An Initial Public Offering (IPO) occurs when a company lists on the ASX for the first time and offers shares to the public. Investing in IPOs allows you to participate in a company’s public market debut — but IPOs carry significant risks that require careful consideration before applying. Here is how the process works in Australia.
What Is an ASX IPO?
When a private company wants to raise capital from public investors or allow existing owners to realise their investment, it can apply to list on the ASX. The IPO is the process of selling shares to the public at a fixed offer price before the stock begins trading on the exchange.
Well-known Australian IPOs in recent decades include:
- Commonwealth Bank (1991)
- Telstra (1997, 1999, 2006 tranches)
- Medibank Private (2014)
- Nuix (2020)
IPO outcomes vary enormously — from significant first-day gains to sharp post-listing falls.
The IPO Process
1. Prospectus lodged with ASIC The company lodges a prospectus with ASIC — a legally required disclosure document containing:
- Company overview and business model
- Financial history (audited accounts for 2–3 years)
- Use of proceeds from the IPO
- Risk factors
- Offer details: price, number of shares, allocation method
- Key person information (directors, major shareholders)
All ASX prospectuses are available on the ASIC website and ASX website.
2. Institutional bookbuild Large institutional investors (fund managers, superannuation funds) are invited to indicate interest at various price points. This “bookbuild” helps determine the final offer price.
3. Retail offer Retail investors can apply for shares at the fixed offer price by:
- Completing the application form in the prospectus
- Paying by BPAY or direct debit (the method specified in the prospectus)
- Submitting by the close date stated in the prospectus
4. Allocation If the offer is oversubscribed (more applications than shares available), shares are scaled back — you receive fewer than you applied for, with excess funds returned.
5. Trading begins Shares are issued, and ASX trading commences on the listing date. The share price on the first day of trading may be above, below, or at the offer price.
Where to Find ASX IPOs
- ASX website — current IPO listings and recent listings
- ASIC EDGE system — prospectuses lodged with ASIC
- OnMarket — a platform that facilitates retail IPO applications (free to use)
- Your broker’s platform — some brokers (CommSec, Nabtrade) list current IPOs
Risks of IPO Investing
Information asymmetry — the existing owners and management know the business far better than new investors. The prospectus discloses required information, but sellers have an incentive to present the company favourably.
Limited financial history — many IPO companies are young or have only recently become profitable. Assessing long-term earnings quality is difficult.
Lock-up periods — existing shareholders (founders, PE funds) often face a lock-up period (typically 6–12 months) after listing. When lock-ups expire, selling pressure can push prices lower.
First-day euphoria — some IPOs see strong first-day buying driven by hype. This can reverse quickly.
Selection bias — companies tend to IPO when market conditions are favourable for sellers — meaning valuations at IPO may already be high.
Research from global markets consistently shows that on average, IPOs underperform established listed shares over the first 3–5 years post-listing. Individual outcomes vary widely.
What to Check Before Applying
Before applying for an ASX IPO, read the prospectus carefully:
- Revenue and earnings trend (is the business actually profitable and growing?)
- Who is selling? If founders are selling most shares, they may believe the company is fully valued
- What will the proceeds be used for? New capital for growth is generally more positive than cashing out existing shareholders
- Post-IPO shareholding — how much does management still own? High ownership aligns interests
- Valuation — what P/E or revenue multiple is implied by the offer price?
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Frequently Asked Questions
Do you need a broker account to participate in an ASX IPO? Not necessarily. You apply directly using the application form in the prospectus and pay by BPAY — no broker account is required. However, once the shares list, you will need a broker account to sell them on the ASX. Some brokers (CommSec, Nabtrade) also facilitate IPO applications through their platform.
Are IPOs good investments? Some are excellent; many are not. Academic research on global IPO markets shows that the average IPO underperforms the broader market over the first 3–5 years post-listing. Individual results vary enormously — Xero and WiseTech have been outstanding long-term performers from their ASX listings, while others have collapsed below their offer price. Thorough prospectus reading and valuation assessment are essential.
Can I sell IPO shares immediately after listing? Yes — as soon as trading begins on the listing date, you can sell your allocated shares on the ASX through your broker. There is no lock-up on retail investor shares (only on pre-IPO shareholders who received shares before the IPO). Selling on the first day crystallises either a gain or a loss relative to the offer price.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.