Road to listing offshore harder than the hype

The road to offshore listings for technology companies is usually talked about far too lightly, specialists say. Offshore listings are much more expensive, tricky and 'all-consuming' of time than many companies realise.

The road to offshore listings for technology companies is usually talked about far too lightly, specialists say. Offshore listings are much more expensive, tricky and “all-consuming” of time than many companies realise.

Last year and this year a flurry of small technology companies, among them Zeacom, Orion Systems, 4RF, X-Sol, Pacific Lithium and Doctor Global, announced that they were looking toward an offshore listing within the next 18 months to two years.

Many of these companies say their plans are still on track, though Pacific Lithium's parent company, Ilion, has abandoned its Nasdaq plans and Qixel Capital Group has dissolved itself.

Brokerage DF Mainland’s head of research, Bruce McKay, says many small companies which have entertained the idea see the Nasdaq as “the Holy Grail”.

“But they don’t know what they are talking about,” he says.

Direct Capital's Ross George says: "It's a joke."

Only two local technology companies have ever made the transition to the Nasdaq. The first, MAS Technology, headed by Neville Jordan, did so in 1997 with a market capitalisation of $US250 million, and later merged with Digital Microwave. The second, Brocker Technology Group, is actually a merger of local and Canadian interests, which listed first on Canada’s new capital market and then the Toronto Stock Exchange before migrating to the Nasdaq. The Nasdaq considers it a Canadian company. Brocker is now facing hard times as it struggles to keep its share price above the minimum bid price of $US1 (see Brocker awaits shareholder votes) and currently achieves a tiny market capitalisation of $US8.6 million.

Transport company Tranz Rail is also listed on the Nasdaq by virtue of a dual-listing programme from the NYSE, and Sky Television was on the Nasdaq but pulled out, McKay says. Nasdaq rules are stricter than many realise, both McKay and George say (see Quick guide to listing).

George says his company acted for PC Direct and decided in the end to sell it for stock to a Nasdaq-listed company instead of listing it directly because it was too expensive. Initial entry fees for the Nasdaq run between $US34,000 and $US95,000. But George says including the costs of investment bankers, lawyers and compliance costs pushes the price tag well over $US1 million.

George says they also knew US institutions would ignore a New Zealand company. McKay agrees, saying companies need to realise their operations are at the bottom of the world.

"Unless you prove yourself with a major marketing push in that country, you run the risk of being orphaned on the Nasdaq. No analyst is going to get on the plane to come to a small company to do research,” he says. The same principle applies in Australia. “If you don’t have a lot in Australia to make you look like an Australian company, you’ll be ignored."

Both say companies should list locally first. "The fact is these great growth companies should be put on our own exchange; it is a good exchange but it has just had some bad companies on it in the past," George says, referring to negative feeling about the NZSE.

Brocker escaped having to redo all its accounts using US principles because it was listed on the Toronto exchange. Communications manager Nigel Murphy says that made the path smoother and less expensive than for other companies.

John Cunningham, chairman of Caltech Capital Partners, which has invested in call centre software firm Zeacom and is helping with that company’s plans, says it should be taken as a positive sign that companies are considering initial public offerings (IPOs), because it shows they are thinking about exit strategies - ways to get out of the investment in the longer term.

The road to an IPO may end up with another outcome such as a sale to another company, which companies should consider. But Cunningham notes of those which have announced their listing intentions: “[Those] who are genuine about it will have started the pathway with venture capitalists and investment bankers.”

He says companies need two things: knowledge of the market and networks of people based there. Rules vary from exchange to exchange, he says, but most focus on the range of shareholders, the dollar value of shares and cash in the bank. Companies should also consider the exit price investment bankers are looking for. Early last year investment bankers were looking for exit prices from the Nasdaq (that is, market capitalisation at time of sell-out) of half a billion US dollars – which has since fallen somewhat.

Peace Software is still pursuing a Nasdaq listing and has hired an equity specialist to help. Peace has found the main costs lie in professional services (lawyers, auditors), compliance with accounting laws and multimillion-dollar marketing roadshows, says PR spokesperson Sally Raudon. Peace has found a rough rule of thumb is that a Nasdaq listing costs around 7% of the total value of capital raised.

Conduit, the e-commerce spin off of distributor Renaissance, is still following a goal of a listing on the Singapore Stock Exchange in the first half of this year, says chief John Hayson. Conduit chose Asia because it was targeting that market and its major investor, Acma, is based there and willing to back it, he says, and US markets were discounted early in the process. Singapore was also more stable and cheaper than the Nasdaq, he says.

Hayson says other technology companies shouldn’t underestimate the importance of getting their own house in order first and the value of local contacts.

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