Listing your company on the NXT is a big step that can reap huge rewards. the process to getting there however requires dogged persistence, due diligence and a significant dose of patience. We chatted with Tim Preston to see exactly what it takes to get your company ‘list-ready’.
So you’re thinking of listing on the NXT. Well done – you’re ahead of the game!
Established in June this year, the NXT is the golden ticket for New Zealand SMEs whose growth potential may be constrained by a lack of expansion capital.
Listing your company enhances its international visibility and makes it a more attractive investment opportunity with regard to the liquidity and governance that being listed provides - this ultimately makes it easier to secure new equity and debt.
Putting your company on the NXT also allows major shareholders to realise their investment at an appropriate time at public market multiples which are generally higher than private market valuations.
However, if being listed is the oasis then getting there can be a bit like walking through the desert.
Tim Preston, Principal at CM Partners and a foundation NZX broker, says the key to getting listed is to start the process early as the process is very procedural and rigorous.
“Depending on the company, the listing process can take anywhere from 3-4 months to 2 years.”
“It takes time and you need to clearly understand what is required to execute a listing strategy. Be clear why you are listing and if raising capital, know exactly how much you need to raise and what it will be used for.”
Preston says it’s essential to have a thorough due diligence process and create a listing document (PDS) that investors can understand. This entails a well-articulated story and strategy, relevant key metrics, and a financial section that is easy to follow and well set out.
According to Preston, there are some key points that must be reached in order to ensure smooth sailing of the listing process.
“You need to establish a timeline, execute well and do your due diligence”.
Establishing a timeline
You need to be clear on your timetable as this is crucial to tick off defined milestones. Ensure that everyone involved in the process is also clear on his or her roles and deliverables to stay on track.
The key to this part is to choose an investment advisory partner that understands your business, says Preston.
“It’s important that any analyst engaged on the project has relevant business and industry experience.”
Confidentiality is another hot topic – your internal and external communications need to be kept tight and you should restrict information to a “need to know” basis.
Many companies underestimate the amount of time and resources it takes to prepare a company to be taken to the capital markets. Every part of the business comes under the microscope and all information needs to be tested and validated.
There are obvious costs involved with doing all this but the end result is transformational and usually defines an essential next stage of evolution for many corporates.
Preston offers a reminder that you also need the right skill set in the legal and financial areas as every single number, fact and statement needs to be verified.
When it comes to creating documents, version control is paramount. You need to understand “who has the pen” at all times and make sure you’re working on the latest version. Key metrics and investment highlights make your numbers real and offer the confidence that you can deliver on them. And remember – verify, verify, verify!
When trying to attract investors with a roadshow it requires a significant amount of senior management focus and time. It’s important to have a well- articulated story for everyone and be prepared to discuss valuation at length.
At the end of the day…
Preston says getting listed comes down to execution, commitment, timing and resources. Have the tenacity to set a timeline and actively try and stick to it but be realistic. It can take up to two years to complete the process but the gains of being a listed company are significant. Stick with it and give it everything you’ve got!
The NXT Market
Established: June 2015 and operated by NZX. Targeted at small to mid-sized New Zealand businesses whose growth potential may be constrained by a lack of expansion capital.
Structure: Structural changes in New Zealand’s capital markets have allowed the development of the NXT market which is more appropriate to the scale of businesses involved. Ideal for companies with an enterprise value of between $10m and $60m.
Disclosure: NXT companies must provide quarterly business updates to the market and immediately disclose events detailed in a prescribed list. NZX main board companies operate in the prevailing continuous disclosure environment.
Guidance: NXT companies must forecast and report against key operating milestones (KOMs) every quarter.
Directors: Boards with up to seven directors must have at least two independent directors.
Shareholders: NXT companies must have at least 50 shareholders of which “members of the public” must hold not less than 25% of the total number of shares on issue.
Listing Rules: NXT's listing rules are intended to be shorter and easier to navigate than the main board listing rules.
Provision of Market Making Services: All companies listed on the NXT will receive market-making services provided by First NZ Capital.
Independent Research: All companies listed on the NXT will have independent research reports done as part of their initial and annual listing fees. This includes an initiation report, follow up reports after the release of the half year and full year results and ad hoc other reports where applicable.
What companies should look at the NXT:
• Enterprise value between $10m and $60m
• Revenue base in range of $5M to $50M
• Competent management team
• Clear business strategy
• Sustainable business model
• Attractive market opportunities
• Sound execution capability
• If not EBIT positive, a path to profitability in 1 to 2 years