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Australian Securities Exchange blocks Guvera IPO

By | Published on Monday 20 June 2016


Expect plenty of speculation about the future of streaming music company Guvera this week, following the news on Friday that the Australian Securities Exchange has blocked the firm’s bid to float, despite said bid being approved by the Australian Securities And Investments Commission.

As previously reported, when Guvera announced its plans for an IPO last month, the prospectus it published set out in black and white just how challenging it is to get a streaming music service off the ground. Despite an attempt to position Guvera as being akin to a “major social media platform … positioned … to take advantage of the mobile advertising explosion”, it was very hard to look beyond the debts that any new investors’ money would be used to settle, not to mention the ongoing legal battles.

Many in the Australian investment community questioned whether the streaming firm should be allowed to list at all, given the debts, low revenues and high losses, with the Australian Shareholders’ Association dubbing the business a “lemon”. A revised prospectus was rushed together to overcome some concerns, though – ABC reports – it still revealed that the business would owe lenders $14.5 million even if it managed to raise the minimum of $50 million the IPO was setting out to achieve.

Although the ASIC green-lighted the revised prospectus, on Friday the ASX wrote to Guvera stating that: “We write to advise that the ASX has exercised its discretion to refuse the applicant admission to the official list. The ASX must be satisfied that a company is appropriate to be listed on ASX and can exercise its discretion to refuse admission even where a company otherwise satisfies all of the specific conditions for admission”.

Responding to what is a highly unusual decision on the ASX’s front, Guvera told reporters that the stock exchange had offered a meeting to discuss its thinking, and that meeting could take place this week. Meanwhile the digital music firm told reporters that it is “currently reviewing its legal options and obligations and will be communicating to the market when it is more informed about the position and course of action the company can take”.

Either way, it’s an undeniable blow to the streaming music firm and anyone who has so far pumped money into the company. Not least because, by attempting the IPO route, Guvera has confirmed its precarious position, and made it much harder to justify the argument previously put forward by management there that rivals in the streaming music space had given up too quickly on the ad-funded side of the business.

Guvera’s problematic IPO attempt follows Deezer’s decision to abandon its plans to float on the French stock exchange last year. And although that wasn’t quite so dramatic as this debacle, Deezer too had to formally set out the challenges it faces before pulling back from its IPO bid. Deezer, at least, could fall back on some existing well-funded investors. But many will wonder whether these two incidents will have any impact on plans by the market leading streaming service Spotify to likewise IPO.

The streaming music start-ups all need significant scale for their business models to work of course, and Spotify is much further on in terms of achieving that scale than any of its competitors. Which means that Spotify, when it floats, will be looking for investment to help maintain rather than kickstart the crucial up-scaling.

Although it remains unknown as to just how much scale a Spotify needs to achieve to go into profit, and whether that is actually achievable. What Guvera seemingly confirms, is that even if that scale is achievable, only the minority of start-ups in this space will likely achieve it.