Speaking at the HLB Mann Judd partners' lunch earlier this week, corporate advisory partner Nicholas Guest spoke about changes to the ASX listing rules late last year and the change in approach from ASIC as the regulator of capital markets.
“Last year [ASIC] released a report on the due diligence approach in the lead-up to IPOs,” Mr Guest said.
“The general theme from that was that they have some concern around some of the smaller IPOs and the quality of those businesses and how they have transpired and performed.”
Mr Guest said the analysis concluded that the businesses that underperformed had some gaps in their due diligence processes.
“Consequently we're now seeing a much closer focus from ASIC as the regulator in the lead-up to any capital markets transactions,” he said.
Mr Guest added that changes have also been made by the ASX.
“Early last year and in 2015 there was quite a large number of small companies coming onto the ASX, and that's resulted in the ASX tweaking their listing rules,” he said.
“The main focus of the ASX is to ensure the quality of the businesses coming onto the market and trying to protect the integrity of the ASX, so I think we'll see a lower volume of transactions in the early part of this year.”
Mr Guest said that this somewhat contradicts the government's seemingly supportive attitude to innovation.
“Where it is interesting, though, is when you overlay it with the general themes coming out of the government over the last few years around innovation and trying to support innovation,” he said.
“Then what you see is that they're actually making it harder for some of these businesses to seek and source capital from markets.”
Mr Guest concluded that accountants should encourage and educate SMEs to look at alternative forms of capital raising.
“Any genuine start-up with a great idea, great business, I think is seeking funds, whether here locally or from overseas,” he said.
“I’m not so concerned because a lot of funding can come from venture capital or venture funds.”