aim market venture capital angle braveheart

These are tough times for the private equity industry, that shady group that provides for private companies both finance, and advice of uncertain value.

Key to the success of many private equity firms is their ability to source the capital required to support their investee businesses, and also a buoyant small company section of the stock market on which these companies can eventually be floated.

Today finance is hard to come by and the new issue market has slowed to a crawl. One company that has made a move to do something about this is the Braveheart Investment Group, which as the name suggest is a Scottish outfit.

Braveheart gathers funds from individuals and other private and public sector sources and invests them into about ten new situations each year, concentrating on emerging technologies some of which emerge from University research.

Its shares have fallen by some 40% since Braveheart came onto AIM last March, but if this is disappointing it is nothing compared to the experience of another private equity firm ANGLE, the shares of which have sunk by 80% in the four years of its stock market existence.

Now Braveheart, valued at £13.5m, is trying to take control of ANGLE, which is valued at £7m. According to Braveheart this initiative has the support of five out of the six institutional shareholders of ANGLE, but it certainly does not have the backing of ANGLE’s chief executive Andrew Newland, who holds 25% of the shares.

Institutional investors, who are not happy to be holding illiquid shares of many small companies are in the mood to encourage mergers and acquisitions, but ANGLE is digging in its toes. .

ANGLE describes itself as an ‘international venture management company’ and consists of a management services business and investments into ten quoted and unquoted companies.

According to its’ own calculations the value of the investment portfolio alone was worth 74.5p to each ANGLE shareholder at the end of January, in addition to which the Management Services side has long-term contracts with such as the London Development Agency, and made a profit last year of £1.1m.

In the light of that Braveheart’s indicative offer worth 60p hardly looked generous, but it is a good deal better than ANGLE’s present share price of 27p.

ANGLE’s board has, though, rejected Braveheart’s advances giving a number of reasons.

First of all it points out that Braveheart has proposed to offer shares rather than cash, and that ‘Braveheart shares are not very liquid.’ Neither, though, are shares in ANGLE so its shareholders would be no worse off in this respect.

Scottish only brand?

Next ANGLE has categorised Braveheart as a Scottish firm, gathering its funds and finding its investments north of the border. It questions whether cash from public sources would be available for investment into non-Scottish firms, but Braveheart has countered by saying that it ‘has and continues to make a large number of investments throughout the UK, drawing on a wide range of retail, institutional and non-governmental funding partners.’

But the biggest bone of contention is whether Braveheart can really add value to ANGLE’s list of investee companies.

These include Geomerics, which delivers improved lighting effects for computer games, and Parsotix which can identify one foetal cell in five hundred million maternal cells and thus diagnose potential health problems in unborn children without the need for invasive procedures like amniocentesis.

Braveheart has claimed that ANGLE’s investee companies are being starved of the cash that they need to develop, and ANGLE has as good as admitted as such by saying that it would ‘see value in a transaction which gives access to significant additional funds for the existing ANGLE portfolio’. However, it says that Braveheart has not undertaken to provide any such additional funding.

Claiming that ANGLE’s portfolio of companies needs an investment of ‘several million pounds’ Braveheart has said that, if it took control, it would go through each investee company in turn.

This would involve ‘an assessment of incumbent management and its plans for the business the milestones to be achieved and the capital resources needed to achieve them.’ One assumes that ANGLE are already making such judgments so the issue really depends on whether ANGLE or Braveheart is better placed to raise fresh capital for ANGLE’s companies, some of which are in the United States.

Braveheart must now decide whether to make a hostile bid, and given ANGLE’s abysmal record and its admission that it would like access to additional funds, one would think that such a move would have a fair chance of success.

However the rejection by ANGLE’s board will mean that Braveheart may find it difficult to do the due diligence that it would like to do. It certainly should not want to take over a portfolio of high technology companies without knowing exactly how much financial and other help they might need. So, with ANGLE’s share price dropping back to 26p, the market is clearly betting that Braveheart will walk away.

Regards,

Tom Bulford
for The Penny Sleuth
P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

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aim market venture capital angle braveheart

Venture Capital Wars