In recent years, the number of companies listing on public exchanges, including the Australian Stock Exchange (ASX), has declined. This trend has significant implications for local investors and raises questions about the future of capital markets, corporate strategies, and the broader economy. Let’s explore why fewer companies are going public, alongside the continued benefits of being listed.

Access to Private Capital

The rise of private equity and venture capital has provided companies with significant funding opportunities without the necessity of listing. In Australia, private equity investment reached approximately AUD 12 billion in 2022, reflecting a growing preference for private funding over public listings. These options offer more patient capital, enabling businesses to focus on long-term growth without the quarterly pressures faced by public companies. This flexibility is increasingly attractive in the current market landscape.

Regulatory Burdens and ESG/DEI Requirements

For Australian companies, going public means dealing with rigorous regulations, including those related to financial transparency and disclosures under the Corporations Act. The added layers of reporting for Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) have become particularly burdensome. Starting July 1, 2024, large Australian corporations have been required to comply with mandatory ESG reporting standards, which will add to the complexity and costs associated with being listed. Compliance with these requirements is time-consuming and costly; many CEOs see it as a distraction from their core business focus. These increasingly stringent standards around sustainability and inclusivity are seen as a necessary but frustrating aspect of being listed, pushing many companies to remain private where they can operate with less scrutiny.

Control and Flexibility

Staying private also enables founders and key stakeholders to retain control over decision-making, free from shareholder pressure or activist investors. The ASX has seen instances where companies delist primarily to regain this autonomy. For example, between 2000 and 2023, the number of listed companies on the ASX dropped from approximately 2,500 to around 2,200. CEOs often prefer to avoid the intense short-termism and public scrutiny, instead opting for an environment where long-term goals take precedence.

The Advantages of Being Publicly Listed

While the challenges of going public are notable, listing on the ASX still holds significant advantages:

• Liquidity
  
  A public listing on the ASX offers liquidity, allowing shareholders—be it early investors or employees—to cash out with ease. This liquidity is also attractive to institutional investors, providing them a straightforward entry and exit from their investments.
  
• Capital Raising Opportunities
  
  IPOs remain one of the most efficient methods for raising substantial capital. In 2023 alone, IPOs on the ASX raised approximately AUD 4 billion. Companies can use these funds for expansion, research and development, or strategic acquisitions, giving listed companies a growth advantage that can sometimes outpace private equity-backed peers.
  
• Secondary Capital Raises

In 2023, the ASX continued to demonstrate resilience in secondary capital raising activities, with approximately AUD 34.5 billion raised across various transactions. This amount was achieved despite a challenging global economic environment and a notable decrease in IPO activity.

• Visibility and Market Valuation
  
  A public listing brings increased visibility and credibility. On the ASX, being listed signals trustworthiness and stability, which can attract partnerships and business opportunities. It also provides a market-driven valuation of the business; as of late 2023, around 60% of ASX-listed companies reported an increase in brand recognition post-IPO.
  
• Employee Incentives
  
  Public companies can also use share options to attract and retain talent. For Australian startups and high-growth businesses, stock options serve as a major incentive, offering employees a direct financial stake in the company’s future success.

Balancing the Scales

The trend of fewer IPOs on the ASX doesn’t necessarily indicate the decline of public markets’ relevance. Instead, it may reflect a strategic rethinking of capital needs:

• Hybrid Models: Companies are increasingly exploring hybrid approaches such as partial listings or Special Purpose Acquisition Companies (SPACs) to combine the advantages of both private and public markets.
• Investor Adaptation: Investors are adjusting as well; many are diversifying their portfolios with exposure to both public and private markets to mitigate risks associated with a single listing environment.
• Regulatory Evolution: As these trends develop, there are ongoing discussions in Australia around adjusting regulatory frameworks to make public listings less burdensome; this may make IPOs more attractive in the future.

Conclusion

While fewer companies may be choosing to list on the ASX, the value of being a public company remains significant. From improved liquidity and capital-raising capabilities to increased brand recognition, there are compelling reasons for companies to consider a public listing. 

However, the evolving landscape of capital markets—including the rise of private funding options and increased regulatory requirements such as ESG and DEI—means companies must carefully weigh these advantages against growing costs and complexities. 

For investors, understanding these dynamics will be key to navigating and capitalising on opportunities that the Australian markets continue to offer.