Like a runner scoping the finishing line before the starter’s gun goes off, some partners are prepped and ready to make the play needed to take their business to the next level.
For others, it is more of a tortoise and the hare scenario, where slow and steady wins the race.
No matter where a business falls on the spectrum between the two extremes, there is a plethora of well-worn paths it can take to get itself into a position where it is playing at a new, higher level than before.
In the IT industry vertical, some of the most popular pathways include going public to boost investment coin, merging with a peer (or a competitor), acquiring another business, being acquired and seeking out private investor capital.
At the same time, classic organic growth should not be forgotten. This pathway remains by far and away the clear winner in terms of the sheer percentage of IT businesses that choose it over other options. Yet other options are there for the taking.
But which option is the right one? Each pathway comes with its own pitfalls, and each has its own benefits. Each pathway also comes with its own set of rules and challenges.
No matter which trajectory a company may follow, however, the finishing line remains the same: the goal of playing at the next level.
Taking a company public is, perhaps, one of the more high-profile ways to boost a tech company’s profile and ability to leap up several tiers at once in the market.
But it’s also one of the most ambitious, with a long-list of boxes to tick before it can happen.
Moreover, once a company is publicly-listed, there is a raft of regulatory burdens to bear, not to mention being exposed to the demands of shareholders and the whims of the stock market.
In Australia, the big target for public offerings is the Australian Securities Exchange (ASX), which has proven to be a rich breeding ground for some of the largest IT services providers in the country.
This is where players like MOQdigital, Melbourne IT, rhipe and Empired became the IT powerhouses they are today.
But an initial public offering (IPO) can be a lot of work, especially for smaller players. Just getting to a point where an IPO is a possibility can require additional time, money and resources.
According to the ASX, the first step to listing is the appointment of advisors.
“The appointment of an experienced team of advisers is essential to the success of an IPO,” the ASX states on its website.
Typical professional advisors include lead managers or corporate advisers, investment banks or stockbrokers, lawyers and accountants. Also important are any advisers required to provide expert reports in connection with the IPO.
The next step is the preparation of the prospectus and due diligence.
According to the ASX, a prospectus needs to contain information that investors and advisors would “reasonably require” to make an informed assessment about the assets and liabilities, financial position and performance of the company wanting to list, among other things.
The third step involves an institutional marketing program, in which certain marketing activities can be undertaken to institutional investors, including IPO roadshows.
Then comes the prospectus lodgement with the Australian Securities and Investments Commission (ASIC), which sees the prospectus made available for public review and comment.
The formal listing application is then lodged with ASX within seven days of the ASIC prospectus lodgement. Following this, the offer to retail investors starts after the exposure period.
Finally, the offer closes, shares are allocated, and trading begins.
Then, the company at the centre of it all can begin investing its newfound capital and start the work towards generating returns for its shareholders.
The upside of the mining downturn
There’s more than one way to list publicly on a public stock exchange. Thanks to a tricky little manoeuvre called a reverse takeover, some companies can achieve a so-called backdoor listing.
The downward turn of Australia’s decades-long mining boom has seen a number of publicly-listed companies morph into hollow shells of their former selves.
These shell companies have become a favourite reverse takeover target of ambitious Australian technology companies looking to make a back-door listing on the ASX.
But the backdoor listing approach comes with its own set of challenges.
Sometimes they fall through before a listing even occurs. Perth-based Salesforce partner, PRM Cloud Solutions, made a bid for a reverse-takeover of mining company, Minerals Corporation, in 2014, only to have the deal collapse.
According to author and chief analyst at The Barefoot Blueprint, Michael Kemp, backdoor listings can be more trouble than they initial seem.
“Two commonly stated benefits are the speed and ease of backdoor listings compared to IPOs,” Kemp said in an investor update newsletter published by the ASX.
“However, research undertaken by Dr Peter Lam, of UTS Business School, has found that the average backdoor listing takes longer to complete than a comparable IPO.”
Aiming for acquisition
Acquisition is another option for IT providers that want to boost their size and market share to launch themselves up to the next tier.
Whether buying another company, or being bought, acquisition seems to stand out as a substantially more achievable pathway to expansion than listing publicly to be, if the rate of mergers and acquisitions in the local industry is anything to go by.
The first few months of 2017 saw Cirrus Networks acquire Victorian IT solutions provider, NGage Technology Group, in a deal worth $2.5 million, while Melbourne-based cloud migration specialist, Motopia, closed in on its deal to acquire Western Australian systems integrator, Cirralto Business Services.
Likewise, in March, cloud cost management and efficiency platform provider, Cloudability, acquired Brisbane-based Australian Amazon Web Services (AWS) partner, Cloud Manager (CloudMGR).
March also saw Google acquire Australian-born data science platform provider, Kaggle.
PRM Cloud Solutions, the Salesforce partner that mounted an aborted backdoor listing on the ASX via a reverse takeover of Minerals Corporation ended up being acquired by multinational technology services company, Persistent Systems, in March 2016.
According to Persistent Systems, the move strengthened the company’s ability to lead customers on their digital journey with Salesforce as a key platform.
“PRM has local expertise in building new digital experiences for organisations in Australia,” Persistent Systems’ Australia and New Zealand head of sales Ashish Bhuta said at the time.
If a local player like PRM Cloud Solutions can get back up and dust itself off after a failed run at the ASX only to be picked up by a global company like Persistent Systems, then there is hope yet for other local partners looking to take on the big guns.