The term IPO stands for ‘Initial Public Offering’. This is when a company offers shares in its business to the public for the first time, and 'lists' these shares on a securities exchange once the offer is completed. It is also called ‘floating the company’.
For investors, IPOs present an opportunity to gain a share in the ownership of a growing business. After investing in an IPO, investors can sell the shares (or buy more) on a securities exchange such as the Australian Securities Exchange (ASX).
IPOs have traditionally been offered to institutional investors and access to IPOs, especially sought-after deals, is hard to come by for self-directed or retail investors.
There are three key challenges for retail investors seeking to invest in IPOs:
On average over the last few years, around 80-100 companies have listed on the ASX per annum. Traditionally, to ensure that an investor can participate in the IPO process, the investor needed to set up an account with a broker.
The broker or lead manager of the IPO will typically provide access to the IPO, only to those retail investors who have an account with his or her broking firm. Retail investors who are not associated with that broker or lead manager are consistently excluded from their IPOs.
With the OnMarket app and bidding platform, investors can access IPOs with or without a broker account (although investors will need a broker account to sell the shares).
The Australian broker market is highly fragmented, which means that even if a retail investor has a broking account, or several broking accounts, this may not lead to increased accessibility to IPOs. In this fragmented market, it is rare for even the largest lead manager or broker to gain access to more than 10 IPOs per year for their retail clients.
The key difference with OnMarket is that we are entirely broker agnostic and investors get access to IPOs, no matter who their broker account is with or which lead manager is conducting the IPO. Over the last few years, OnMarket has worked with over 70 lead managers and brokers and typically provides access to around 1/3 of all ASX IPOs.
Retail investors generally face a lack of information when a company is undertaking an IPO. Even if an investor does get invited to participate in an IPO by their broker, they are unlikely to have access to the same information as institutional investors. This can make it hard to make a well-informed decision and to invest effectively.
Information that a retail investor may commonly find it difficult to get hold of includes knowledge about management (such as a through an interview with the CEO) or independent research. In contrast, institutional investors receive a breadth of information before an IPO, which often includes face to face meetings with management.
The OnMarket app and bidding platform provides as much information as possible and aims to present this information in an easy to interpret and easy to understand format. This includes a video interview with the CEO of the company, or the Chairman of the board.