The wave of backdoor listings on the ASX has delivered nearly $90 million of extra capital to the tech sector in Western Australia, but the trend hasn’t all been positive, research by Business News has found.
The wave of backdoor listings on the ASX has delivered nearly $90 million of extra capital to the tech sector in Western Australia, but the trend hasn’t all been positive, research by Business News has found.
When rent.com.au started trading on the ASX on Tuesday, it was the 25th time in the past two years that an exploration company from Western Australia had successfully morphed into a tech company through a backdoor listing.
For the shareholders of Select Exploration, the deal has given their stock a new lease on life.
For rent.com.au founder Mark Woschnak, the deal has given him $5 million in fresh capital to support the company’s growth plans.
That represents a big boost for a company that started from scratch in 2007 and currently has just six staff.
The extra money in the bank gives Mr Woschnak the capacity to recruit about 30 new staff over the coming year, to start commercialising its website and services.
“This is the first time in seven years when we can switch our focus from the back end to the consumer brand,” Mr Woschnak told Business News.
“It’s an enormous opportunity because there is nobody else with a substantial focus on the property rental market.
“We’re setting out to lock-in our first mover advantage.”
Mr Woschnak said investors in rent.com.au wanted the liquidity that came with an ASX listing.
Despite some slippage in the timing, he believes the backdoor listing, or reverse takeover, was the best option.
“It was still better than the more costly and open-ended IPO process,” he said.
The surge in backdoor listings has been a boon for the tech sector.
The biggest beneficiaries have been 14 WA tech businesses that collectively have raised $88.4 million in fresh capital since the latest wave of backdoor listings started in mid 2013, research by Business News has found.
Local beneficiaries during the past six months have included tech companies xTV Networks, Norwood Systems, Spookfish and Dubber (see table for full details).
They follow earlier deals by the likes of Applabs Technologies, iWebGate and Ziptel, which led the latest wave of backdoor listings.
Of all the Perth businesses to complete a backdoor listing, Zhenya Zvetnenko’s Digital CC has completed the largest capital raising, at $9.1 million.
The trend has not just benefited local tech businesses.
Just as exploration companies search the globe for the best mineral tenements, so they have looked far and wide for tech businesses.
Of the 25 backdoor listings undertaken by WA-based exploration companies during the past two years, nine have been with interstate and overseas tech businesses.
East coast businesses, such as Covata, 3D Medical and iSignThis, have raised $31.4 million in fresh capital after completing backdoor listings through the shells of WA-based explorers.
And international businesses have raised $33.5 million; including, most surprisingly, 1-Page, which is based in Silicon Valley, the home of venture capital.
Another international beneficiary is Migme, founded by Perth entrepreneur Steven Goh, who subsequently shifted the social media startup to Silicon Valley before moving to Singapore where he is close to his Asian target market.
The flow of capital into the tech sector is set to continue – 28 backdoor listings are currently under way, and collectively they plan to raise $103 million in new capital.
Delays
The path towards a backdoor listing is not always smooth, however.
Of the 61 WA-related deals announced over the past two years, eight have been cancelled.
The 25 deals to be completed have, in nearly every case, taken substantially longer than the proponents had anticipated.
While many companies expected their deals would be wrapped up inside four months, most have taken between six and eight months (see table).
This is mostly attributed to the deals’ complexity and slow regulatory approval.
Despite this history, the indicative timetable for most new deals shows them being completed in just a few months.
Aziana, for instance, announced in March plans to acquire artificial intelligence business BrainChip.
It planned to complete the deal by June 18, but is now targeting August after amending the terms of the deal in response to accounting and legal advice.
Nedlands-based Basper was even more optimistic. Its acquisition of Sydney-based Direct Money was announced in March and due to be completed by May.
However, Basper announced earlier this week that it was updating the information in its prospectus after feedback from the Australian Securities and Investments Commission; its target completion is now July.
Of all the WA-related backdoor listing deals announced this year, only one has allowed six months for completion.
That involves Perth-based VTX Holdings acquiring New Zealand-based NexGen Networks.
It’s surely no coincidence that VTX is chaired by Andrew Haythorpe, who has learnt from experience how slow a backdoor listing can be.
He is in the very last stages of completing one of the slowest transactions – Liberty Resources reverse takeover of Perth-based IT company Cirrus Networks.
That deal was originally announced last October, and the company’s shares are now expected to relist in early July, nine months later.
