Burrito chain listing gives rare dose of spice to Australia’s IPO market

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

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

The 12 initial public offerings so far in 2024 on the Australian stock exchange have raised just $371mn, according to data provided by LSEG, the lowest year-to-date levels since 2009 and little more than a quarter of the historic average since the turn of the century.

The dearth is being partly blamed on Australia’s uncertain economic outlook. Growth has faltered and interest rates have been kept high to tackle stubborn inflation.

Also to blame is voracious competition from private capital for assets, exemplified by the A$24bn (US$16bn) takeover of former IPO candidate AirTrunk by Blackstone this month.

Larger companies have paused potential floats hoping for more stable conditions, said Marcus Ohm, a partner at HLB Mann Judd, which compiles an annual report on Australia’s new listings market. “There’s no certainty” on 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 has been of burrito chain Guzman y Gomez, which raised A$335mn at a valuation of A$2.2bn 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 market capitalisation of the company, which also operates in Japan and the US, has rapidly risen to A$4bn as investors have bought into its growth plans. That has encouraged some other companies to dust off their listings plans.

A more esoteric IPO is expected from Western Australia’s Good Earth Dairy, which wants to turn wild camels’ milk into ice cream and baby formula. Having called off listings in 2020 and 2022, it has started talks with potential cornerstone investors, hoping to raise A$20mn.

Milk from Australia’s 1mn feral 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.

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

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

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

James Posnett, general manager of listings at ASX, said demand from institutional investors was “the loudest it has been” in his 12 years with the exchange.

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

A slump in prices of commodities including lithium has stemmed the usual steady flow of small-cap mining listings, although CleanTech Lithium — which operates in Chile and is already listed on London’s junior AIM market — is to raise up to A$20mn with a secondary listing in the coming weeks.

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

Significant activity is not tipped to pick up until later in the year or early 2025, when the bigger listings are most likely to be by companies that have halted floats in recent years due to market conditions.

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

Karen Chan, a 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 demand for high-quality companies.”

Jahrling also said the success of Guzman y Gomez provided “a blueprint 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 yet intensify, as was the case with AirTrunk. “I don’t think that [competition] is going away,” he said.