Comment: Five steps to stronger capital markets

If the New Zealand economy were a human body, then we can think of capital as the oxygen required to sustain life.

In a functioning capital market, those seeking capital are brought together with those who wish to deploy it. This lowers the cost of equity and debt, boosts the growth of funding and sparks wealth creation.

Is this economic oxygen flowing as it should? Most New Zealand companies listed on the stock exchange (NZX) have unrestricted access to capital, enjoy diverse and internationally-based registers, and are trading at fair to elevated multiples.

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NZ start-ups strong in foreign markets, survey shows

New Zealand start-ups have the highest percentage of overseas customers when measured against their counterparts from 50 other “ecosystems” including New York, Moscow, Beijing and London, according to the Compass Start-up Genome’s Ecosystem Ranking Survey.

The Compass Start-up Genome project team is based in San Francisco and benchmarks so-called start-up ecosystems from around the world. More than 100 Kiwi start-ups took part in the 2016 survey, according to the Angel Association of NZ. In New Zealand, the survey was led by the Angel Association with support from NZX, NZ Trade and Enterprise, the NZ Venture Investment Fund, Ministry of Business, Innovation and Employment and Callaghan Innovation.

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Snowball Effect – the first 2 years!

New Zealand’s first equity crowdfunding offer kicked off on 11 August 2014. Below we’ve compiled an infographic showing some of the key statistics from the first 2 years of offers through Snowball Effect.

The NZ market started with public offers to retail investors through the new equity crowdfunding regulations. Over the last 2 years, the capital raising options have quickly evolved to include:

   Public offers: An offer which is available to all Kiwi investors, and publicly visible.

   Private offers: An offer which is restricted to an audience selected by the issuing company, and not publicly visible. The company can still make the offer to retail investors without a costly “product disclosure statement”.

   Wholesale investor offers: An offer which is available only to people who meet the “wholesale investor” criteria. Wholesale investors are investors that are legally able to invest in any type of security on offer. This is an important aspect to our offering as it enables us to facilitate a wider range of deals (such as offers of instruments like convertible notes, raises of more than $2m, and private brokering).

   Rights issues: Online facilitation of rights issues, including taking care of electronic signing of legal documents, payment collection, verification of wholesale investors, and anti-money laundering obligations.

We’re really happy with how the market has developed over the first 2 years. New territory is being broken again right now. G3 Group was the first company to list on NZX’s new junior exchange, the NXT Market, when it launched 15 months ago. G3 is now raising up to $3m through Snowball Effect. This is the first time that a listed company has used an “equity crowdfunding” marketplace to raise funds in New Zealand. We’re also starting to see more private broking of deals. The demand is coming from companies who are seeking capital but would prefer to keep the business tightly held – seeking a small number of large shareholders rather than a crowd of minnows. Snowball Effect has recently recruited former capital markets lawyer and entrepreneur Cowan Finch to lead this part of our offering.

There’s a long way to go before we make the impact that we want to make, but it’s been a great start.

Thank you to the entrepreneurs, investors, and partners who have helped to make the first 2 years of online capital raising in NZ a success. This is only the beginning – we’re excited about bringing a wider range of investment opportunities to investors, and continually improving access to finance for Kiwi companies.

The most pleasing result for us is the expansion of our offering as described above. This allows us to serve a broader part of the market, and tailor our services to meet the particular capital raising objectives of each client.

There has been 35% growth from the first year in terms of capital raised. There has also been a significant increase in the average size of investment, and the number of investors making multiple investments – metrics that we monitor closely as proxies for whether the right types of investors are being attracted to the marketplace.

We hope you find these numbers interesting, and feel free to contact me if there’s other information that you’d like to see – [email protected]






NXT-listed G3 Group uses equity crowdfunding marketplace to raise funds

The Angel Association has been encouraging investors to manage their angel portfolios more actively for returns. Workshops have focussed on the acquisition process – looking at aspects like working with investment bankers, positioning companies effectively, and setting up quality deal rooms.

IPOs are another liquidity option, and there have been some developments recently in the New Zealand market (with the launch of the NXT Market) and the Australian market (with ASX preparing to introduce more stringent criteria around the listing of early stage ventures).

G3 Group was the first company to list on the NXT market 15 months ago, is now raising up to $3m, primarily to fund further acquisitions.

The offer at $0.75 per share went live yesterday at at 6.25% discount to the last traded market price, and is being made available to the public through AANZ member Snowball Effect. This is the first time that a listed company has used an “equity crowdfunding” marketplace to raise funds in New Zealand.

This is an interesting development for New Zealand’s capital market, especially given the importance of the listing pathway to angel investors, and the ability for young listed companies to raise capital efficiently and fund further growth. Here’s a summary of the key details and parties involved.

Background to G3

G3 assists businesses, including a growing international customer base, to manage their data, documents, and customer communications, deploying new technologies for maximum reliability and efficiency.

G3 began life 10 years ago as a small domestic provider of business mail services under the New Zealand Mail brand. Through a series of acquisitions, including Pete’s Post and Fastway Post, it now commands annual sales of over $40m and across its chosen markets of NZ, UK, and Australia.

Since listing on the NXT market 15 months ago, G3 has done what it said it would do – achieve growth targets, expand via acquisition into document and data management, and expand into Australia. In its recent 2016 financial statements, G3 reported an increase in revenue of 8.4% to $43.95m, and an increase in profit before tax of 12.2% to $2.14m.

G3 has completed 8 successful acquisitions in the past 4 years, and is currently looking at a number of new acquisition opportunities. Acquisitions will be focused on businesses which complement existing operations, and data management technology companies that enable G3 to leverage the strong revenues and customer base from its traditional operations towards emerging digital opportunities.

G3’s growth strategy responds to increasing global trends for compliance and chain-of-custody around managing business documents. “Document management affects all businesses large or small” comments G3 CEO Mark Brightwell. “The cost and effectiveness of document workflows is critical to all businesses, and compliance is becoming increasingly complex especially as businesses attempt to run traditional paper based workflows in tandem with new digital systems.” G3’s service expansion strategy is designed to help businesses with this transition from old to new technologies.

The offer is for up to $3 million by way of new ordinary shares at $0.75 per share listed on the NXT Market. This represents a 6.25% discount to the last traded market price. The capital raised will be leveraged with cash reserves and bank debt (as appropriate) to fund acquisitions in targeted growth markets. Click here to view the offer.

NXT Market

NXT is a stock exchange designed for small and mid-sized companies. It is owned and operated by NZX. G3 was the first company to list on NXT, and is now accompanied by Marlborough Wine Estates Group, Oceania Natural, and Snakk Media.

NXT provides a cheaper and simpler alternative to the NZX main board for growth companies by reducing the complexity of the listing and disclosure rules.

Snowball Effect

Snowball Effect has facilitated around 70% of the equity crowdfunding market in New Zealand, and has amassed an investor audience of more than 10,000 investors in 2 years. The marketplace helps cash-hungry growth companies raise capital from the public, or from its network of high net worth investors, many of whom seek active involvement within the businesses they invest in. This new distribution channel enables companies to raise funds efficiently, and provides investors with a simple way to discover and invest in growth companies.

Snowball Effect last made headlines in April when Squirrel raised over $3.4m through its marketplace – beating the previous record of $2m.

G3’s offer will mark another milestone as the first time that a listed company has used an “equity crowdfunding” marketplace to raise funds in New Zealand.

Why is a listed company raising funds through an equity crowdfunding marketplace?

Listed companies are required to comply with ongoing disclosure obligations, which provide investors with recent information regarding the historic and expected performance of each company. Given the ongoing disclosure, listed companies have much simpler regulatory requirements when offering securities (such as shares) that are the same as its securities which are already listed. This generally makes it easier to raise funds by issuing new shares.

Despite the legal and disclosure obligations being simplified for a listed company, the economics are still difficult for a raise of this size in New Zealand. The large brokers provide the key distribution infrastructure to investors in the capital market, but a raise of this size is too small for the large brokers to participate in. Given the lack of distribution infrastructure to support a small public offer, companies raising small amounts are typically forced to consider private funding channels. They often end up looking for local high net worth investors or offshore investors. The capital raising process can end up being expensive and lengthy, and there is significant opportunity cost as management focus is diverted away from growing the business.

The aim is to use Snowball Effect as a simple and efficient channel for G3 to distribute its offer and tap into New Zealand’s capital market.

Snowball Effect launched the first equity crowdfunding offer in New Zealand in August 2014. Over the past 2 years it has evolved into a marketplace for a range of offers, including public, private, and wholesale investor offers. G3’s offer is not technically an equity crowdfunding offer because it is not relying on the equity crowdfunding regulations. However, it is using Snowball Effect’s marketplace as an efficient channel to reach a wide investor audience.

Aussies poaching our firms – NZX boss

The boss of New Zealand’s stock exchange has compared local companies listing across the Tasman to “welcoming Australians into an All Blacks training camp and allowing them to take our best players”.

Speaking at a Trans-Tasman Business Circle panel event in Auckland this afternoon, Tim Bennett called on Kiwis to be more nationalistic about this country’s sharemarket.

He said New Zealand would never allow Australia to take members of a national sports team.

“But we seem quite happy to do that with some of the companies that we promote for listing in Australia,” Bennett said, adding that the NZX needed to be viewed as a “national asset”.

In recent months New Zealand tech firms Volpara Health Technologies, 9 Spokes and Powerhouse Ventures have announced plans to skip the NZX and list on Australia’s ASX.

That followed Christchurch-based jetpack maker the Martin Aircraft Company’s decision to list in Australia last year.

Meanwhile, jewellery retailer Michael Hill received shareholder approval this afternoon to shift its primary listing from the NZX to the ASX.

Such moves have generated a lot of media commentary and Bennett’s comments suggest the sharemarket operator is taking to heart the loss of potential local issuers to the ASX.

That’s particularly understandable given quiet state of New Zealand’s listing and initial public offering market.

Only one IPO, chicken producer Tegel, has taken place on the NZX this year, while there have been 27 floats and listings on the ASX in the past two months alone.

But Bennett said caution was needed when comparing the NZX with its vastly bigger counterpart in Australia.

“There’s a lot of discussion about NZX versus ASX and I’d just like to put it in a bit of context,” he said. “The market capitalisation of the Australian market is about 15 or 16 times the New Zealand market.”

Bennett said ASX’s growth had not only been driven by the size of the Australian economy but also other factors such as a strong sense of nationalism around that country’s capital markets and compulsory superannuation.

The NZX did well when put up against more comparable exchanges such as those in Denmark, Turkey, Norway and Israel, Bennett said.

New Zealand Superannuation Fund head of investments Fiona Mackenzie, who also joined the panel, said the $30.3 billion fund was concerned about a lack of liquidity growth in the local market.

“We think some of the key areas to focus on there would be diversity in terms of market participants [including] brokers, fund managers and listed issuers,” Mackenzie said.

She said New Zealand was a “Goldilocks market” when it came to IPOs, which was a challenge for increasing the number of listed issuers.

“Absolutely everything has to be right [to get an IPO completed],” Mackenzie said.

She said there was much room for improvement when it came to corporate governance in New Zealand.

“We’re engaging with companies both individually and via the Corporate Governance Forum,” Mackenzie said.

Gareth Morgan Investments chief investment officer Simon O’Grady said a concerted effort, including through tax policy, was needed to improve access to this country’s capital markets.

“There’s going to be at some point in the next few years … a London or New York of Asia somewhere and we need to be part of that environment,” O’Grady said.

First published – NZ Herald 23 June 2016

Comvita announces Denyer in board position

NZX-listed Bay of Plenty honey and health products company Comvita has announced the appointment of Tauranga lawyer Murray Denyer to the board, effective April 1.

The Cooney Lees Morgan partner is well-known in the region’s investment community and serves with Comvita chairman Neil Craig on the board of early stage funding group Enterprise Angels.

Mr Craig, speaking from Hong Kong where the full Comvita board are currently on a trip to deepen their understanding of the China markets, said Mr Denyer’s qualifications included the fact he was local, his age and his commercially focused legal background.

“Having a legal brain around the board table is a good idea when we’re doing such a lot in the acquisitions space.”

Mr Denyer would be put up for re-election in October at the annual general meeting, when he will take over the role of chair of the Remuneration & HR Committee from Dr David Cullwick.
“Comvita has some quite progressive share schemes and we brought him on six months early so he could get his head around that with David,” said Mr Craig.

Mr Denyer began his career with the Ministry Foreign Affairs & Trade in 1993, then went into private practice and was eventually headhunted to join Zespri in Tauranga in 2003. He spent almost six years with Zespri, ending up as general counsel and board secretary.

In 2009 he came on board at Cooney Lees Morgan and was elected to the partnership in 2010. Mr Denyer also served on the board of Priority One for eight years.

Mr Denyer, who is also currently in Hong Kong, said he was really excited about his new role.

“It’s a local company that I’ve followed for a long time and it’s very much part of our local Bay economy. I’ve always been very passionate about export businesses and this is one. There’s a lot of things I’ve done over my career that give me the right skill-set to put my shoulder to the wheel and make some contributions there.”

First published on on 5th April 2016

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