20 July 29, 2016 / The National Business Review

Capital raising, lending SUPPLIED CONTENT Special Report & investing money Acquiring shareholder value

Henry Withers, GM of ASB Corporate Banking, has Investors face fresh challenges in getting returns, managing risks and balancing their portfolios. The outlook for markets are mixed, Strategic acquisitions can create genuine, long-term value for shareholders. helped many businesses achieve their ambitions. In with low interest rates and capital struggling to find a home. One complexity is the rise of and peer-to-peer lending which the current market, strategic acquisitions are still one continue to disrupt capital markets. More than ever, there is a need for skilled advisers. Housing is booming, as are construction and of the most effective paths for growth. tourism but where are the best returns and how can investors be sure they’re on the right track?

For many businesses, delivering year- candidate might include: on-year earnings growth to shareholders is n Strong in a complementary niche raises. companies raising money becoming harder to achieve. Business leaders n Established in one of your target markets “Institutional investors through a non-traditional face tough competition, rapid disruption, high n Strong growth potential How New Zealand’s have become a little more channel despite being listed on volatility and low economic growth around n New thinking, products or innovation discerning. They seem to be the stock exchange. NXT-listed the world. Lifting top-line sales and improving more focused on yield and on G3 Group recently announced productivity is challenging. The purchasing power of stock businesses that have a strong it will do a capital raise using Successfully completing an acquisition For larger companies, another benefit of and credible track record. equity crowdfunding platform is one way of managing these pressures. A successfully completing an acquisition can capital markets are There haven’t been a lot of tech Snowball Effect. well thought-out and executed acquisition often derive from the purchasing power of companies come to the market Snowball chief executive can create genuine, long-term value for their stock and resulting value accretion for recently because they’ve shown Simeon Burnett says New Zea- shareholders. Many leading New Zealand shareholders. Larger companies are often a mixed performance after land is likely to see more of this businesses are now considering their strategic valued at a premium to smaller, privately- rapidly evolving listing.” cross-pollination happening in growth options, and see the opportunity owned businesses. to take advantage of low interest rates and The average price to earnings ratio (P/E) in the acquired business through efficiencies Base rates are now at historical lows, which future. a healthy lending appetite from banks. of the 50 largest publicly-listed New Zealand or other opportunities, the value accretion reduces your funding cost. By borrowing the Collaboration between “We’re acting as a distribu- Investor demand from both public and private companies (NZX50) is now at 20.75, the can be even higher. For listed companies, funds for an acquisition, you avoid the need Calida Smylie in p2p lender Harmoney, while market players tion channel to reach retail capital markets is also fuelling merger and highest level since the 2008 global financial shareholders immediately benefit from this to raise equity, and thus avoid diluting your equity crowdfunding platform One notable instance of the acquisition activity. crisis. This means the average NZX50 increase in market capitalisation. Equity existing shares. Instead, you pass on all the New Zealand capital markets Crowdcube is run by invest- changing capital markets is Continued P22 ASB’s Growth & Transition survey of company is “worth” over 20 times their net analysts may positively re-rate your stock, upside to your existing shareholder base. look quite different from just ment banker Armillary Capital 490 NZ mid-market companies shows that profit after tax. further driving the share price. Higher Depending on how the acquisition is five years ago, with the evolu- under a joint-venture model. one in three businesses see growth through The purchase price for a business is usually earnings also create the potential for higher structured, banks will typically look at the tion of new channels such as Bank customers often ask acquisition as an effective way to grow based on a multiple of its earnings. If the dividends. combined cashflows of the two businesses equity crowdfunding and peer- about the merits of various profitability and enhance return on capital. multiple you pay for a business is less than An example of a company who has when assessing debt sizing and capital to-peer lending providing more forms of capital or debt rais- your P/E ratio, the difference can create an successfully grown through acquisition is structure. Engaging your bank early in options for young companies. ing, Mr Johns says. “Working A good acquisition starts immediate increase in shareholder value over EBOS. Its market capitalisation increased the process can help you achieve the best These sorts of markets have through their strategy and with a sound strategy and above the purchase price. from $312m in 2010 to $2,476m in 2016 – a outcomes. An acquisition should always be bloomed since the Financial growth options is absolutely year-on- year increase of 41.2%. For larger acquisitions, or where the underpinned by a clear strategic rationale. The strategic gains of the acquisition acquirer already has a level of borrowing, an Markets Conduct Act laid the critical before taking on any An example of value accretion Potential reasons for business owners, boards Consider an example. Your company improve your company’s competitive equity raise is often required. Despite recent groundwork three years ago equity or debt option, and position and can diversify your earnings. The volatility, the right opportunities – those for their growth – but are they MICHAEL JOHNS: The more opportunities funding that in an effective way immediate increase in cashflow also improves with sound business fundamentals and for consumers, the better competing with traditional – while reducing risk – is really A well thought out and executed your debt-servicing capacity, which can reasonable valuation expectations – create capital raising avenues, or important.” support either a higher level of borrowing or strong demand from both public and private cohabiting? options for the consumer the He notes that, while early- acquisition can create value over more favourable lending terms. investors. Engaging an experienced bank or You’d be forgiven for think- better. We embrace what’s stage funding growth has sped and above the cost of purchase. advisor to support the process is important ing ASB Bank, as one of the old going on – there’s a place for up in recent years due to the Making the acquisition work and will ensure the best results for the guard, might be a bit defensive everyone and free markets cre- new funding avenues avail- A successful acquisition takes experience, acquirer. about how quickly New Zea- ate opportunities for people able, traditional equity capital clarity of purpose and active governance. It’s land’s capital markets are evolv- and businesses where they per- markets have been slow. This and management teams to choose acquisition has a P/E ratio of 20, and decides to buy a important to have capable advisors and a Bottom line ing from the status quo. ceive returns.” is reflected in the lack of initial over organic growth can include: complementary business with $1.0 million clear execution plan. Financial, tax, legal and Strategically, making an acquisition n Increase their market share net profit after tax. You pay $10 million, or a commercial due diligence is essential, as is But ASB Corporate Bank- There has already been some public offers coming to frui- remains one of the best ways to create and n Create economies of scale multiple of 10 times their earnings. But your getting an independent valuation. Having the grow shareholder value. An acquisition can ing market development head collaboration between old and tion in the past couple of years, n Gain market access P/E ratio is 20, so adding $1m of net profit to right people helps in negotiating a fair deal, create a multiplier effect on your company’s SIMEON BURNETT: A lot of opportunity north of $2 million and south of $10 million for Michael Johns says there’s new sources of capital. Heart- although there has still been n Supply chain integration your bottom line immediately increases the reduces transaction risk and complexity, and value and amplify shareholder returns. people to invest room enough for all. “The more land Bank has a 9% equity stake strong demand for secondary n Improve their competitive position value of your company by $20 million. If your improves the probability of long term success. Sound strategic decisions create stronger n Acquire new capabilities, people or IP $10 million purchase price was funded by A well-thought out integration and companies with more growth opportunities. What makes a good acquisition target? debt, the value created for your shareholders communication plan helps deliver quick wins, By building stronger, healthier businesses, we The first attribute is how well it meets your is twice the purchase price. and ensures key stakeholders are aligned. The can help achieve New Zealand’s ambitions on strategic goals. Other features of a good If you can further improve the profitability plan might include cost savings and growth the world stage. opportunities, and how to communicate the In an increasingly challenging business benefits to customers and team members. An environment, completing a successful The high cost of not borrowing Manage your business with Borrowing remains a relatively low cost route to growth. important consideration is how you will unify acquisition can be an effective way to the two cultures. sustainably grow profitability and enhance 14.0 Equal weighted average return on equity It’s also essential to communicate the return on capital. exceptional currency control. 12.0 strategic benefits to stakeholders. That 11.25% includes board members, shareholders, 10.0 OMF gives you the power of choice with your foreign exchange management and staff, customers and the ASB Corporate brings together dealings. Our trading platform x24 lets you do everything yourself online. 8.0 investment market. Articulating the rationale people, ideas and capital, Or, if you’d prefer, our experts can advise you on what is right for you. helps win support and provides a simple, and helps to identify growth 6.0 Either way, you have more control than ever. Buy and sell currencies clear, and compelling story to take to the opportunities for New Zealand investment community. more efficiently, with access to live indicative rates, competitive quotes 4.0 Official cash rate businesses. and trades in real time. 2.0 2.25% Funding your acquisition If you’d like to discuss your growth Visit our website or call us to speak with the experts. Acquisitions require capital, usually from 0.0 ambitions and strategic options, a combination of cash on hand, borrowing or 2012 2013 2014 2015 2016 call Henry Withers on 021 646 745. Auckland Wellington raising new equity. 0800 863 325 0800 663 935 omf.co.nz ASB Economic Data, 2016 Borrowing is the cheapest source of capital.

Connecting you to global market opportunities. Helping New Zealand’s businesses achieve their ambitions. 22 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY July 29, 2016 / The National Business Review The National Business Review / July 29, 2016 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY 23

such as contracts for difference. Lack of new listings How New Zealand’s “In terms of overseas markets, we have A self-driven approach high net worth individuals buying shares in other markets online themselves, then if capital markets are they wish to they can trade options around concerns investors that, either buying calls or selling calls against that stock, and also using insur- rapidly evolving to risk and return ance, like buying puts on that equity to Duncan Bridgeman flow of KiwiSaver money – predicted to protect it,” OMF director Greg Boland says. double over the next eight years. Tim Hunter NZX chief executive Tim Bennett recently “If supply cannot keep up with just the Who is a sophisticated investor? Derivatives expressed his frustration over what he passive demand we know is going to come From P20 of retail and wholesale investors in In the world of those with high net worth, As a derivatives business OMF is keen to described as the Australian stock exchange from KiwiSaver, let alone the capital mar- April. horizons are broader and the sky is higher, Under the FMC Act’s investor activity criteria, a products where the amount payable under those help develop the local market – it has been poaching New Zealand firms. ket is currently made up with 50% offshore investors. We could certainly work “There are lots of opportuni- but the approach to risk remains a defin- wholesale investor is someone who: transactions (in aggregate) is at least $1 million a key player in milk futures for example – Speaking at a Trans-Tasman Business money, what happens if the participation alongside broking firms like Forsyth ties north of $2 million and south ing factor in potential returns. and the other parties to the transactions are not and wants to see more services available. Circle capital markets panel last month, rate increases to numbers we used to see Barr or First NZ Capital in future, of $10 million for people to invest. Once in the club, whose membership owns, or at any time during the two-year period associated persons of A: “We’re not scared to have a go and we he said some recent activity was akin to pre-1987?” Mr Milsom asked the panel, to access a different investor base. It’s a fragmented market and an entry criteria are specified by the Finan- before the relevant time has owned a portfolio of is an individual who has, within the past 10 are definitely looking to have a go in this specified financial products of a value of at least years before the relevant time, been employed letting Australians into an All Blacks train- which also included Fiona Mckenzie of One real benefit we have is to allow a opportunity for us to aggregate a cial Markets Conduct Act, opportunities equity index and equity options market in $1 million (in aggregate): or engaged in an investment business and has, ing and allowing them to “take our best the NZ Super Fund and Simon O’Grady, of company to tell its story crisply.” lot of the investors who are writing become available that are not offered to has, during the two-year period before for at least two years during that 10-year period, New Zealand. Hopefully we can help get players.” Gareth Morgan Investments. Snowball, which has raised just these cheques and possibly want to the so-called mum and dad investors. the relevant time, carried out one or more participated to a material extent in the investment that going over time. He’s right to be concerned about this, Mr O’Grady responded, saying under $20 million with an average become involved with the direction There is an informal network of people transactions to acquire specified financial decisions made by the investment business. “For a lot of clients who are long-only although there are also genuine reasons “absolutely” there is a risk. company raise of $950,000 in the two of the company,” Mr Burnett says. interested in those opportunities, says Rob equities or bonds there are ways of hedg- some companies are choosing the ASX to years it’s been operating, has been The economics are difficult for a Cameron of investment bank Cameron ing those exposures. These markets are list their shares. Companies crossing the Eco-system needed branching away from public offers raise of this size in New Zealand, as Partners. very well utilised overseas. A lot of our staff ditch include Martin Aircraft Company, “We know the demand side of things. We to facilitate the private placement of it’s expensive to engage an invest- “If they’re in that group, they’ll get listing in August that year. “Generally in my experience high net have 25-30 years in the markets and can Volpara Health Technologies, 9 Spokes, know what cash is coming in. Where that offered private capital opportunities, or Although Pushpay is in the relatively worth investors are very interested in capi- help explain how these products work and Powerhouse Ventures and CropLogic. supply side is going to come from I can’t We could certainly work alongside pre-IPO opportunities,” he says. early stages of development and has yet tal preservation,” he says. facilitate clients’ business for them.” Mr Bennett is keen to extinguish any see it. It just really implies that we drive Some of those investors may represent to make a profit, its growth prospects The extent of First NZ’s involvement in CMC general manager Chris Smith says perception that Australian investors are valuations even higher until such time as broking firms like Forsyth Barr family offices – where assets are man- have generated significant gains for sourcing private capital investments will high net worth individuals tend to be seek- more likely to be interested in early-stage we are not doing the right thing by our cli- aged on behalf of a family group, often by shareholders. vary according to the client – some may ing control over how they invest. growth companies than their New Zealand ents by investing here.” or First NZ Capital in future, to fulltime professionals – and some may be It’s an example of what those investors have those investments in a separate port- “Premium high net worth level clients counterparts. Mr Bennett countered this, saying once access a different investor base – Simeon Burnett wealthy individuals. are seeking. folio, for example – but, as well as capital who are travelling often, they want access KiwiSaver gets to $70 billion with about The distinguishing factor, says Mr raising. the firm can provide entry to alter- to their portfolios, they want access to live Lack of supply glaring 10% invested in New Zealand equities, Cameron, is expertise. “They’re the sorts of Super growth native assets such as private equity and prices of the S&P500, the New Zealand However, the problem is amplified that will stimulate the supply side. capital with wholesale investors. ment bank and lawyers to put people who you know will be able to take “Most of the people [in the network] are hedge funds. dollar, global markets, on their ipad, on because the IPO market is sluggish at “But I’d stress that it’s not just about Since launching the private ser- together a product disclosure state- away an opportunity and analyse it. They after super growth,” says the investment “We can help facilitate a role for inves- their mobile device,” he says. the moment, with a general decline in supply and demand, it’s about the eco- vice in December, it has garnered ment for such a small public offer. get opportunities that others would, frank- professional. tors in those funds,” says Mr “We see over 40% of activity now done sharemarket listings since the rush follow- system that we need to develop which more than 700 registered wholesale There is also not enough value in ly, find prohibiitive because of legislation “Is there super growth in the main mar- Poulsen. on mobile devices, which is an incredible ing the government’s partial privatisation includes advisers, fund managers, prob- investors – to put this into context, the deal for a broker, so there is no and regulation.” ket? No there isn’t. People are focused on One advantage in hedge change from five years ago.” programme. ably some changes around regulation as New Zealand’s Angel Association established distribution channel to Another investment professional, who higher risk than is normally available, and fund investing is often access While 60-70% of clients are focused And the lack of supply is glaring in the well, to make that happen.” has about 750 registered wholesale place the shares with investors. asked not to be named, says people in with commensurate higher return.” to short, as well as long posi- on currency markets, the ability to take face of surging demand for product in the Clint Webber, of INNO Capital, reckons investors. Mr Burnett hopes the evolution that investment category had particular While those working in the capital tions in the market, but some short positions on equity markets using current low interest rate environment. there’s still mistrust among many investors But this does not mean equity of equity crowdfunding and New approaches. “They want active involve- market will have their own networks of wealthy investors choose to CFDs is a major attraction. According to Forsyth Barr, almost here, which might explain why some com- crowdfunding will squeeze angels or Zealand’s wider capital markets ment,” he says. Not necessarily in the day- high net worth people, the main contact is use those hedging or specu- “If you’re a high net worth inves- half the free float of the New Zealand panies are heading overseas to raise funds. venture capitalists out – and many will make it easier for companies to to-day management of businesses they likely to be through the big broking firms, lative instruments direct- tor you’ve got a lot of exposure to sharemarket is now owned by offshore And he has concerns the same class of are already doing joint funding attract expansion capital. invest in, but “they want to be able to meet Mr Cameron says. ly through firms such as physical equities. We’re seeing investors hunting for a decent yield. investors who were stung by the finance deals with the likes of Snowball and “Ultimately, we want to create with the CEO or chairman on a regular “All the big brokers offering integrated OM Financial and CMC a huge amount of them look That presents a big risk, says Richard company implosion may be bit again. Equitise. This is also a way for com- some real engagement between basis, to understand where the business is services will know these people. They will Markets. for short exposure on the Milsom, a principal at Elevation Capital, a “Some asset securitisation schemes are panies looking for funds to get more companies and investors so they are going and follow it closely.” have quite well-developed networks and OMF offers a range S&P500 as we sit on record global value investor. based on the low interest rate environ- than the $2 million allowed under being brought on as family of the An example of those networks in action channels.” of derivatives services, highs,” Mr Smith says. He points out the challenge of getting ment but management is not aligned to equity crowdfunding laws for retail company and joining them for the is NZX-listed payment systems com- Martin Poulsen, head of investor servic- including exchange- “We continue to see more small- to-medium-sized businesses the investor. investors – mortgage broker Squirrel ride – good or bad.” pany Pushpay, which raised capital from es at First NZ Capital, says high net worth traded futures and more and more clients to list on the NZX coupled with the inward [email protected] Group raised $3.4 million with a mix [email protected] the Huljich family and its connections clients are typically those with investible options, and over- come to us saying, ‘how through private equity firm Christopher & assets of $2-10 million. At that level they the-counter products can I access shorting on the Banks. receive a bespoke level of service from US market and New Zealand Those capital raisings included a $9 dedicated advisers but their interest in ROB CAMERON: An shares’. This is not just specula- million issue to private sophisticated high-risk, high-return opportunities is far informal group of people is tion but hedging.” prepared to take risks investors in May 2014, shortly before its from universal. [email protected] Behind your trade is a world of The ultimate innovation, research and analysis trading Every part of our award-winning Next Generation platform is designed to help you take advantage of experience market opportunities as they arise.

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Property Finance  Private Lending  Joint Venture Financing Contact us today to fi nd out how we can help: With derivative products you could lose more than your deposits. You do not own or have any interest in the underlying assets. Investing in derivative products carries significant risks. Seek independent advice and consider our PDS at cmcmarkets.co.nz when deciding whether to invest in CMC Markets products. CMC Markets NZ Limited (CN 1705324). +64 9 974 9195 www.inno.co.nz 24 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY July 29, 2016 / The National Business Review The National Business Review / July 29, 2016 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY 25

SUPPLIED CONTENT All about alternatives KiwiSaver: Could it Unfair tax won’t be Private equity funds improve do better yet? changed for a year growth and performance of Nevil Gibson by Rainmaker at $A2.4 trillion – cific as high as 40% to heavy losses. has about 16% in alternatives. Private equity may be unpopu- privately owned businesses Outside of traditional investments This compares with about 2% lar among share investors who buy Nathan Smith – shares, bonds, property and cash of KiwiSaver funds, according into public offerings as companies Jenny Ruth acknowledged this is “a tax policy issue … – are those known as “alternatives.” to NZAM. Global pension funds are sold on. But as an investment, After almost 10 years of that should be considered. Academic Colleges Group (ACG) graduates on international expansion These broadly cover hedge have a much higher percentage private equity can produce good KiwiSaver, it’s safe to say Both Revenue Minister Michael Wood- “There is a policy basis for amend- ACG owns and operates 15 premium education providers encompassing early childhood, funds, private equity, commodities than that at 25%, compared with returns. the $33.8 billion pool is house and his predecessor, Todd McClay, ments to the law so that a genuine schools and tertiary colleges in New Zealand and schools in Vietnam and Indonesia. ACG and infrastructure. The primary just 5% back in 1995. US endow- For the first time since 2007, healthy, even without have recognised New Zealand sharehold- demerger does not result in a taxable divi- educates ~9,000 students and directly employs ~1,200 staff across 35 campuses in 10 cities. reason for investing in these is ment funds, which have unlimited Goldman Sachs is launching a new much in the way of private ers in foreign companies undertaking dend to New Zealand shareholders.” Since the establishment of its first school 20 years ago, ACG has grown from a single domestic because of their diversification horizons, allocate more than half corporate-buyout fund of between equity investments. certain capital changes are being unfairly His successor, Mr Woodhouse, and international school operator to an educational specialist diversified across the educational benefits. of their investments to alternative $US5-8 billion. Global best practice sug- treated under New Zealand tax law. responded to NBR’s questions by acknowl- sector by age, type of education and geography. Many alternatives exhibit low, strategies. Like hedge funds, times are gests for long-term growth DENNS CHURCH: Liquidity is However, an amendment to fix the edging it’s a “valid policy concern. Waterman Capital invested in ACG in January 2013. During the period of its investment, ACG or negative, correlation to stocks not easy for private equity firms. KiwiSaver should include probably an issue problem is unlikely to see daylight until “It is my intention to have this issue more than doubled revenue and earnings through a combination of organic and acquisition and bonds. In other words, they Building on risks Assets are expensive as stocks are at between 10% and 15% in the next year. included in the government’s tax policy growth. Growth initiatives during the period included opening a new school in Tauranga, the are not linked to normal market Hedge funds are not just a riskier record levels and there is competi- private equity class. Instead, KiwiSaver outperforming New Zealand tax law currently deems work programme as part of its mid-term acquisition of the ACG Strathallan College operating entity, the merger of ACG’s two existing movements and can go up or down version of normal share portfo- tion from corporate acquirers, who most of the capital is placed ACC and the GSF over a certain capital changes by foreign compa- refresh,” Mr Woodhouse says. schools in Vietnam and a significant push into the tertiary space through four separate independently. lio funds. They aim to produce can often pay more. offshore in public markets. five-year period at a 15% nies as dividends and requires sharehold- “We intend to consult with relevant acquisitions of leading vocational training organisations. Alternatives have become one positive returns under any market Private equity is more heav- By contrast, other large annualised return. NZ ers to pay tax on them. stakeholders later this year with a Following a direct approach, ACG was acquired by Pacific Equity Partners in April 2016. of the fastest-growing asset classes, conditions. They invest in all liquid ily leveraged – often using bor- funds, such as NZ Super- Superfund did better still Examples of affected transac- view to including any amend- particularly for sovereign funds and markets – shares, bonds, com- rowed funds from the companies fund, do have investments with a 17% return but that tions are the Diligent takeover ments in a 2017 tax bill.” Scales growing global agribusiness others with long-term horizons, modities and currencies – using a acquired – and can produce in private equity. fund secures larger deals earlier this year and the BHP In the meantime, it’s proba- Based in Christchurch and with operations throughout New Zealand, Scales Corporation (Scales) such as endowment funds. variety of trading strategies, includ- mouth-watering returns. Some say this disparity and is more sophisticated Biliton/South32 demerger last ble that affected shareholders is one of New Zealand’s oldest companies, originating in 1897 when it formed its shipping For example, Australia’s Future ing computer-based ones. Active names on the local should be rectified but it than its peers. year which the New Zealand are filing incorrect tax returns. operation to take on the ‘old country’ incumbents on behalf of New Zealand sheep farmers. Fund has allocated more than 35% It hasn’t been easy for hedge scene include Pencarrow, which doesn’t seem to be detri- Public Trust general Shareholders’ Association PwC tax and private busi- Today, Scales is a public company with revenues of over NZ$300m. It is one of the country’s of its portfolio to alternatives, while funds lately – the average has invested in BrewGroup, the mentally affecting the fund. manager corporate trustee (NZSA) described as a “$24 mil- ness leader, Geof Nightingale, leading horticulture and primary sector processing, exporter and logistics businesses. It the NZ Super Fund has 3% in infra- annualised return globally was renamed Bell Tea & Coffee com- A Treasury report last year services Dennis Church is lion tax grab.” who has been advising the operates Mr Apple, the largest grower, packer and exporter of apples in New Zealand; Meateor structure investments and 5% in just 3.6% at the end of June while pany. It was previously owned by comparing KiwiSaver with sceptical of statistics sug- The APN/NZME demerger DAVID SNELL: The rules are NZSA on the issue, says many Foods exporting processed meat for the international pet food industry; and Storage and harsh private equity (May 31, 2016). computer-based quantitative funds the Foodstuffs and was therefore the NZ Super fund, ACC and gesting investments in pri- is another example. individuals wouldn’t realise Logistics, New Zealand’s largest third-party provider of temperature controlled storage facilities. The whole Australian invested earned 5% (HFR). However, these hamstrung by that tie. the Government Superan- Adding insult to injury, the they’re affected: “The biggest In July 2011, Direct Capital completed the fourth investment from its Direct Capital IV fund funds business – recently reported figures can cover returns on spe- [email protected] nuation Fund (GSF) found Continued P26 deputy chairman of the Securities Indus- issue really is small investors individu- into Scales. Along with co-investment from a number of Direct Capital’s Limited Partners, Direct try Association (SIA), Paul van Konings- ally having dividend income when they Capital acquired a 79.7% shareholding in the company and supported its continued export veld, explained the shareholders caught wouldn’t expect it and then not including growth, particularly into the fast-expanding Asian market. don’t only pay tax on the sums of money it in their tax returns and that individual Supplied Content Prior to Scales considering a listing, the company pursued a demerger of a number of they actually receive. not being compliant.” investment assets into a separate entity named George H Investments. If, for example, a BHP shareholder The relevant information would be In July 2014, Scales began trading on the NZX Main Board following the successful IPO that received $67 worth of South32 shares, “deep in the demerger documents” which raised NZ$149m through the sale of new and existing shares. The right capital they would just be paying tax on that $67. small investors probably won’t have read. Direct Capital Investments, together with its co-investors (which included the New Zealand Instead, the $67 is deemed to be a net Those shareholders would think all that Superannuation Fund and ACC), retained a cornerstone shareholding of 20% in Scales following at the right time amount that would be grossed up to $100 was happening was that their investment Managing Principal the listing. Understanding of and compliance In March 2016 China Resources acquired the remaining Scales shares held by Direct Capital. is essential for Wellington Direct Capital continues to be involved with George H Investments with the objective of with New Zealand tax law on generating further value. growing companies demergers is poor – David Snell For more than 100 years, Scales has worked with New Zealand producers to get their goods out to the world. They are dedicated to growing and sourcing agribusiness opportunities to help A great research discovery can change the world. Crowe Horwath is part of the Findex Group in Australia. We’re also part of Crowe Horwath transform New Zealand into a global agribusiness super-power amongst the world’s temperate But in business, without capital, a great discovery International, which is ranked amongst the top 10 global accounting networks, and is known climates. doesn’t get very far, very often. At Powerhouse, we for delivering quality audit, tax and advisory services in more than 100 countries. at the top personal tax rate of 33%. was being split in two. invest in the world-changing potential of great ideas, Only those shareholders who paid less EY tax executive director David Snell Our Wellington office is looking for a Managing Principal, who will play a pivotal role in driving commercialising R&D innovation from New Zealand’s than $50,000 for the affected investment says the current rules are “harsh for a Carpet Court is a sweet spot for Allegro key growth, performance and efficiency outcomes and supporting the rollout of key initiatives universities and research agencies. Since 2010 we’ve and who aren’t subject to the Foreign restructuring that leaves members in the Carpet Court is New Zealand’s largest flooring retailer with more than 60 retail outlets aligned to both the firm and group based strategic and operational plans. made early stage investments in more than 19 start-up Investment Fund regime are caught by same economic position as they were just nationwide, employing more than 400 staff in a combination of company owned, joint venture companies, providing capital and working alongside This is a critical leadership role within the business which will be responsible for generating this, meaning it’s mostly smaller retail before the restructuring. and franchise stores across the country. management to guide strategy and develop the growth in revenue and client base and be committed to building strong client relationships, investors, or “mums and dads.” “My sense is that understanding of, and In July 2015, Allegro partnered with Carpet Court management to acquire the assets and technology into local or global commercial successes. achieving results and improving performance. You will provide clear leadership direction and be The issue is also affecting managed compliance with, New Zealand tax law on operating business of Carpet Court from Flooring Brands NZ. The acquisition of Carpet Court To date, Powerhouse has raised funds predominantly accountable for the engagement and alignment of people. funds and KiwiSaver accounts. demergers is poor.” recapitalised the firm and left it debt-free after the transaction. through private placement. Our planned IPO You will have excellent technical knowledge, and a demonstrable track record of achieving Both the NZSA and the SIA have been Mr Nightingale says it wouldn’t be Carpet Court is Allegro’s second investment in the New Zealand market. The firm sold its will enable us to replicate our successful model in strong commercial outcomes and business development skills. If you’re ready to take the next lobbying the government to get the situ- difficult for Inland Revenue to hunt the shares in Cowley Services (a financial services business) in 2010. Allegro’s second fund, which Australia, and invest in intellectual property projects step in your career, in a dynamic, growth-focused company, then this role is for you! ation changed since the BHP situa- affected shareholders down because all closed with AU$180m in June 2015 , includes a commitment from New Zealand’s ACC. “ The on both sides of the Tasman. By Dr Stephen Hampson ■ 10 + years experience in the relevant field tion arose. NZSA chairman John it would have to do is match up the flooring firm is in a sweet spot at the moment” said Allegro Managing Director, While the companies in our portfolio are from ■ Hold relevant tertiary and post graduate qualifications in commercial, accounting or Hawkins likens the situation to share registers with its own records. Founding Partner Chester Moynihan. “The NZ house building boom drives up demand for Powerhouse Ventures Limited different sectors; clean tech and engineering, finance disciplines moving money from one bank However, IRD commissioner household goods, with retail spending on furniture, floor coverings, houseware and textiles at a medical and healthcare, ICT and agritech and ■ Proven leadership skills in building cohesive, high performing teams account to another, a move Naomi Ferguson could use her record NZ$2.14b in 2014. environmental, what unites them is a need for ■ Strong business acumen nobody would expect to be discretionary powers to decide the “Carpet Court has about 25% share of the New Zealand retail flooring market, which is capital. Crowd funding has been an effective ■ Excellent verbal and written communication skills taxed on. department won’t pursue this, given highly fragmented, with a number of small, family-owned operators. We like the fact it’s the way for the more mature businesses in our portfolio ■ Strong negotiating and influencing skills Mr Hawkins says successive ministers’ acknowl- market leader. We believe there is a real opportunity to improve the business, to invest in the such as HydroWorks and CropLogic to increase their ■ Excellent relationship and stakeholder management skills his organisation edgement of the problem. business, and to drive growth both organically and through bolt-on acquisitions,” Mr Moynihan spread of shareholders while they work towards their ■ Thorough knowledge of accounting and business advisory practices “is very frus- “There is probably a said. “Allegro typically targets companies it sees as ‘capable of transformation’ that can be own possible IPO. ■ Sound understanding of legislative framework relevant to service line trated at the reasonable basis for the achieved over three to five years. What we want to do in the investment timeframe is improve ■ Professional services experience preferable The successful commercialisation of cutting edge glacial pace” commissioner, if pushed, operations and grow to the point where it’s ready for a float or trade sale.” research and innovation is crucial to drive national Your initiative and drive will be recognized and rewarded in this outstanding career position. To with which the to say, OK we won’t devote growth, employment and economic development. be considered for this opportunity you would need to be a positive, adaptable, proactive and government any audit resources to The right capital at the right time is a vital ingredient results driven team player with a focus on ensuring a great environment. is moving on this.” in any commercialisation success story. this. [email protected] Please apply online at https://crowehorwathnz.careercentre.net.nz/Job/ In a let- ter to the GEOF NIGHTINGALE: Tel 0800 494 569 NZSA last It wouldn’t be hard for Colin McKinnon Audit | Tax | Advisory www.crowehorwath.co.nz October, the IRD to hunt shareholders Mr McClay 26 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY July 29, 2016 / The National Business Review The National Business Review / July 29, 2016 SPECIAL REPORT: CAPITAL RAISING, LENDING & INVESTING MONEY 27

there are only so many hours in a day. there and there are a huge number of being able to list,” he says. easily on one hand the ones I expect to means there is little analyst coverage and Could Kiwisaver do better? “Unlisted companies are difficult them that specialise in technology or bio- Some very early stage businesses with make any money out of. It’s a hard game. institutional sales support for companies to manage. It does happen but they technology.” a grand plan, such as Xero, will always I completely understand that but it feels entering the lower reaches of the listed From P24 put aside that private equity is more require a lot of time and effort. And the This is only one factor in New Zea- need bullish sentiment to get going. to me they’re completely disengaged from market. The NZX’s NXT market is aimed expensive because the international fund’s size compared with the effort, New minnow land’s capital markets eco-system but it is that side of the New Zealand eco-system at helping bridge this gap but it is off to a vate equity perform as well or better best practice shows in spite of the doesn’t make it look like a good return. significant. “The biggest thing we need is Deeper problem at almost all levels and that’s a shame.” slow start with just four firms listed so far. compared to other classes. illiquidity and the fees there are good growth in the broking investment bank- “But the problem’s a bit deeper in New Unless companies can attract interest Sources say the pipeline is healthy, “It seems KiwiSaver is doing alright. returns from private equity. KiwiSaver Education and diversity investment ing sector,” Mr Gaynor says. Zealand because you can have compa- from the Super Fund or ACC, institutional however, and a couple of capital raisings So I don’t agree about the private equi- funds can’t offer that as an excuse. “The time factor isn’t about choos- “We need some smaller ones. Except nies with $20-40 million of revenue but capital is effectively unavailable, says Mr are likely before the end of the year. ty lack but I don’t violently disagree. “So, maybe the fault is with the ing whether to invest, it’s that once an for McDouall Stuart, which got itself into you’re still not going to get institutional Simmonds, leaving retail investment the “Liquidity is probably an issue system. But in acknowledging all play- investment is made it consumes a lot of bank needed: trouble and was thrown out of the stock support in New Zealand except in the only avenue. “And a lot of these business- Low cost because of the 35-day transfer window, ers behave rationally, one wonders if time. Issues include being a reasonably exchange by Mark Weldon, I can’t think of narrow IPO windows when all the stars es are not really suited to retail investors.” It’s a helpful development – and Mr Sim- and the costs depend on the scheme’s KiwiSaver suppliers in New Zealand are sized shareholder, being asked ques- any really successful start-up investment align and IPOs are working.” However, while institutional investors monds rates New Zealand as “the cheap- size. Members can transfer in and out an oligopoly. Does this cause them to tions and for approvals and potentially Gaynor banker that has made any kind of a major This is not to blame institutions, Mr are not particularly active in the riskier est place you can do a listing on a credible within those 35 days. That’s a disincen- behave in common with each other? being appointed to the board,” Dr attention-grabbing or been successful Simmonds says. They are focused on the end of company financing, it’s not simply well-regulated exchange anywhere.” tive for people to invest longer term. An oligopoly would not be interested in Hampson says. in the past 10 years. I think there’s a huge commercial interests of their investors because they don’t like risk. John Moore of Miro Capital, an NXT Private equity finds it difficult to live changing its ways,” says Mr McKinnon. So should something be done about gap in the market.” and are generally not mandated to con- “A lot of New Zealand investment accredited adviser and NZX sponsor, sees within that limit,” he says. New Zealand’s scale also impacts encouraging more private equity in Tim Hunter Mr Gaynor’s comments were made in sider higher-risk companies. managers don’t invest in smaller stocks,” the size of our capital market as a side But Private Equity & investment choices. Simply put, funds KiwiSaver? Mr McKinnon suggests the context of several small New Zealand “I’m loath to say says Mr Gaynor. “One of the reasons is not issue. “Sometimes at the outset when Association director Colin McKinnon will prioritise larger offshore invest- education is important for investors. The market has a huge gap for an investment companies choosing to seek an ASX list- the government that they’re negative about them but that talking to people [they say] ‘I want to go to asks, if all KiwiSaver organi- ments when chasing better returns. Mr “We also need to think about this bank focused on smaller companies, influential ing, rather than use the NZX or its new should step in they don’t have the broker reports or the Australia because Australia’s a bigger mar- sations are behaving Church says the last thing the industry oligopoly system and encourage diver- fund manager Brian Gaynor says. small companies market, NXT. and tell them to broker coverage so they have to do a lot of ket and therefore it must be better’. Life rationally, looking after needs is regulation stepping in to tell sity among suppliers. Then we have The Milford Asset Management co-founder However, some see New Zealand’s invest in a bunch the work themselves.” isn’t that simple, otherwise there would their own self-interest, people how they should be investing to wonder about the influence of the sees investment banks and brokers as essential public market as tough even for compa- of early stage The trouble is, the institutions’ own be no listings in New Zealand at all, or why is there a differ- their money. “I don’t think it’s a space regulator, and whether the emphasis is infrastructure for companies raising capital but nies with revenue up to $50 million. companies. I’ve analyst resources are often thin. indeed anywhere except New York.” ence between inter- for regulation. The FMA has a robust on low-cost returns rather than open- there are few left with the inclination to support Lawyer Andrew Simmonds, whose invested in 15 or “Investment managers tend to be far “What matters to any company but a national best practice system of oversight and a strong regu- ing the opportunity for a higher cost early stage businesses. firm helped 40 companies raise capital so and I can count smaller [in New Zealand]. They might small company in particular is where you and best practice in latory support framework. Natural supplier to compete.” “We’ve been hollowed out over the years – we last year (and is heading for double that have two or three or four analysts. They are going to get investors who support New Zealand? “We can market forces will manage it but won’t Dr Hampson says for the perfor- used to have a tonne of brokers,” he says. this year), says the New Zealand market is BRIAN GAYNOR: focus on the main stocks and don’t have you, analysts who follow you, with the necessarily solve the private equity mance of individual funds, diversity “Most of the ones left are big brokers and rarely receptive to risky companies. Sees huge time to look at the smaller ones. It’s all to liquidity benefits that both of those things STEPHEN HAMPSON: problem, if it is actually a problem.” may not make a significant difference. investment bankers, so they focus on big “The New Zealand market is only open gap in do with the size of New Zealand.” bring – supportive major shareholders, Unlisted the Powerhouse Ventures managing But for the dual benefit of growth in companies. So you tend to find the smaller for smaller company speculative listings market Again it comes back to the dearth of not fly-by-night, desert-it-as-soon-as-it’s companies director Stephen Hampson points out the economy, “we’re definitely missing companies will list in Australia because there are for very brief periods of time and inter- firms focused on the listed sort of shareholders.” are difficult to manage it’s not laziness influencing decisions out.” far more brokers and investment bankers over mittently. You can go for years without smaller end of the market. Their absence [email protected] not to invest in private equity, rather [email protected]

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