The Australian Securities and Investment Commission (ASIC) has intervened on plans for a back door ASX listing by tech accelerator and investor Scalare Partners, concerned that the proposal doesn’t comply with disclosure laws.
Scalare announced back in May that it would go public in a reverse takeover of confectionery maker Candy Club Holdings (ASX: CLB).
But the corporate regulator intervened today to place two interim stop orders on Candy Club over the prospectus lodged on August 21 for Scalare, which is looking to raise up to $8 million at a market capitalisation of around $26 million, as well as the target market determination (TMD) prepared by Candy Club in connection with the offer.
A TMD is a legal requirement for investments that sets out the class of consumers a financial product is likely to be appropriate for (target market).
The interim stop orders prevent Candy Club from offering or issuing securities under the Prospectus; and dealing with interests in Candy Club, giving a prospectus or providing financial advice to retail clients under the existing TMD.The stop order is in place for 21 days unless revoked earlier.
Candy Club is currently suspended from trade.ASIC said it was concerned that the Prospectus did not adequately disclose all of the required information under the Corporations Act, including Scalare’s proposed expansion into the United States, including potential risks and whether the company needed to raise additional capital to do that.
The markets cop also raised concerns around the valuation and performance of underlying investments in Candy Club’s portfolio on completion of the Offer, including how each of the underlying investments will be valued and how a dollar value will be attributed to qualitative valuation measures.
ASIC said Candy Club had not prepared a TMD when the prospectus for Scalare’s back door listing was issued, and when it was lodged, was concerned with it was deficient and did not comply with Part 7.8A of the Corporations Act.
“ASIC made the interim stop order to protect retail investors from potentially investing in an offer that may not be suitable for their financial objectives, situation or needs,” the regulator said in a statement.
When Scalare Partners revealed its plans to go public, the company said it would “allow Australian retail investors to gain exposure to a unique, existing portfolio of 28 companies as well as its growth services-based revenue business”, as an alternative to being a sophisticated investor.
Currently there are two locally listed venture companies: Bailador Technologies (ASX: BTI), which recently backed fintech Dash in a $22 million raise and $20 million on telehealth platform Updoc; and Touch Ventures (ASX:TVL), which has struggled in recent years, having split from Afterpay, followed by the departure of its CEO earlier this year.
Touch listed this time three years ago, raising $100 million for its IPO at $0.40 cents a share.
Today Touch shares are worth $0.07 cents and its investment portfolio $24.6 million. The VC booked $15.4 million loss in 2023, a net loss of 2022’s net loss of $65.2m in 2022, and last month announced a $25.4 million for the six months to June 30, having been forced to right down its investment in BNPL Postpay by $10.9 million, and its investment in delivery service Sendle by $14.6 million just $1.8 million, after Sendle raised capital in July 2024, at a pre-money equity valuation of US$60m as preferred equity, which ranks ahead of existing shares, cutting the value of previous investments.
Scalare, which has investments in 27 startups, including MyPass, frankieone, WithU, says it differs from listed investment companies (LICs) and venture capital because its predominantly a fractional services revenue business offering products and services to early-stage companies.
Earlier this year, the company acquired the Tech Ready Women academy, and also runs the the Australian Technologies Competition.
CEO Carolyn Breeze said in May that: “We believe that the risk of investing in these speculative early-stage technology companies is significantly offset by the unique services model that Scalare provides across the wider technology ecosystem, while still allowing for the potential significant upside of being involved so early in the company’s scaling journey.”
In a statement issued following ASIC’s interim stop orders, a Scalare spokesperson said the company sources revenue from multiple streams “including investment returns from its portfolio of companies, gains from business exits, fees for conducting fractional products and advisory services, memberships for its events and organisations, and capital raising.”
The spokesperson said: “The company is currently providing the regulator with more information on growth plans in the US and how its companies are valued as part of the normal regulator interaction at this stage of the listing process.”
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