'Going Public' means different things to different people. For the entrepreneur it's the capital injection to take the business to dizzy heights. To investors it's the pot of gold at the end of the rainbow. While the big players strut their stuff on the ASX, the alternative investments markets offer middle market businesses big opportunities to raise awareness and capital for growth. Sid Subbrahmanyam reports.

In 1996 Sigma Company Limited, one of Australia's leading pharmaceutical companies, was caught in a bind. It wanted to raise capital, but listing on the Australian Stock Exchange (ASX) would mean a loss of control by the current owners, a co-operative of pharmacists, under the ASX 'one share, one vote' rule.

Martin Ryan, founder of Austock Brokers, resolved the catch-22. He created a structure where Sigma could issue non-voting 'investor shares' to external investors. That way, Sigma would get the capital, the pharmacists retained control of the business and the market could trade investor shares, albeit outside the conventional trading environment of the ASX.

Such was the beginning of Australia's first 'exempt market', a low-volume financial market exempt from the licensing rules otherwise required by the government.

Austock went on to become the most successful exempt market operator in Australia, listing 22 companies with a total turnover of $500 million, and has since transformed the structure into the Australian Pacific Exchange (APX).

Growing Pains

Raising capital is the bugbear of many growing businesses. Local enterprises conventionally use debt rather than equity to raise capital. However, debt capital comes with high risks attached, such as the possibility of losing pledged assets like the family home or the business itself.

Equity capital has fewer penalties for failure, although it requires a higher investment resource. The most common method of gaining equity capital is to list with a stock exchange. Public listing not only raises capital for the business, but also increases the profile of the company.

Listing on a stock exchange is traditionally associated with larger corporations seeking to extend their market profile. But, does size really matter? Not anymore. Alternative stock exchange markets have been designed to enable small-to-medium enterprises (SME) to raise equity via a public company listing. These markets recognise the fact that SMEs drive a huge portion of economic growth and require a platform for strategic investment opportunities. The Bendigo Stock Exchange (BSX), Stock Exchange of Newcastle Limited (SENL), both operated by the Newcastle Stock Exchange Limited (NSX), and the APX are alternative markets tailored to address the needs of SMEs.

To list on the ASX, a company must satisfy a number of regulatory requirements, including either a $10 million market capitalisation, $2 million in net tangible assets or $1 million in profits. Moreover, a minimum spread of security holders must be achieved; significant hurdles for an SME seeking an initial public offering (IPO) on the ASX.

Martin Ryan, now Managing Director of APX, says the APX was specifically designed to accommodate the various needs of different companies.