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The $100-million capital raising for DGL Group’s (ASX: DGL) Initial Public Offering was three times oversubscribed and its shares almost doubled within four months of listing.[1]

But for DGL founder and CEO Simon Henry, the best part of the IPO was employees buying stock. “We want DGL employees to share in the company’s long-term success. From our forklift drivers to engineers and accountants, many staff became DGL shareholders through the float.”

Henry is passionate about employees being part-owners of DGL. “I truly believe employees who are shareholders have more buy-in with their company. The IPO was a catalyst for DGL staff to invest in our shares and for equity incentives to be issued to the executive team.”

DGL is a case study of how founder-led companies transition from private ownership to an exchange listing, taking employees on the wealth-creation journey. Henry owns 57.7% of DGL.

From humble beginnings in 1999, DGL has grown into A$506-million[2] specialist chemicals and dangerous-goods business that offers solutions from manufacturing to recycling. The Auckland-based business has more than 300 employees and 26 sites in Australia and New Zealand.

Henry says the time was right for an IPO in May 2021. “DGL had sufficient scale for an IPO and a number of opportunities in front of it. The IPO proceeds have given DGL the firepower to maintain its high growth rate over time.”

DGL chose to dual list on ASX and NZX after rebuffing approaches from private-equity firms to invest in the business. “We had private equity regularly knocking on our door. They all said the same thing: ‘We won’t tell you how to run your business, but have you thought about buying this company.’ There was no way I wanted private equity telling me what to do.”

In its dual listing, DGL chose a primary listing on ASX and a secondary listing on NZX as a foreign exempt issuer on that exchange. That means DGL complies with ASX Listing Rules and follows ASX Corporate Governance Council Principles & Recommendations.

DGL’s share ownership is approximately split between DGL employees (59%, of which Henry owns holds 57.7%); Australian and NZ institutions (23%); private shareholders (over 10%); and hedge funds (3%). DGL estimates 90% of liquidity in its shares occurs on ASX.

Henry was pleased with DGL’s listing experience and the market response since its IPO. Here is an extract of his interview with ASX:

 Simon, why did DGL choose a primary listing on ASX when it is headquartered in Auckland and is a NZ company?

Simon Henry: DGL is registered in Melbourne and at least three quarters of its revenue is made in Australia. The East Coast of Australia, from Brisbane to Melbourne, is a huge market for DGL, so a primary listing on ASX made sense.

At the same time, DGL has a long history in NZ, so we wanted a NZX listing to reflect that and attract NZ investors. DGL is proudly a NZ company with majority NZ ownership (through Henry), but an ASX listing gave us access to a much larger capital pool, potentially higher share liquidity, and a bigger base of retail investors to target.

Anecdotally, some founders of private companies prefer to keep their company private. Why did DGL choose an exchange listing over private capital?

SH: DGL had no hesitation about listing on an exchange. I never understand why some private companies worry about lots of people looking at their accounts when they are listed or having more compliance and governance.

DGL has a good story to tell and believes the transparency from an exchange listing is healthy and encourages strong performance. As a founder, I like having a board that adds real value to the business and governs in the best interests of all DGL shareholders.

Has DGL attracted broking and institutional coverage since listing?

SH: We have research coverage by Canaccord and Bell Potter. I recently presented online to the extensive Morgan broker network at their Monday morning meeting. An advantage of an ASX listing is having more analyst-research coverage than you’d get in NZ.

As to institutional investors, we get calls from at least one or two fund managers every week who want to meet with us. We even had two stockbrokers recently show up at our door, unannounced, seeking a company visit. There’s no doubt that an ASX listing exposes DGL to a larger base of institutional investors in Australia and overseas.

What advice would you give other NZ companies thinking of listing?

SH: Get to the right scale before you list. It depends on the company, of course, but when I see a $20-million listing, it feels like the fire is being smothered before it really gets going. The company needs a size that can attract fund managers and a spread of retail investors.

Also, make sure the business has strong foundations, surrounds itself with good people, and has performance momentum. It can take years to recover when a company floats too early, has disappointing performance, and the share price sags below the offer price.

Is a dual listing the right structure for Trans-Tasman companies that want to IPO?

SH: Again, it depends on the company. If you are a Kiwi-founded company with a strong support network in NZ, a dual listing makes absolute sense. Being able to potentially access more capital, fund managers, and research coverage via two exchange listings is an advantage.

In DGL’s case, most of the institutional and retail IPO uptake was from Australian investors and most of the liquidity has been on ASX.

Retail support is important: when you have a majority shareholder as DGL does, and a base of institutions that tend to be longer-term investors, you need a spread of retail investors.

Were potential secondary capital raisings a factor in DGL’s ASX listing?

SH: Our focus now is on making the best use of IPO proceeds. DGL has global growth aspirations, and we are not afraid of the US market. I believe DGL could do very well on the West Coast of the United States, for example. Building a record as a listed company obviously helps with future equity capital raisings as more fund managers look to join the share register.

What was it like doing an IPO in the middle of Covid?

SH: I did the entire IPO without leaving my office and it was several times oversubscribed. It was no problem meeting investors online or having virtual board meetings. I’m pleased to say DGL raised $100 million without a single plane flight or producing an extra teaspoon of carbon.

ASX was good to work within the listing. Three senior ASX managers visited DGL in Auckland during one of the travel windows in Covid. The process couldn’t have been smoother.

From an investor-relations perspective, what are the challenges of running a company that has majority shareholding of 57% through your ownership?

SH: I think there are a lot of positives. I didn’t sell any of my DGL shares or take a cent off the table during the IPO. Everything was about raising capital to grow the business. My shares are escrowed for 18 months (through ASX Listing Rules) and I’ve bought more shares, in the window available, since listing. That says something about having real skin in the game.

The challenge is that over 80% of our stock is held by DGL employees and institutions. DGL’s free float (the percentage of shares freely available for trading) also affects inclusion in sharemarket indices.

How has your role changed since DGL listed?

SH: It hasn’t. You sometimes hear about CEOs who have to spend a chunk of their time on investor relations, governance or other listing issues. In my case, my workload hasn’t changed that much, and I have no complaints about morphing from a private to a public-company CEO. I do find I work more efficient now.

If anything, the $100 million DGL raised, and having so many employees as shareholders, has been energising. It’s a great responsibility to be entrusted with that capital. The listing feels like the next evolution of DGL’s growth and the point to take everything up another level. The capital gives DGL more firepower to grow the business in Australia, NZ and overseas.

How does an IPO and exchange listing help DGL’s organisational culture?

SH: I believe being listed adds to DGL’s sense of community. Consider a forklift driver who bought $2,000 of DGL shares at the IPO that are now worth almost $4,000. You can’t tell me that employee won’t have more interest in how DGL is performing or how the machinery is used. It’s gratifying to see staff, from the front line to the top, share in wealth DGL creates over time.

Another issue is attracting and retaining management talent. As a listed company, DGL has more scope to issue short- and long-term equity incentives to executives. The liquidity and price discovery from exchange listing also helps with equity incentives.

I’d love DGL to have a mechanism, such as an Employee Share Ownership Plan, for more staff to own more of the company over time.


[1] DGL’s offer price was $1 in its May 2020 IPO. The close price on August 17, 2021 was $1.92.

[2] Based on market capitalisation at August 17, 2021.

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