We have scoured the Aim market for a wide range of special situations and come up with a mixed bag of opportunities from a range of sectors encompassing property, biotechnology, industrials, technology and even carbon trading.
Green Compliance (GCO)
This is Bob Holt’s latest project. The man who turned Mears into a £200m company is now looking to profit from a strategy of buying up businesses in “blue collar compliance” sectors such as water hygiene, pest control, fire protection and energy consultancy. These are all areas that are regulation-driven and where incumbents enjoy strong margins.
Having transformed Wyatt Group into first Green CO2 and then Green Compliance at the turn of this year, Mr Holt brought in compliance business expert John Prowse as chief executive, raised cash and set about transforming the company. A total of seven small acquisitions have been made in the company’s chosen sectors.
The evolution of this company will take some time and investors may be tapped again for funds before the company reaches critical mass. There’s also execution risk in integrating so many acquisitions in such a short space of time. But there are strong parallels with Mr Holt’s long-term buy-and-build strategy at Mears, and the focus on regulation-driven sectors should insulate against economic downturn.
Northbridge Industrial Services (NBI)
Northbridge was admitted to Aim in 2006, acquiring a business that was a leader in the niche market of renting load bank equipment to industrials worldwide. Load bank equipment is used for testing and maintaining large electrical systems and power generation facilities. The company has performed respectably since admission and made three acquisitions before the start of this year.
What makes Northbridge ‘special’ is its shareholder register. The recent acquisition of Tasman Oil Tools brought in 10.9 per cent shareholder HBG Holdings, a Gulf
oriented private equity firm that has vowed to use its contacts to help Northbridge expand in the Gulf region. Furthermore, the placing also saw investors such as BlackRock and Artemis buy in.
In financial terms, Tasman is pretty transformative, too; last year, it generated turnover of £6.4m and pre-tax profits of £3.3m, compared to Northbridge’s £12.7m of revenue and £2.3m of profit.
EKF Diagnostics (EKF)
Another management play. Julian Baines previously built up a company called British Biocell International (BBI) from a value of £4m in 2000 before its sale to Inverness Medical Innovations for £84m in 2007. On deciding to attempt a repeat performance Mr Baines was brought in to International Brand Licensing, then the holder of the Admiral sporting brand,
with a view to transforming it into a diagnostics company. After disposing of the sports brands, Mr Baines acquired EKF Diagnostics for £11m, backed in a placing by many of the same investors who had made money through BBI.
EKF is a 20-year-old profitable company that specialises in diagnostic instruments and reagents for diabetes, haemoglobin, cholesterol and liver and kidney function. It made revenues of £11m last year and operating profits of £2.7m. Already strong in Eastern Europe (its roots were in East Germany), it has considerable potential to grow in western Europe and the US, where its $1m revenue is dwarfed by its nearest rival, which turns over $100m. Point-of-care diagnostic testing is an increasingly important market as health authorities attempt to reduce pressure on hospitals and improve diagnosis performance.
EKF retained £4m of the £15m raised at its recent placing as firepower for more acquisitions.
Trading Emissions (TRE)
Carbon trading and abatement specialist Trading Emissions is a unique situation among our special situations in that it is effectively an investment fund in run-off. But the resulting return to investors could be significant.
Trading Emissions has raised a total of £310m which has been invested in a variety of clean energy projects in the developing world. Such projects produce carbon emissions reduction certificates that can then be sold to polluters in the developed world. But a slump in the carbon price resulted in a loss of confidence among investors, who clamoured for action to redress the yawning gap between share price and – and, after failing to attract a bid, the company decided to liquidate itself before the end of 2012.
KBC Peel Hunt analysts believe the portfolio could be worth 152p a share after a recovery in the carbon price, and investment manager EEA Fund Management has negotiated performance fees based on realising at least 150p a share, and possibly as much as 230p a share.
In addition to a possible 100p of upside, investors may be offered the chance to continue their participation with a portfolio of any private-equity-style investments which are not divested.
Max Property (MAX)
This is a play on the commercial property market in the UK, and the ability of one of the market’s most successful protagonists to continue his enviable success rate. In his latest vehicle, Nick Leslau has teamed up with Mike Brown, who himself has a strong pedigree from his previous role at Helical Bar. They launched Max Property last year, raising £200m-plus to invest in distressed UK property assets – one of the biggest Aim fund-raisings in the whole of 2009. In its first year, Max completed more than £300m-worth of property transactions, including the acquisition of Industrious,
a portfolio of industrial estates in London and the south-east, bought out of receivership, whose value had already risen by 13 per cent under Max’s ownership. It has also bought 10 office developments from UBS and four private hospitals through a joint venture with Lloyds.
Buying commercial property assets at the right price isn’t easy just now, but, at 106.5p, the share price compares favourably with an end-March net asset value of 118.9p.
Fulcrum Group (FCRM)
An investment in Fulcrum is a bet on the successful Marwyn Capital investment house repeating its previous successes on Aim. Earlier this summer, the Marwyn
Capital I fund successfully raised £11m and snapped up National Grid’s non-core gas infrastructure business, Fulcrum, which provides gas pipes and connections but had been neglected by National Grid.
As with many of its previous ventures, Marwyn installed an industry veteran – John Spellman – as chief executive of Fulcrum and brought in key investors such as Ecofin Water & Power investment trust, Artemis, F&C and Legal & General – not typical names on the shareholder register of such a small company at an early stage of its evolution. Marwyn’s team believes Fulcrum has a significant opportunity in the realm of ‘smart meters’, with the government poised to accelerate their roll-out as part of its energy-efficiency drive.
Travelzest (TVZ)
A turnaround play. Specialist tour operator Travelzest floated on Aim in 2005 and set about an ambitious acquisitions policy, which saw it acquire 10 businesses in a
period of four years. But this rather unfocused operation was hit hard by the downturn. A new executive management team was parachuted in from Canadian operation itravel2000 last year and set about streamlining the business and its operations. The new brooms have closed offices in the UK, moved operations into one centre and established an online travel business. Recent interim results showed a doubling in profits to £1.4m, the best performance in Travelzest’s five-year history.
The group is exposed to a downturn in consumer spending, but there is also the prospect of a bid from the likes of TUI or Thomas Cook, looking to fill niches in their own product ranges.
Managed Support Services (MSS)
Managed Support Services has evolved from the near-collapse of air-conditioning specialist and one-time Aim market darling Worthington Nicholls. That company was in tatters by the time chief executive Simon Beart and his team were installed. Although it has taken some time to tidy up the Worthington Nicholls mess, the company, which is now focused on providing compliance and building maintenance services, recently announced it was trading profitably on a monthly basis.
Recent acquisitions are reported to be trading well and its experienced management team have a proven record in building businesses and extracting significant value for shareholders.
Back to part 1: Small but special
Back to part 2: How to spot a special situation
