I received information this morning on a pre-IPO offer that, on first glance, looked quite interesting. However, once again I was left with the impression that someone (notably the promoter) was trying to dupe an unsuspecting public.

The opportunity was the Offer for sale of Shares in Europol International plc (‘Europol’) being made by Arc Equities Limited. o

According to the literature that I received, Eurpol are apparently ‘industry leading vehicle repossession specialists’ operating throughout the UK, Northern Ireland and Eire. Apparently they are experts at what they do and their clients enjoy ‘the most successful cash recovery service in the business’. A look at the Profit and Loss account for the period of 7 months to 30th April 2006 reveals that the group lost £108,754. The Balance Sheet at 30th April 2006 indicates shareholders funds of only £25,398 and accumulated losses of £223,541. If they are the industry leaders, those in second and third place can’t be doing too well!

As they are also seeking to attract new shareholders I can’t understand why they haven’t produced more up to date results. I can only assume that these are even less appealing.

The documentation reveals that ‘certain existing shareholders’ are offering for sale 3,484,019 shares (c25% of total equity) at an offer price of 33p /share. The current total value of the company is therefore assumed to be c£4.5m. Now that’s a fairly impressive valuation for a business which in a previous existence actually went into administration.

On further investigation I discovered that the ‘certain existing shareholders’ include Arc Fund Management who have been shareholders for approximately 18 months and acquired their shares at 30p/share. Although this would hardly represent a meteoric return over an 18 month period I can’t really see how the value of the business has actually increased over that time. Furthermore, the Balance Sheet at 30th April (I still can’t get over that date!) implies that Europol is desperately in need of new funding as soon as possible.

Looked at another way, if the investment was such good potential wouldn’t Arc being hanging around a bit longer. Perhaps the fee that Arc Equities (a subsidiary of Arc Fund Management Holding) is earning on the offer will more than compensate for the lost returns on this compelling investment.

The Chief Executive spent 15 years working in the UK music industry –what’s that got to do with vehicle repossession I wonder! The Chairman, Chief Exec and FD also sold shares at 15th November 2006 at 33p-clearly they aren’t too confident in the future.

The last section of the offering document headed ‘General’ contains some more interesting bits.

The estimated amount of expenses of the offer which are payable by Arc Equities but will be reimbursed by the selling shareholders are stated to be £140,000.

Arc Equities will be paid commission of 25% of the net proceeds-now that’s what I call a good fee, especially when no value has been created.

We are also told that the accounting reference period will end on 30th September 2007, so it looks like we will have to wait see if the losses have been quelled.

The small cap note produced by Company Eye, the so called ‘small company specialists’ simply regurgitated the information contained in the offering document. An objective opinion would have been welcome.

I can’t see anything to commend this investment in its current structure. Perhaps the underlying business has potential but with the Directors and current shareholders already exiting it’s hard to believe this is the case, in the short term anyway.