Home' Australian Resources and Investment : December 2015 Contents 4 • Australian Resources and Investment • Volume 9 Number 4
cannot raise the minimum subscription
or secure enough shareholders to meet
ASX Listing Rules, the vendor wears
In a backdoor listing, the listed shell
typically pays for the transaction costs
out of remaining cash and takes on the
financial risk of the deal falling over. Even
small backdoor listings can cost hundreds
of thousands of dollars, and are a
significant financial risk for junior mining
companies that need to watch every cent,
and where shareholder approval for such
a deal is not entirely certain.
There is a perception that backdoor
listings are faster and cheaper than IPOs.
That is not always true; some backdoor
listings take much longer and cost
much more. The requirement to seek
shareholder approval creates a significant
layer of administrative work, time and
complexity, as does the preparation of an
The perception that backdoor listings
are cheaper may be because of the size
of the assets and transactions. Backdoor
listings are often much smaller than
IPOs, meaning that they have lower
advisory costs. So much depends on
the shareholder base and the company
structure: a clean shell with a deal-
ready shareholder base is a foundation
for a faster, cheaper listing.
What makes a good backdoor
From the private company’s
perspective, finding the right shell
company is critical. Those with a deal-
ready board and shareholder base,
clean corporate structure, few legacy
assets, and cash are good candidates.
Junior exploration companies that
have some cash left from their IPO but
have not progressed their projects very
far, or have bought others, can suit
Finding a shell with the right board is
critical. Those with directors who enjoy
their board position too much, and
the fees that come with it, can waste
the time and money of vendors. Look
for shells that want to do a fair deal to
create value for shareholders and get
the deal done.
From the mining company’s
perspective, choosing the right assets
and management team behind those
assets – is vital. Many junior miners
are favouring emerging technology
companies that are attempting to
disrupt established industries. Some
miners view the backdoor listing as
a chance to salvage value by shelling
the shell; others see it as a chance to
create significant shareholder value by
acquiring high-potential assets.
The long-term performance of
backdoor listings has been poor.
Research by Dr Peter Lam of UTS
Business School analysed 200 backdoor
listings on the ASX between 1999 and
2007. Lam found that over three years
from their reinstatement to the ASX,
backdoor listings underperformed on the
S&P/ASX 200 Index by 62 per cent on
average, and IPOs in similar industries
by 37 per cent.
But several backdoor listings this
year have rallied. Tech companies
such as rhipe, migme and Crowd
Mobile have rewarded shareholders
who kept their holding in the shell
company as it morphed into a high-
growth tech venture. A hot market for
entrepreneurial tech companies is a
tailwind; but, inevitably, there will be
many more losers than winners.
In some ways, the parallels between
junior mining and early-stage tech
companies have never been stronger.
Tech companies are increasingly listing
on the ASX earlier as they bypass
additional rounds of venture capital and
go straight to public markets for capital.
Junior mining companies in Australia
have done that for decades, and created
one of the world’s great exchanges for
investing in speculative companies.
Understandably, some junior
explorers will try to ride out the
commodity price downturn or pick up
assets at firesale prices, rather than
fly the white flag in a backdoor listing.
But with little joy ahead for commodity
prices in the next year or two, the
backdoor listings market could become
even busier. Such transactions do not
suit all companies, and require careful
consideration given their features,
benefits and risks.
Tony Featherstone is a former managing
editor of BRW and Shares magazines.
This column does not imply any stock
recommendations or offer financial advice.
Readers should do further research of their
own or talk to their adviser before acting on
themes in this article. All prices and analysis as
at time of print.
Tech companies are increasingly
listing on the ASX earlier as they
bypass additional rounds of
venture capital and go straight to
public markets for capital. Junior
mining companies in Australia have
done that for decades, and created
one of the world’s great exchanges
for investing in speculative
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