The burrito chain’s listing provides a rare dose of spice to Australia’s IPO market

Unlock Editor’s Digest for free

FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.

The number of companies going public in Australia is the lowest since the global financial crisis 15 years ago, leaving a Mexican fast-food chain as the biggest listing in a market buoyed by new mining and energy stocks.

The 12 initial public offerings so far in 2024 on the Australian stock market have raised just $371 million, according to data provided by LSEG, the lowest levels to date since 2009 and just over a quarter of the historical average since or. of the century.

The shortfall is partly blamed on Australia’s uncertain economic outlook. Growth has weakened and interest rates have been kept high to combat stubborn inflation.

Also to blame is voracious competition from private equity for assets, exemplified by Blackstone’s $US24 billion ($16 billion) takeover of former IPO contender AirTrunk this month.

Larger companies have discontinued potential floats in the hope of more stable conditions, said Marcus Ohm, partner at HLB Mann Judd, which compiles an annual report on Australia’s new listing markets. “There’s no certainty” around the valuation, he said, adding: “It’s a cyclical market and it’s been a bit of a wait-and-see mentality.”

The only listing of significant size this year was that of burrito chain Guzman y Gomez, which raised $335 million at a $2.2 billion valuation in June. The chain was founded by New Yorkers Steven Marks, who previously worked at Steve Cohen’s hedge fund SAC Capital, and his childhood friend Robert Hazan, who spied an opportunity to build a Mexican-themed fast-food chain in Australia in 2006.

The company’s market capitalization, which also operates in Japan and the US, quickly rose to A$4 billion as investors bought into its growth plans. This has also encouraged other companies to dust off their listing plans.

A more esoteric IPO is expected from Western Australia’s Good Earth Dairy, which wants to turn milk from wild camels into ice cream and baby formula. After canceling listings in 2020 and 2022, it began talks with potential seed investors, hoping to raise $20 million.

Milk from Australia’s 1 million wild camels has fewer allergens than other dairy products and could be used in exports to China and the Middle East, according to chief executive Marcel Steingiesser.

However, the ASX, the stock market operator, needs a larger pipeline of larger companies to follow in Guzman y Gomez’s wake.

The lack of IPOs comes despite a rally in Australian share markets, with the benchmark ASX hitting record highs this week.

It is also at odds with huge demand for investable assets from institutions, including Australia’s $4 billion superannuation fund sector. Aware Super, the country’s third largest pension fund, acted as a cornerstone investor for Guzman y Gomez.

James Posnett, managing director of listings at the ASX, said demand from institutional investors was the “strongest” in its 12 years on the exchange.

The ASX also pointed to a string of capital raisings by listed companies as evidence of the strength of investor appetite. NextDC, a data center rival to AirTrunk, has raised $2.7 billion in the past 18 months by issuing new shares. “There’s a lot of money looking for a home,” Posnett said.

A slump in commodity prices, including lithium, has hampered the usual steady stream of small-cap mining listings, although CleanTech Lithium – which operates in Chile and is already listed on London’s AIM junior market – is set to raise up to $20m Australians with a secondary secondary. listing in the coming weeks.

Rob Jahrling, head of capital markets at Citigroup in Sydney, said institutional and retail investors were keen for the IPO market to reopen after a number of large Australian listed companies – such as technology company Altium – were taken over and radiated in recent years. “There are not enough listings to redistribute that capital,” he said. “The universe has shrunk.”

Significant activity will not resume until the end of the year or early 2025, when the larger listings are most likely to be from companies that have halted floats in recent years due to market conditions.

These include payments company Cuscal, which is part-owned by Mastercard, and airline Virgin Australia, which is owned by Bain Capital, both of which have been tipped to revive IPO plans stalled before the end of the year by investment bankers.

Karen Chan, fund manager at Perennial Private Investors, said Guzman y Gomez’s strong performance had “piqued the interest” of shareholders looking for brands with global potential. “The IPO option is now on the table,” she said. “There is a demand for high-quality companies.”

Jahrling also said Guzman y Gomez’s success provided “a model and confidence” for other companies. But he added that competition from venture capital, infrastructure funds and pension funds to invest in high-growth companies could still intensify, as was the case with AirTrunk. “I don’t think (the competition) is going to go away,” he said.