AX makes listing easier for smaller companies

By Graeme Kennedy

Friday 29th August 2003

New Zealand Exchange's AX board will offer many advantages to smaller companies seeking access to capital but listing will not suit everyone, says Ernst & Young's new divisional corporate finance director, Jim McElwain.

The AX board, due to open in November, would target firms with turnovers of about $50 million by reducing listing costs and providing more flexibility in how they could raise capital, including issuing new shares to fund mergers or acquisitions, Mr McElwain said.

"The AX has stimulated interest among smaller companies in listing and started healthy debate to make them think about other options of raising money rather than borrowing or placing equity with private investors.

"But it is not everyone's cup of tea. A lot of people get used to owning and managing their companies, while listing is very transparent and in narrow business segments profits and performance are exposed to the market and competitors.

"Listing is a very public process and not everyone is comfortable being in the public glare, especially smaller companies it is like being in a goldfish bowl.

"Business has its ups and downs and is great when things are going well but when the share price falls it is not much fun."

Mr McElwain (45) is finance director of Ernst & Young's entrepreneurial services division, which advises ambitious companies on raising capital for growth through debt, equity and strategic deals such as mergers, acquisitions and divestments.

Its clients range from those with a turnover of several million dollars to those with $100 million.

A former PricewaterhouseCoopers investment banking director, he said banks were now more prepared to lend on cashflow rather than assets as successful businesses might not depend on land and buildings for security as they did in the past.

"Banks are lending to companies with smart ways of doing things and getting results," he said. "But a discipline when trying to raise money from bankers and other investors is to document a plan for the way ahead and groom the business ensure it's ship-shape as you would when selling a house.

"Often a small business owner knows where he's going but the key is to clearly communicate that to get the investor's confidence banks hate surprises."

Mr McElwain said New Zealand businesses needed to be more comfortable about sharing ownership to help them grow and achieve other goals such as entering offshore markets where offering equity to a distribution partner could help sell products overseas.

"There should be more of this sort of sharing," he said. "Small businesses need people who can help open doors and have the contacts to take great New Zealand ideas to the world and without them they might not achieve their potential.

"There is no lack of cash but a shortage of people with well-packaged ideas prepared to share the risk and return."

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