capital raising via assob

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Australian Small Scale Offerings Board Outline of capital raising process April 09

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Australian Small Scale Offerings Board

Outline of capital raising process

April 09

1

Equity raising alternatives

• Locate a strategic business partner / investor

• Time consuming and high risk process

• Bargaining power on equity pricing strongly in favour of investor

• ‘Cap in hand’ approach to investors

• No certainty in the process

• Raise capital through a public offer via a prospectus or Offer Information Statement (OIS)

• Expensive: $100K to $200K up front to prepare a prospectus

• Slow: At least six months audited accounts required for the preparation of a disclosure document

• Time consuming: Six months lead time in setting the business up for a disclosure document

• Raise up to $5 million in a small scale offer through the Australian Small Scale Offering Board

(ASSOB)

• Minimal up front costs

• Quick access to capital raised (77% of all ASSOB matters raise capital within three months)

• Access to distribution network: 7,500 professional investors on ASSOB data base will receive notification of

the opportunity (as well as the Tauro Capital and Bourse Communications network of 2,500+)

• Ability to raise additional rounds of capital every 12 months

• Sets the business up for a subsequent capital raising via a disclosure document by

establishing audit and governance disciplines

2

Why use Tauro for an ASSOB

capital raising?

• Access to Tauro Capital and Bourse Communications network of 2,500 professional

and sophisticated investors

• Back office corporate advisory support

• Financial modelling and forecasting

• Equity valuation and peer benchmarking (using Capital IQ database)

• Industry specific focus

• IT software and services

• Facilities management & waste management

• Environmental and facilities services

• Industrial project management & construction management

• Recruitment & labor hire

• Agribusiness

3

Equity raising – compliance

regime

Personal offers. 20/12 rule. Section 708Affordable & quick but limited to $2m & 20 investors per year

Requires expertise/experience

Offers made under disclosure

(Offer Information Statement or Prospectus)Requires lawyers, accountants and advisors.

Is far more expensive. Usually $110k or more.

• The ASSOB capital raising process is sanctioned in Corporations

Act 2001under its own ASIC class order (C O02/273)

• ASSOB capital raisings are not made under disclosure. They are

personal offers made to no more than 20 investors for amounts

not exceeding $5 million (ASIC have granted ASSOB an

extension to the $2 million limit placed on the general public).

• The 20 investor limit does not apply to overseas or sophisticated

investors

• Because no disclosure document is required, the process is

relatively inexpensive and quick to execute.

• Companies executing an ASSOB capital raising are required to

adopt high standards of corporate governance and reporting:

• Issuers must be unlisted public companies that prepare

annual audited accounts

• Issuers must have a minimum of three company directors

with the majority non-executive directors

• Issuers must present investors with a proper business plan

and report regularly on the achievement of performance

milestones

• Directors and senior managers are subject to bankruptcy

and police checks to ensure only quality professionals

are entrusted with shareholders’ funds

• A personal offer excludes any offer made to the

public via an advertisement

• The compliant way to market an ASSOB offer

involves:

• Informing people the issuer is undertaking an

ASSOB capital raising. This can be done

through the media, at a public event

• Directing interested parties to the ASSOB

issuer page. This can be done via a link from

the issuer’s website or through the ASSOB

member responsible for project managing

the process (Tauro)

• Running investor meetings with interested

parties. Attendees execute a qualifying

statement at the beginning of the meeting

• This approach is fully sanctioned by ASIC

4

Equity raising – compliance

regime

Section 708 : You must get it right

• There are specific regulations relating to raising funds without a disclosure document.

• Most lawyers and accountants don’t fully understand this area of the law.

• ASSOB specialises in assisting companies under this area of the Corporations Act and can provide certain exemptions, through the Class Order, that allow you to do things that you can’t do without ASSOB.

• Many businesses attempt to use s708 of the Corporations Act to fund the needs of their business. Most get it wrong or fail.

5

Raising capital on the Australian

Small Scale Offerings Board

• Who is the Australian Small Offering Board?

• ASSOB is an exclusive membership based platform for growing businesses to raise capital

from professional investors

• Companies can raise up to $5 million per annum on ASSOB without incurring the time and

financial cost of preparing a disclosure document

• Investors and founders can sell their shares on a secondary market run by ASSOB

• Matches high quality investment opportunities with high net worth investors

• Platform has proved to be extremely successful in raising capital since its inception in 1997

• Companies can only can only access the platform through a accredited ASSOB member

• The ASSOB capital raising process is sanctioned in Corporations Act 2001under its own ASIC

class order (C O02/273)

6

Current ASSOB clients – a snapshotThe graphic below is a screen grab from ASSOB’s primary issue page, which can be seen by all ASSOB members and new interested parties directed to the ASSOB website

ASSOB matters are listed on the web, all 7,500 investors on the database can track the status of each capital raising...

Competitive tension is generated by conducting the raising in ‘rounds’ at different prices. Shares are issued at a

discount in earlier rounds giving early participants a better deal creating an incentive for investors to get on board early

The red squares indicate that a parcel of shares has been purchased by

an ASSOB investor. Each investment round has it’s own row.

Interested

investors can

move to a

dedicated issuer

page by clicking

here. From that

page they can

download the

offer document.

7

Company profileInvestors follow a link from the primary issue page (as shown on the previous slide) and are then taken to a corporate profile page containing a summary of the opportunity, a download icon for the offer document and a short movie introducing the opportunity

ASSOB have found from past experience

that short mpeg movies that profile the

business and the directors result in higher

investor uptake of the opportunity

The investment fundamentals (exit strategy,

estimated future earnings, available

investment parcels) are highlighted to giver

educated, professional investors access to

fundamentals driving their investment

decision

Investor enquiries are entered here and

sent directly to the ASSOB member running

the process

8

The ASSOB Secondary MarketAll ASSOB investors (as well as the original founding shareholders) can offer their shares for sale on a secondary market. This provides investors with an early exit mechanism if they do not wish to wait for a major liquidity event.

The ability to trade in and out of shares on a secondary market is extremely attractive to investors in early stage and

growing enterprises. Investors in unlisted businesses rarely get this opportunity but the ASSOB platform makes it possible.

It is also possible for founding shareholders to release equity through this mechanism (although not during a capital

raising)

The status of each secondary offer is listed here. It’s interesting to see that nearly all

secondary offers listed on the Board have been sold!

The ASSOB

member (in this

case Tauro

Capital) is

responsible for

managing all

secondary market

transactions.

9

Outline of proposed process

• Prepare for the capital raising process

• Prepare ASSOB compliant information memorandum

• Prepare triple bottom line financial model and forecasts to be used in IM

• Prepare capital raising structure and equity raising plan satisfactory to the client and ASSOB

• Develop short form business plan supporting financial model

• Set up appropriate audit and corporate governance arrangements in the business to ensure the business is

compliant with ASIC and ASSOB capital raising requirements

• Map out the capital raising by a staged process aimed at creating competitive tension with investors in a summary

document – the Strategic Growth Plan (SGP)

• Execute the capital raising

• Submit application to raise equity capital to ASSOB (capital raising structure and strategic growth plan included)

• ASSOB approve strategic growth plan and information memorandum

• Pre-marketing of the opportunity to sophisticated investors

• Matter goes live on ASSOB primary issue board

• All in bound calls from interested parties handled by Tauro Capital

• Applications for share subscriptions received by Tauro Capital

• ASSOB issue share certificates and release funds to the client

• Periodic review of progress of capital raising with the client every two weeks

• Remain on ASSOB for future capital raisings or move to disclosure document

10

Capital raising pre-requisitesIn order to complete any restructure or capital raising you

will need:

• A compelling growth story

• No-one invests in a company unless it is growing, even if the buy-in valuation is low

• How does existing management intend to grow the business?

• Development plan to include key performance milestones

• Well considered and reasonable exit timeline and mechanism

• Suggest 3-5 year exit timeline (typical preference for expansionary equity capital providers)

• Exit strategy to be trade sale (if maintainable EBIT > $3M but less than $6M or IPO (if maintainable EBIT > $6M))

• A quality offer documentation supported by thorough analysis

• Overview business plan and financial model

• Offer document

• Investor presentation

• Transaction documents

• The appropriate investment vehicle

• Listed or unlisted public company which publishes audited accounts

• Ideally a secondary market for investor’s shares

• Best practice governance structure in place

• The right board and management team

• Majority of independent non executive Directors

• A compliant, legal, well managed capital raising process

• ASIC penalties for non-compliant public offers are severe (money refunded to investors, investment

vehicle wound up, criminal and civil penalties on office holders)

11

Why use ASSOB as a platform for the

restructure?

• Maximise chances of success – proven track record

• In 2007, 77% of all opportunities listed on ASSOB are successfully raised capital within 3 months

• Maximise client’s interests

• Corporate valuation can be linked to future earnings streams and exit value

• Not a ‘cap in hand’ approach – investors compete with each other to receive a better deal by

participating earlier in the process

• Maintain control over the business

• Unlikely that any individual investor would have a significant shareholding

• ASSOB investors tend to be passive rather than active

• Flexibility

• Founders and investors can offer their shares for sale on secondary ASSOB market

• ASSOB platform provides ability to offer subsequent issues to finance capital purchases or acquisitions

• Speed

• The raising could be completed in as little as 3 to 5 months from commencement of this engagement

A selection of our recent

mandates

12

OUR CURRENT & PENDING MANDATES

Current mandates and transaction

services

Transaction

Date

Enterprise

valueClient Type

Valuation of

opportunity

Market

Opportunity

Project

manage due

diligence

Conduct final

negotiations

Oversee

settlementStatus

Approximate

duration

Acquisitions

Application software (education) Dec-08 $15 million Private √ √ √ √ √ completed 5 months

Application software (accounting) Nov-08 $12 million Public √ √ √ √ √ completed 3 months

Applications software (accounting) Jan-09 $12 million Public √ √ √ √ √ ongoing 5 months

Facilities management Jan-09 $60 million Private √ √ √ √ √ ongoing 6 months

Divestments

Agribusiness Dec-08 $18 million Private √ √ √ √ √ ongoing 12 months

Business advisory

Electrical manufacturing services Jan-09 $8 million Private √ √ √ √ √ ongoing 4 months

Application software (education) Jan-09 $15 million Private √ √ √ √ √ ongoing 14 months

Capital raising

Food processor Jan-09 $10 million Private √ √ √ √ √ ongoing 4 months

Food & wine technology Feb-09 $9 million Private √ √ √ √ √ ongoing 5 months

Real-estate franchise Feb-09 $20 million Private √ √ √ √ √ ongoing 4 months

Application software (accounting) Feb-09 $12 million Public √ √ √ √ √ ongoing 5 months

Childcare services Feb-09 $14 million Private √ √ √ √ √ ongoing 5 months

The senior members of your advisory team

Simon Ward

Managing Director

P: +61 3 8602 8888 F: + 61 3 8602 8899

E: [email protected]

Relevant sector experience Professional credentials

Aged care Bachelor of Commerce (Melb)

Facilities management Masters of Applied Finance (FINSIA)

Fellow of FINSIA

Relevant project experience

Public and private company divestments and acquisitions

Public company acquisition search mandates

Public and private company corporate valuations

Corporate restructures and employee incentive programs

Relevant recent transaction experience

Acquisition program – Frigrite Limited (ASX:FRR)

Industry: Asset & Facilities Management (Refrigeration & HVAC)

FY08F Revenue = $160M, EBITDA = $8.0M

Divestment– National labor hire and recruitment company

Industry: Blue collar labor hire and engineering services

FY08 Revenue = $40M, EBITDA = $2.5M

Divestment– VIC based IT services recruitment company

FY08 Revenue = $20M, EBITDA = $2M

Chris PattendenAssociate

P: +61 3 8602 8888 F: + 61 3 8602 8899

M: +61 413 595 749

E: [email protected]

Relevant sector experience Professional credentials

HVAC & Refrigeration Bachelor of Arts (VUT)

Waste managementGraduate Diploma Applied Finance

(FINSIA)

Associate of FINSIA

Certificate in Business (VUT)

Relevant project experience

Public and private company divestments and acquisitions

Public company acquisition search mandates

Public and private company corporate valuations

Corporate restructures and employee incentive programs

Relevant recent transaction experience

Acquisition program

Industry: Refrigeration & HVAC

FY2008 EBITDA: $5.1M

Acquisition– (recently completed)

Application software (accounting)

FY09 revenue = $120 million, EBITDA = $7 million

Acquisition– (recently completed)

Application software (education ERP)

FY09 revenue = $12 million, EBITDA = $3.5 million

Simon Ward Chris Pattenden

Managing Director Associate

Tauro Capital Partners Tauro Capital Partners

Level 8, 410 Collins Street Level 8, 410 Collins Street

Melbourne, VIC 3000 Melbourne, VIC 3000

Ph: (03) 8602 8888 Ph: (03) 8602 8888

Fax: (03) 8602 8899 Fax: (03) 8602 8899

Mobile: 0422 380 810 Mobile: 0413 595 749

Email: [email protected] Email: [email protected]

Web: www.taurocapital.com.au Web: www.taurocapital.com.au

Contact us