The time is now for private companies

The Australian sharemarket has endured a slump in capital raisings due to poor investor sentiment. But private companies like iSelect are reaping the benefits of the extra cash available.

Smart Company

The Australian sharemarket isn’t exactly seeing a rush of IPOs right now and in the last few months we’ve even seen some well-regarded companies forced to pull capital raisings because of weak investor sentiment – online jobs ads company Seek is the most obvious example.

But beyond the ASX, private companies that are disrupting or could disrupt their market are still attracting strong investor support.

In the last few months we’ve seen a number of good examples, including:

– Online retailer The Iconic, which got $19.2 million just 10 months after launching.
– Big Commerce, another online retail platform which recently raised $20 million.
– Solar group Barefoot Power, which recently raised $5.8 million.

Today we’ve got another good example. Online insurance retailer iSelect is hardly an overnight success, but it has been a pioneer and leader in what is a burgeoning part of the insurance sector.

The company is rushing headlong towards an IPO before the end of 2014, but has just raised $30 million in a final pre-float funding round. The offer, at $18.50 a year, gives the company an indicative value of $350 million and was heavily oversubscribed, underlining the strong investor demand for the business.

iSelect’s earnings before interest, tax, depreciation and amortisation is tipped to hit $30.9 million in 2013 and $40 million in 2014, which could give the company a market capitalisation as high as $600 million when it does hit the ASX.

If that $600 million figure could be achieved, it’s not hard to see why investors were keen to rush the company at a valuation of $350 million.

Nevertheless, the raising does highlight the fact that there is still cash on the sidelines looking to find a home in great businesses.

And in a market where private companies are wary of bank funding, that’s a great thing.

Finally, just a word on iSelect and its shareholders, who can look forward to a good payday when the company floats next year: It will be very interesting to see which shareholders leave the registry and which stay.

The company’s biggest shareholder is Ninemsn, which has looked to offload its shareholding in the last 12 months and is likely to sell out in the float.

That will leave executive chairman and former banker Damien Waller as the biggest shareholder with around 20 per cent.

Rich List member Shaun Bonnet is another iSelect shareholder whose patience will be rewarded with an IPO.

This article first appeared on SmartCompany on September 25. Republished with permission.