New Issues Examined
1st April 2010, Nick Britton, Growth Company Investor
AIM’s latest trio of exciting new entrants offer significant opportunities for investors
Fewer delisting and more companies queuing up to join AIM have raised hopes that the market is gradually returning to growth mode. There has been no flood of new issues as yet, but each of the three floats in the past few weeks is a serious proposition raising a substantial amount of money.
The largest IPO was that of turnaround-focused Sherborne Investors, which raised £105 million to acquire minority stakes in quoted companies in need of a shake-out. Investment decisions will be made by US-based Edward Bramson, co-founder of private equity firm Hillside Capital, and his team.
Known for his ability to play hardball when he feels it necessary, Bramson has guided six turnarounds in the UK before, three of which led to successful outcomes with a mean return of 126 per cent over an average holding period of 24 months. Chemicals company Elementis was one of these, and saw Bramson take over the reins as executive chairman following the sudden departure of the CEO. In the other three cases, the investments were liquidated before a significant stake in the relevant companies had been acquired.
Guernsey-registered Sherborne will invest in only one company at a time, which concentrates risk for shareholders, but some big-name investors are putting their faith in Bramson and his team including BlackRock UK Emerging Companies Hedge Fund, which has upped its stake in Sherborne had not identified a target, so any decision to invest depends largely on one’s confidence in Bramson’s ability to pinpoint and rescue suitable companies as a minority shareholder.
Another investment company relying largely on the reputation of its management team is Digital Barriers, which raised £20 million to make acquisitions in the homeland security sector.
It is led by Tom Black, former CEO of surveillance company Detica, who led a management buy-out of the company in 1997, floated it in 2002 with a valuation of £80 million and sold it to BAE Systems in 2008 for £539 million. Black says he is having ‘proper conversations’ with a couple of potential acquisition targets, while other discussions are at an earlier stage. ‘We would expect to do probably four deals in our first year, about £4 million or £5 million per deal,’ he reveals.
Black’s targets are businesses with proven technology that can help beat the terrorist threat. ‘A lot of the businesses we’re looking at have a very strong technical guy as their founder who is not a business builder, and they’ve reached a ceiling at a few million of revenues,’ says Black. The idea is that with his connections and industry knowledge, he can help turn promising gadgets into slick systems that can be sold globally. The shares have been given a warm welcome, rising from 100p to 128p on their first day of dealings.
CSF Group fighting fit
One company whose business is already well established is CSF Group, a Malaysia-based designer, builder and operator of data centres which raised £28 million at 55p when it came to AIM towards the end of March. With revenue of £18 million and pre-tax profits of £10 million expected for the year ending March 2010, as well as a comfortable level of debt, the company looks fighting fit and expects to start paying a dividend next year.
Chief executive Adrian Yong talks of exciting growth prospects for 20-year-old CSF, which has a 35 per cent market share in Malaysia and will use the placing proceeds to build a fourth data centre in the country that should ‘more than double our capacity’. Yong is also looking to expand into other South-East Asian nations such as Vietnam and Thailand.
‘Each time we go to London to raise money, it will always be for a specific project,’ says Yong. ‘We will never start a brand-new data centre without having at least 30 per cent occupancy confirmed, which I hope gives our investors a degree of confidence.’