedical technology and pharmaceuticals comprised the next most represented sector (~15%), perhaps reflective of the strong growth in that sector. These included medical imaging platform company Curvebeam AI, blood test developer Cleo Diagnostics Limited, NDIS provider Freedom Care Group Holdings Limited, health diagnostic data company Enlitic Inc and consumer pharmaceutical company LTR Pharma Limited.

Other non-materials and energy resources IPOs rounding out the balance for the year included Acusensus, a developer of artificial intelligence-enabled road safety solutions and Nido Education, the national owner and operator of early childhood education centres.


IPOs by sector 2023

Geographic spread

2023 was dominated by Australian-incorporated issuers, with 94% coming from the domestic market. Only Canada and the United States of America represented foreign jurisdictions.

Jurisdiction of issuer incorporation 2023

Note: this figure does not include issuers incorporated in Australia which have significant strategic, commercial or investor links outside Australia, in which case the non-Australian component would be higher.
Note on methodology: all data in this '2023: IPOs by the numbers' section excludes ASX Foreign Exempt, AQUA, debt and PDS listings unless otherwise stated. Market capitalisation is based on the issue price of securities multiplied by the total securities on issue on that date.

Turning tides:

The Australian ECM Review 2023

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Nicole Pedler

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Nicole Pedler
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David Tilley

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