IT firms seek capital in tough times

Several New Zealand IT companies are in capital-raising mode at a time they acknowledge is not the easiest to drum up funds.

Several New Zealand IT companies are in capital-raising mode at a time they acknowledge is not the easiest to drum up funds.

Employee monitoring software developer CommSoft is planning a two-for-one rights issue for existing shareholders worth $A2.9 million and payment terminal provider Cadmus aims to raise $7.5 million in secured notes by the end of the year.

CommSoft is also listed in Australia and quotes its financial results in Australian dollars.

Both companies’ fundraising efforts follow private placements of, in Cadmus’ case, $1 million worth of shares earlier this year and, by CommSoft, $A2.2 million in August 2001 in shares and convertible notes.

CommSoft managing director Mark Lunt says the rights issue was planned after feedback from ordinary shareholders after last year’s private placement that they would support an issue open to all shareholders the next time the company needed to raise capital. “The feedback was that they wanted the company to go to the shareholders next time.”

Lunt is confident the issue will be supported by the existing shareholders. “It’s under-written to $1.1 million and we believe there will be significant take-up above that figure.”

CommSoft needs the money to continue developing overhauled sales channels in Britain and new ones in the US, Lunt says. “We’ve sustained quite big losses in the past 18 months that weakened the company’s balance sheet and capital reserves.”

The company shed two-thirds of its existing staff last year but things are getting better, Lunt says, with the losses much reduced in the second half of last year.

Cadmus managing director Ian Bailey says the secured notes issue, announced last month, will remain open another nine months and he is confident most of the $7.5 million sought will be raised. The money will go towards international expansion of the company’s Eftpos terminal business, Bailey says.

Both Bailey and Lunt agree raising funds is less easy now than at the height of the tech boom and say potential investors are demanding more information.

One recent capital raising has failed to meet its set goal — online betting provider Feverpitch’s SPO — subsequent public offering — netted just $650,000, less than half the $2 million it had sought. The company’s first offering was 40% oversubscribed.

The company is listed on the new capital market, not the main board as CommSoft and Cadmus are, but managing director Derek Handley doesn’t believe that was a reason for the shortfall. “I don’t know if it would have made much difference [if Feverpitch had been on the main board] — I don’t think the market has the appetite for the risk, or perceived risk.”

Feverpitch will look at private placements locally and overseas to get the funding, he says.

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