Banker: Regulation impairing public market

Steve Rosenbush

Michael Moe

During a recent conversation, tech banker Michael Moe argued that the Sarbanes-Oxley era of heightened regulation is strangling smaller public companies. Moe, the CEO of ThinkEquity Partners said the number of IPOs averaged 550 a year during the late '90s. There were 242 last year, according to Moe. He says Sarbanes-Oxley is the biggest reason why the number of IPOs has dropped. The law, passed in the wake of scandals at Enron, WorldCom and other big companies, boosted the disclosure requirements for corporate America. Here are edited highlights of our talk:

Is regulation really the main factor in the pace of the IPO market? Or are cash-rich buyers picking off small companies before they go public?

I think Sarbanes-Oxley is the most horrible impediment to going public and staying public. What people don't realize is that the median market value of the Nasdaq is $180 million. There are thousands and thousands of companies with a market cap below $1 billion. And Sarbanes-Oxley imposes an enormous tax and burden on them.

The intent was to protect the public. But the reality if that it's created a disincentive to going public. If you look at alternative markets in London and Vancouver, (IPO activity) is much stronger. They don't have the same regulatory issues.

How much money does it cost to comply with Sarbanes-Oxley?

The average cost is, let's say, $2 million. That's money that could otherwise be spent growing the business. Now it's gong to accounting firms. It's not producing an economic good. Bottom line, I think the number one impediment to companies going public today is Sarbanes-Oxley.

What are the consequences of a relative slowdown in IPOs?

The public markets are starved for growth and innovation.

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