Why would a company cancel their plans to go public? – The Case of PropertyGuru and the Australian Securities Exchange

IPOs listing on the Australian Securities Exchange have been struggling recently and subsequently, this has deterred many companies. These companies have cancelled plans to go public on the Australian Securities Exchange and instead opted to remain private for the foreseeable future (The Financial Times, 2019a). Today, I am going to look at the reasons why companies go public, look at the recent case of PropertyGuru (a company which cancelled their plans to go public) and look at possible reasons why companies would choose to cancel their plans to go public and why IPOs might not perform well with particular reference to PropertyGuru and Australia (The Financial Times, 2019a).

In order to establish why IPOs are struggling in Australia and why companies are cancelling their plans, we need to first to look at why companies go public in order to determine what they are trying to achieve. According to Brau (2012), there are many reasons why a company may choose to go public. The main and most obvious reason for a company to go public is to raise capital for growth or expansion. This will also lower a company’s weighted average cost of capital (WACC). However, there are many more reasons why a firm may choose to go public such as to increase their bargaining power with banks and therefore reduce their interest rates on bank loans. Another reason for a company to go public is for publicity. By going public, there will be increased publicity from the IPO process (Brau, 2012).

PropertyGuru is an online real estate company based in Singapore. PropertyGuru were supposed to go public on the Australian Securities Exchange yesterday and their shares were projected to raise up to $260million (The Financial Times, 2019a). However, just two days before their planned public listing, PropertyGuru decided to cancel the plans. Several other companies have also scrapped their plans to go public, opting to wait until the IPO market sentiment improves (The Financial Times, 2019a). According to the Financial Times (2019), the Australian IPO market has seen its lowest performance in the stock market since 2012. This statistic raises some interesting questions. Why are IPOs struggling to perform on the Australian Securities Exchange? Why would a company cancel the pre-planned public listing of their company?

According to Hoechle and Schmid (2008), IPOs which have a high level of projected growth tend to initially underperform when listed on the stock market compared to IPOs with a more modest growth projection. This could be because IPOs with a high level of projected growth tend to be overvalued and so underperform (Hoechle & Schmid, 2008). Hare (1994) states there are many cons for a company going public. One of these negatives is the cost associated with going public. Although money will be raised if the IPO succeeds on the stock market, there are actually significant costs associated with the IPO process such as legal fees and accounting fees. This could make a company doubt whether or not to go through with the planning public listing of their company as they will need to sell a certain amount of shares for a certain price in order to make back the cost of the IPO process as well as the intended capital required for their future planned expansion/growth (Hare, 1994). This links in with another negative mentioned by Hare (1994), risk. A company going public can be risky as the stock market is very difficult to predict and so companies need to be sure and so it would make sense for some companies to cancel their plans if they no longer believe it to be in the best interest of the company. Also, Hare (1994) states the company’s reasons for going public very much determines whether or not it’s the right choice. This could relate to the case of PropertyGuru because if their main intention is to raise capital then, due to the underperformance of recent Australian IPO’s, it might not be in their best interest to go public at this moment in time (Brau, 2012).

One of the reasons why IPOs might be struggling to perform on the Australian Securities Exchange is because of the current state of the Australian economy (The Financial Times, 2019b). Australia’s economy grew at the slowest pace in since the global financial crisis in the last quarter. Consumer spending has also decreased which could attribute to the underperformance of IPOs due to lack of investment. This could be another factor as to why PropertyGuru decided not to go ahead with their plans to go public yesterday (The Financial Times, 2019a).

To conclude, I think there can be quite a few different reasons as to why a company would cancel their plan to public such as cost and risk. In the case of PropertyGuru, I believe the company decided to cancel their plans due to economic uncertainty and the underperformance of previous IPOs. Companies only get one chance for their IPO to succeed and so it is important they wait until the appropriate moment to go public as to lower the risk involved.

Reference List

Brau, J. C. (2012). Why do firms go public. The Oxford handbook of entrepreneurial finance, 467- 494.

The Financial Times. (2019a). PropertyGuru adds to spate of cancelled Australia listings | ft.com.     Retrieved from https://www.ft.com/content/41a91320-f53d-11e9-b018-3ef8794b17c6

The Financial Times. (2019b). Australian economy growth is slowest since global financial crisis |  ft.com. Retrieved from https://www.ft.com/content/f1886b6e-ceb5-11e9-99a4-b5ded7a7fe3f

Hare, J. B. (1994). So you want to go public?. Strategic Finance, 76(6), 25.

Hoechle, D., & Schmid, M. (2008). Which, Why, and for How Long Do IPOs Underperform?. SSRN  Electronic Journal. doi: 10.2139/ssrn.1098368