A surge in the number of backdoor listings was one of the few positives on the stock market in 2014, and two new deals for technology companies show there is more to come.
A surge in the number of backdoor listings was one of the few positives on the stock market in 2014, and two new deals for technology companies show there is more to come.
Technology entrepreneur Paul Ostergaard is excited by what’s happening on the stock market.
As founder of Norwood Systems he is poised to benefit from the growing investor interest in the tech sector, and is thrilled that other tech entrepreneurs are getting an opportunity to develop their businesses via backdoor listings.
After watching as many fledgling tech businesses struggled for financial support during the past decade, Mr Ostergaard told Business News the shift in investor sentiment was a “wonderful thing”.
“Lots of technology just evaporated out of Perth (since the early 2000s),” he said. “That distresses me.
“(However) young people can now see an opportunity that wasn’t there before.”
The number of backdoor listings has jumped to record levels, as moribund mining and exploration companies have sought a new future by acquiring technology businesses.
Since December 2013, 25 Western Australia-related deals have been announced, with Norwood Systems and rent.com.au being the latest to come to market (see table).
The surge has been helped by some of the early successful listings, such as Decimal Software, Migme and Digital CC.
The number of backdoor listings far outstripped the volume of initial public offerings last year, though a handful of WA tech companies have taken the IPO path.
Orthocell and DTI Group completed IPOs last year, Phytotech Medical is set to list this week, and Proteomics International Laboratories is aiming to complete its IPO later this month.
Proteomics, which operates from the Harry Perkins Institute in Nedlands, is seeking to raise up to $6 million to support the growth of its business, which has been operating since 2001.
Chairman Terry Sweet remains sceptical of backdoor listings.
“They are basically where you have a failed company and then you’re putting another company that is struggling on top of that to achieve a listing,” Mr Sweet told Business News.
“Generally they come with baggage, they come with a previous bunch of shareholders who are mainly disillusioned because they’ve all lost money.
“We preferred a clean start with new shareholders, a fresh approach and no baggage.”
FRESH SLATE: Proteomics International Laboratories managing director Richard Lipscombe (left) with chairman Terry Sweet. Photo: Attila Csaszar
However many company directors are putting any concerns about backdoor listings aside, preferring to see it as a pragmatic way to achieve a listing.
rent.com.au founder Mark Woschnack looked closely at the alternatives before opting for a backdoor listing.
“We decided that if we could find a good, clean shell that would deliver certainty and allow us to come to market quicker and at a lower cost, then we would do that,” Mr Woschnack said.
The planned backdoor listing, through Select Exploration, will allow rent.com.au to raise additional capital to support the national rollout of its service.
It will be on top of the $10 million Mr Woschnack has raised privately to fund the development of rent.com.au since 2007.
Norwood Systems is also looking for extra capital to support the commercial rollout of its Corona product, which is designed to cut the cost of mobile phone voice roaming charges.
Mr Ostergaard ran an early version of Norwood Systems more than 10 years ago, and chose to revive the business after seeing the improved capability of mobile phones.
“As the phone technology got more capable, I got more excited by the opportunity,” Mr Ostergaard said.
Private investors have backed the company’s early development, which has included successful deployment of its system with more than 30 clients, including iiNet.
Azure Capital director John Toll, who is advising Norwood, said one of the big advantages of a backdoor listing was the ease of getting a wide shareholder spread.
Mr Toll said Azure often spent as much time doing due diligence on the shell company – in this case Monteray Mining – as it did on the new business.
Some setbacks
A review of backdoor listings shows it hasn’t all been plain sailing for tech companies seeking to raise capital and list on the ASX.
The flurry of backdoor listing deals peaked in the middle of the year, with only four transactions announced since July.
The tougher market conditions in the second half of the year were reflected in the failure of several companies to meet their original goals.
In fact, of all the deals announced last year, only 12 have been completed.
Of the remainder, two have failed.
Minrex Resources had planned to acquire Skin Elements, led by Perth entrepreneurs Peter Malone and Luke Martino.
The deal was scrapped after Minrex shareholders voted against the election of Mr Malone as a director.
Lithex Resources last week scrapped its planned purchase of internet marketing business Mpire Media, after the vendors sought to renegotiate the deal.
GRP Corporation announced last week that it had cancelled a heads of agreement with US-based social media firm Helpa, while Oz Brewing, which was looking to buy 3D printing company 3D Group, said it had hit complications but would proceed with the deal.
Red Gum Resources, which plans to become The Australian Travel Group, is among several companies that have been forced to extend the timetable for their capital raisings.
Several other deals have been delayed or face an uncertain future.
Quintessential Resources has had to deal with the Australian Securities and Investments Commission putting a stopping order on its prospectus, but said early this month it still expected to complete its acquisition of technology incubator Yonder & Beyond.
Progress for others
In contrast to the challenges facing these companies, several others have made good progress.
xTV Networks (formerly Intercept Minerals) closed its capital raising on December 24, after raising the maximum $6 million.
White Star Resources, which plans to buy geospatial imaging business Spookfish, completed a $5.1 million raising this month.
The company lifted the size of its capital raising from $4 million after securing backing from several high-profile investors, including Internode founder Simon Hackett and Navitas founder Rod Jones.
In a similar vein, Otis Energy, which plans to buy Melbourne company iSignthis, recently lifted the size of its planned capital raising to $3.1 million.
It said the raising was fully committed, through lead manager Cygnet Capital and broker KTM Capital.
