Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Traction Technology-what a rip off, investors beware.

I have been keen a follower of the AIM new issues market over past few months having participated in many exciting primary and secondary issues brought to the market by responsible brokers. I therefore take a keen interest in opportunities that land on my desk. However, I have recently noticed a notable decline in the quality of new issues coming to market (both AIM and Plus). This decline, in my opinion, reaches its zenith in the Traction Technology issue.

In a nutshell, it looks like this:

A cash shell is being resurrected through the acquisition of a business that went into administration which has now miraculously assumed a value of £9m. It just so happens to possess all the desired 'green' credentials operating in the field of hybrid and all-electric vehicle systems.

Arc Fund Management, the sponsor clearly have their eye on making a nice quick turn through selling down some of their stake and pocketing an additional £347,500 sales commission-they are only raising a net £1.4m!

The documentation is also appalling and extremely hard to follow. To cap it all, it doesn't look as if any new money is being raised and the issue is not even EIS qualifying.

Maybe I'm missing something.

Surely investors deserve protection from this sort of thing!

Author: Blogger alihan | Posted: 5:46 pm  
You are missing something. Check out who is involved in the company. The directors have a good track record, relevant experience and invested their own money at the float price. Rather than just look at how it came to the market look at what it is. Very poor research indeed.
Author: Blogger IC | Posted: 6:08 pm  
Early stage exits never receive a good press.

- Traction Technology acquired the assets of Eneco a company that had fallen into administration (not a great start).

- Eneco is referred to throughout the documentation as a key business in the group. Eneco achieved sales in the 16 months to 31st January 2006 of £2m. How about some more up to date information if they want our money.

- The valuation given by Company Eye of the reborn Eneco, now known as Traction Technology, is £9m-there is no indication how this number has been arrived at.

- Company Eye states that the ‘valuation is realistic compared to many early stage green tech companies’. That doesn't justify it. How about some realistic projections, peer group comparisons etc. The sort of info you normally get.

- No new money is being raised and existing shareholders are exiting.

- Those existing shareholders who are selling include Arc Fund Management (4.99%) and Arc Management Services Ltd (4.46%). The Arc group are marketing the issue and Michael Carr is one of the original shareholders in Catalyst. Clearly neither thinks the shares merit holding onto.

- The net proceeds under the offer (after deduction of expenses) are estimated to be £1,390,000.

- Based on the £9m valuation selling shareholders represent c17% of the existing equity.

- Arc Equities will be paid commission of 25% of the net proceeds i.e. £347,500!

There are no nice EIS tax breaks to mitigate the risk and nothing to support the suggested valuation.
Author: Blogger StanWellaway | Posted: 12:28 pm  
And having failed to deliver, the company is now delisting
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