Firmus was expected to be one of the biggest share market debuts Australia had seen in years. The company was preparing to raise billions of dollars and list on the ASX. Then, within a matter of days, the entire plan fell apart, and the proposed float was withdrawn.
So, what went wrong, and what can everyday investors learn from it? The Firmus story raises some important questions about new listings, valuations and the information investors receive before buying shares. It also brings up some common questions about CSL, dividend reinvestment plans, Argo and other investments.
In this blog, we explore general information about the issues surrounding the Firmus company, its proposed float and other investment topics. This is not personal financial advice, so consider speaking with a licensed financial adviser before making investment decisions.
What Is Firmus? #
Firmus is a relatively young company that designs, builds and operates data centres. These large facilities house the servers and equipment used to run many of the digital services we rely on, including artificial intelligence. The company itself did not exist around six years ago, making its rapid growth an important part of its story.
Firmus has developed its own technology to help keep servers, chips, and other electronic equipment cool. It also buys NVIDIA chips, which are widely used for AI processing. These chips can cost around $80,000 to $100,000 each, so a large technology company may prefer to rent the equipment and space it needs inside a data centre rather than build and manage everything itself.
Why would a company stay unlisted?
Before the proposed float, Firmus was an unlisted public company. It was not traded on the stock exchange, but it was also more than a small private business. Staying unlisted can give a growing company access to large amounts of private funding without having to immediately deal with the demands of the public market.
There can also be practical advantages. A company may be able to work with a smaller group of major investors and share more detailed information with them. Founders may also decide they are not ready for the scrutiny, reporting requirements and shareholder expectations that come with being listed. Firmus is not alone in taking this approach, with companies such as OpenAI and Anthropic remaining unlisted and SpaceX also spending years outside the public market.
What Went Wrong With the Firmus Float? #
The original plan and valuation
Firmus announced plans to raise around $7 billion and list on the ASX. At one point, the proposed market value was above $40 billion, putting the float in the same broad league as major Australian listings such as Telstra’s 1997 privatisation. To work out the listing price, the company’s advisers carried out a book build by speaking with large investors about the number of shares they wanted and the price they were prepared to pay.
The proposed price was eventually set at $11 a share. However, everyday investors also needed to consider the information available to them. Firmus had provided a pathfinder prospectus rather than a final prospectus, meaning it did not yet contain all the information that would appear in the completed document. Large institutions usually have significant resources for research, while smaller investors may find it harder to assess a company with less information available.
The partnership that raised questions
A key part of Firmus’s pitch was its relationship with CDC, an established data centre company with a long track record. CDC builds data centres for the Australian government, including facilities connected with important organisations such as Treasury, the Reserve Bank and the tax office. Having an established name associated with the business offered some reassurance, especially because Firmus was still a young company.
Then it emerged that the partnership had allegedly ended months earlier. That raised questions for investors about the information surrounding the float and made the original investment story look different. For many people, this was an important moment because the partnership had been part of the confidence behind the proposed listing.
Was the valuation too high?
Another concern was the size of the valuation. Firmus owned only two data centres, yet the proposed float valued the company at around $44 billion. Much of that value was based on expectations about future growth and the company’s ability to build more data centres as demand for AI infrastructure increased.
The company also planned to borrow billions of dollars to fund its expansion. Higher borrowing costs can make a large development program more difficult to manage. Australian investors can be cautious when they believe a company is being priced more on future expectations than current performance. Negative coverage in Australia and overseas added to the pressure, and the proposed float was eventually withdrawn.
How Should You Judge a New Float? #
Remember who is selling the shares
A new float can be exciting, particularly when the company operates in a popular industry or is expected to grow quickly. But investors should remember that someone is selling those shares to them. Understanding who is behind the deal and what their role is can help investors look at the opportunity more carefully.
In the Firmus case, merchant banks involved in the float were expected to share around $200 million in fees. They were working for Firmus and helping the company sell the investment opportunity. That does not automatically mean there is anything wrong with the deal, but it is worth remembering that the people promoting an investment may have a different interest from the person buying it.
Look at who invested before you
Another useful question is what earlier investors paid for their shares. Firmus had raised money from private investors at a valuation of about $8 billion in April. Around six months later, the proposed public valuation was about $44 billion. A company can certainly grow quickly, but such a large change deserves careful consideration.
An investor who bought into the company at the earlier valuation could potentially sell at a much higher price if the float went ahead. Someone buying at the public listing would be entering at a very different level. This is one reason everyday investors can sometimes feel as though they are joining the queue at the back, while earlier investors are already positioned to benefit.
Learn from Guzman y Gomez
Guzman y Gomez provides another example of why investors should be careful with new listings. Its shares were issued at $22 and opened around $40, creating plenty of excitement when trading began. However, the share price later came under significant pressure, leaving investors who bought around the listing facing a very different situation from some of the earlier shareholders.
The wider experience with new floats also suggests that the first year or two can be difficult. Many newly listed companies struggle during their first 12 to 18 months, and some fall below their issue price. That does not mean every float should be avoided, but it does show why buying simply because a stock is receiving attention can be risky.
Why super fund members should care?
You do not have to personally buy shares in a new float for it to affect you. Many industry super funds invest in private companies, so a fund may already have exposure to a business before it reaches the public market. A fund could have invested during an earlier funding round and been expecting the eventual float to provide an opportunity to sell some of that investment.
If the float is cancelled, that expected outcome changes. For super fund members, the Firmus story is therefore a reminder that retirement savings can be invested in private businesses and other assets that you may never see or hear about directly.
Common Share Market Questions #
The Firmus story also brings up several questions that many investors have about their existing investments. These include CSL, dividend reinvestment plans, portfolio reviews and older investment companies such as Argo and AFIC.
These decisions can look simple on the surface, but the right approach can depend on your age, goals, income needs and overall portfolio. It is worth looking at each investment on its own rather than assuming the same strategy will work for everyone.
What is happening with CSL?
CSL has had a difficult period in recent years. Its share price was above $300 a couple of years ago before falling to around $94, and it later recovered to roughly $180. The company faced several challenges during that period, including stronger competition and decisions that affected the business.
More recent results suggest that the situation has steadied. The shares are now trading at valuations that are closer to other large pharmaceutical companies around the world. CSL has lost some of the shine it once had and is now more of an average company in its sector, while management still has work to do to rebuild investor confidence.
Is a dividend reinvestment plan worth using?
A dividend reinvestment plan, or DRP, allows shareholders to receive additional shares instead of receiving their dividend as cash. These plans have been popular with investors who do not need the income immediately and would rather use their dividends to increase their shareholdings over time.
The downside is that DRPs can make record-keeping more complicated. They may create extra work at tax time and can become particularly difficult when an estate has to be managed, as an executor may need to work through different parcels of shares. Some investors therefore prefer to let their dividends build up as cash and decide when and where to reinvest. For older investors, taking the income may also be more appropriate than automatically reinvesting it.
If you decide that a DRP no longer suits you, you can generally turn it off through your share registry. You will usually need your shareholder reference number or holder identification number to access your account.
Is it time to clean up your portfolio?
After several strong years in the market, it can be useful to take a fresh look at your portfolio. This does not necessarily mean selling everything that has performed poorly or taking profits simply because prices are higher. Instead, it is about checking whether the investments you own still make sense for your goals.
You can look at companies that have consistently disappointed you and ask whether you still have confidence in them. You can also review your DRPs and consider whether automatically reinvesting dividends remains suitable. The important thing is not to wait until markets have fallen sharply and emotions are running high before making these decisions.
What about Argo and AFIC?
Argo and Australian Foundation Investment Company, commonly known as AFIC, are long-established investment companies. Buying shares in either gives investors exposure to a range of Australian businesses, but they are not index products like ETFs. Their investment managers choose the companies held within their portfolios.
Both companies have long operating histories and relatively low costs, and they publish information about their holdings. Their shares have also recently traded at discounts to the value of the assets they hold. For example, if the underlying shares are worth $10 but the investment company trades at $9, investors are effectively buying those assets at a discount.
These companies may have become less fashionable as younger investors have moved towards ETFs, while estates may also be selling long-held investments. There is one point to keep in mind, however. These portfolios were built using a traditional approach and may not have the ethical screens some investors now expect, so it is worth checking the underlying holdings against your own values.
What about Ingham’s and NXL?
Ingham’s, the poultry producer, has faced pressure from bird flu concerns and higher feed costs. There has also been speculation about a possible takeover, although nothing has been confirmed. These factors show why investors need to look beyond a company’s share price and consider what is happening within the underlying business.
NXL is another company that has experienced a large decline since listing. It floated at around $5.30 and later traded at roughly one-third of that price. Not every company will be familiar to every investor, and that is a useful reminder in itself. If you own a company you do not understand, take the time to research it properly or speak with a licensed adviser.
Final Thoughts #
The Firmus story is a reminder that a big name, an exciting industry and a large valuation do not automatically make an investment attractive. Before buying into a new float, it is worth asking who is selling the shares, what earlier investors paid and whether the proposed price makes sense based on the company’s business and plans.
The same approach can be useful when reviewing your existing portfolio. Keep your investments understandable, pay attention to costs and be careful about making decisions based on hype or fear. A share that is popular today may not necessarily be the right investment for your circumstances.
Every investor has different goals, financial circumstances and timeframes. If you are considering a major investment decision, speak with a licensed financial adviser who can take your individual situation into account.
