NXT-listed G3 Group uses equity crowdfunding marketplace to raise funds

G3 Group Limited (G3), the first company to list on the new NXT market 15 months ago, is raising up to $3m to fund further acquisitions as it expands its product range and increases share of its chosen markets.

The offer at $0.75 per share went live yesterday, and is being made available to the public through Snowball Effect. This is the first time that a listed company has used an "equity crowdfunding" marketplace to raise funds in New Zealand.

Here's a summary of the key parties involved, and why this is an interesting development for New Zealand's capital market.

Background to G3

G3 assists businesses, including a growing international customer base, to manage their data, documents, and customer communications, deploying new technologies for maximum reliability and efficiency. G3 began life 10 years ago as a small domestic provider of business mail services under the New Zealand Mail brand. Through a series of acquisitions, including Pete's Post and Fastway Post, it now commands annual sales of over $40m and across its chosen markets of NZ, UK, and Australia.

The offer is for up to $3 million by way of new ordinary shares at $0.75 per share listed on the NXT Market. This represents a 6.25% discount to the last traded market price. The capital raised will be leveraged with cash reserves and bank debt (as appropriate) to fund acquisitions in targeted growth markets. Click here to view the offer.

NXT Market

NXT is a stock exchange designed for small and mid-sized companies. It is owned and operated by NZX. G3 was the first company to list on NXT, and is now accompanied by Marlborough Wine Estates Group, Oceania Natural, and Snakk Media.

NXT provides a cheaper and simpler alternative to the NZX main board for growth companies by reducing the complexity of the listing and disclosure rules.

Snowball Effect

Snowball Effect has facilitated around 70% of the equity crowdfunding market in New Zealand, and has amassed an investor audience of more than 10,000 investors in 2 years. The marketplace helps cash-hungry growth companies raise capital from the public, or from its network of high net worth investors, many of whom seek active involvement within the businesses they invest in. This new distribution channel enables companies to raise funds efficiently, and provides investors with a simple way to discover and invest in growth companies.

G3's offer will mark another milestone as the first time that a listed company has used an "equity crowdfunding" marketplace to raise funds in New Zealand.

Why is a listed company raising funds through an equity crowdfunding marketplace?

Listed companies are required to comply with ongoing disclosure obligations, which provide investors with recent information regarding the historic and expected performance of each company. Given the ongoing disclosure, listed companies have much simpler regulatory requirements when offering securities (such as shares) that are the same as its securities which are already listed. This generally makes it easier to raise funds by issuing new shares.

Despite the legal and disclosure obligations being simplified for a listed company, the economics are still difficult for a raise of this size in New Zealand. The large brokers provide the key distribution infrastructure to investors in the capital market, but a raise of this size is too small for the large brokers to participate in. Given the lack of distribution infrastructure to support a small public offer, companies raising small amounts are typically forced to consider private funding channels. They often end up looking for local high net worth investors or offshore investors. The capital raising process can end up being expensive and lengthy, and there is significant opportunity cost as management focus is diverted away from growing the business.

The aim is to use Snowball Effect as a simple and efficient channel for G3 to distribute its offer and tap into New Zealand's capital market.

Snowball Effect launched the first equity crowdfunding offer in New Zealand in August 2014. Over the past 2 years it has evolved into a marketplace for a range of offers, including public, private, and wholesale investor offers. G3's offer is not technically an equity crowdfunding offer because it is not relying on the equity crowdfunding regulations. However, it is using Snowball Effect's marketplace as an efficient channel to reach a wide investor audience.