Companies have more options to raise funds and establish their operations before an IPO. 

Raising capital is sometimes presented as a binary choice for unlisted emerging companies. They can raise capital privately, or publicly through an Initial Public Offering (IPO) and exchange listing.

Colin McKinnon, Executive Director of NZ Private Capital, sees synergies between both capital-raising options. NZ Private Capital is a not-for-profit industry body committed to developing private equity and venture capital in that country.

McKinnon says strong growth in private equity and venture capital in NZ in the past few years should lead to more NZ companies listing on NZX or ASX – or both exchanges, through a dual listing, this decade.

“There’s a lot of local and international capital flowing into NZ private capital markets,” says McKinnon. “Promising NZ companies have more options than ever to raise funds from private investors. Previously, there wasn’t enough private capital in NZ to enable enough emerging companies here to grow to a sufficient size to be an exchange-listing candidate. That’s changed in the past few years as private-capital funds successfully raise money.”

NZ private-capital markets had record activity in 2020. There was NZ$2.53 billion of combined investments and divestments across private-equity and venture-capital transactions, shows the New Zealand Private Capital Monitor 2021, produced by NZ Private Capital and EY.

More than NZ$765 million of private capital was raised by NZ funds. International investment in NZ software/technology companies was a recurring theme.

The NZ Private Capital Monitor 2021 noted fewer new listings on NZ capital markets last year but found significant capital raisings were undertaken by NZ companies in response to Covid.

“The outlook for future years appears positive as New Zealand and the global economy recovers from the Covid-19 pandemic, and portfolio companies assess options for new capital raising,” wrote McKinnon in the monitor. “… We see private capital continuing to play an important role throughout the coming year in helping many New Zealand businesses stabilise and grow as the New Zealand and ultimately global economies return to a sense of normality.”

ASX expects 25-50 NZ companies will list on its exchange in the next five years, to access Australia’s capital pool and potentially achieve higher share liquidity and index inclusion. There is a solid pipeline of NZ companies currently seeking a sole or dual listing on ASX.

Private to public ownership

McKinnon says growth in NZ private capital is helping companies become more established before they list on an exchange. “Previously, some NZ companies listed too early on an exchange because that was their best option to raise capital. They weren’t ready for life as a listed company – financially, operationally or in terms of governance. Their share price drifted.”

McKinnon adds: “Outside of the biotech sector, there haven’t been a lot of NZ listings on NZX or ASX that you could describe as ‘early stage’. They tend to be more established companies these days when they get to IPO, compared to five years ago.”

ASX has previously noted strong investor appetite in Australia for emerging NZ tech companies valued at $100 million or more after listing. “Typically, these companies are growing their revenue by at least 20-30% annually, but may not yet be profitable,” it said. “ASX is developing a large ecosystem of emerging tech companies. Investors want more of them on the exchange.”

McKinnon says the growing participation of Australian private-equity and venture-capital funds in NZ could lead to more NZ companies sole or dual listing on ASX. “As more Australian venture-capital funds, such as Blackbird Ventures, invest in NZ companies, there are natural synergies for the funds to take these companies through to an IPO and listing on ASX.”

McKinnon adds: “At the same time, more Australian equity fund managers are investing in NZ companies at the pre-IPO stage. The result is an increase in Australian equity funds that are familiar with NZ private companies and willing to invest in them if they decide to IPO.”

Greater movement between private and public ownership of NZ companies is likely, says McKinnon. “It’s company-dependent. We’ve seen private-equity firms take companies public in NZ and Australia through an IPO. And, equally, some listed companies acquired by private equity, restructured under private ownership, and brought back to an exchange through an IPO.”

International capital

McKinnon expects more NZ companies that decide to list to do so through a dual-listed structure on NZX and ASX. “There are some magnificent NZ companies that are fiercely loyal to their NZ roots. At the same time, NZ companies that are targeting offshore customers want international investors and access to a deeper capital pool. Exposure to Australia’s superannuation pool is one way to achieve that. In some ways, a dual listing on ASX and NZX offers the best of both worlds for NZ companies that decide to list.”

He believes the NZ science and technologies sectors will be a stronger source of future exchange listings. “The pipeline of science-based opportunities in NZ is expanding. I suspect we’ll see more life science and information-technology companies in NZ raising private capital in the next few years, and some going to a dual listing on NZX and ASX.”

McKinnon says ASX resources in NZ are helping inform companies on their capital-raising options. “By having resources on the ground in NZ, ASX is doing a good job to help NZ companies understand what’s available. Some companies prefer raising capital privately and to remain under private ownership. For others, it’s about transitioning from private ownership to an IPO and exchange listing as part of their company’s journey. The key is giving NZ companies more capital-raising options and information to help them make the right choice.”

NZ companies need to understand the pros and cons of exchange listings, says McKinnon. “There’s plenty of private capital available for promising NZ companies that just want to raise funds. An exchange listing is often about more than raising capital; for example, having a higher profile in the country in which they list or joining a sharemarket index.”

To learn more about NZ Private Capital, visit www.nzprivatecapital.co.nz