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.

Global e-Network Holdings - another dubious pre-IPO offering (and a stupid name to boot)

Another one of these pre-initial Public Offerings (‘pre-IPOs’) opportunities landed on my desk last week. Much like all the others I have seen over the past few months there was little to commend this to the private investor, but naturally quite a lot for the supporting finance house, which in this instance was Arc Equities.

According to the literature, Global e-Network Holdings (stupid name and spelling for a start!) ‘offers investors an opportunity to gain access to a company operating in three growing technology niches’. Given the level of funding that is required to grow in just one ‘growing technology niche’ this is already a questionable business model.

It is existing shareholders in Global-e who are selling, notably Arc Fund Management Limited, Monument Capital Partners Limited and Troff Limited.

So investors can forget about any potentially interesting EIS tax breaks for a start, as no new money is actually being raised. It also begs the question how they are going to finance these 3 high growth ventures, clearly they have a lot of cash in the bank! I suggest you read on.

Questionable financial projections

Page 21 of the glossy document reveals that management expects Global e to start making a trading profit in July 2007 and that one should have a look at the financial projections on page 24. I was expecting page 24 to reveal a page covered with numbers, however, the financial projections in question consist of just 2 lines! One line covers the projected Turnover for 2007, 2008 and 2009 while the second line presented the profit before tax for those respective years.

If you thought the financial projections were brief, the Accounts section in Part IV occupies just half a page. Only a Balance Sheet at 31st March 2007 is presented and half a Balance Sheet at that, with no information on the Share Capital and Reserves and no supporting notes.

The balance sheet does reveal that they only had £100,782 in the bank at end of March so there isn’t much to support the growth of the business

In seeking to sell their shares at a price of 3p / share they will therefore be making a huge gain in just 6 months. It is hard to calculate what progress has actually been made in this time, other than a nifty bit of financial engineering. But more importantly is this of any help to potential investors?

The 55 million shares they are trying to dispose of in this exercise equates to 22% of the issued capital. If a price of £1,650,000 is achieved this assumes Global- e has a total current value of £7.5m. Madness, total madness!

I fail to see why anyone in their right mind would entertain investing in this business, at least on the strength of the documents that I have seen.

In our opinion there needs to be better protection for potential investors in this sort of venture. Many are bound to be tempted by the glossy front cover and enticing quotes.

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