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LONDON (Alliance News) - Tavistock Investments PLC Thursday said it has conditionally agreed to buy independent financial advisory County Life & Pensions Ltd and investment management business Blacksquare Ltd, in a reverse takeover that is set to propel the former software company into the financial services industry.
County is being acquired for GBP7.4 million through the issue of 98.0 million shares at 7.5 pence each, representing 81.2% of the enlarged share capital. It is paying a nominal GBP1 for Blacksquare, with a deferred consideration depending on the level of its funds under management to be paid by June 30, 2016.
Tavistock Investments also said it has conditionally raised an additional GBP750,000 of working capital through a placing of 10.0 million shares at 7.5 pence each.
As part of the placing and reverse takeover, Tavistock proposed a 1-for-100 consolidation of its shares. Tavistock Investments pre-consolidated shares were down 7.4% at 0.0602 pence apiece Thursday.
Current Tavistock Chief Executive Brian Raven, who was appointed earlier this week and is the chairman of Blacksquare, will retain his position. Blacksquare's founder, Christopher Peel, formerly of Citibank and Salomon Brothers International, has been nominated as chief investment officer. Current Chairman Oliver Cooke also stays in his role under the proposals.
Raven has agreed to subscribe for 1.3 million shares, while underwriting the issue of up to 3.3 million shares together with Cooke.
Tavistock's objective is to create a business engaged in both financial advisory and investment management services that provides shareholders with capital gains. According to Tavistock, its rationale is that companies which engage in both of those areas benefit from "significantly higher" market ratings than those engaged in just one of them.
The move into the advisory sector comes after recent regulatory intervention in the sector by UK regulators. New rules known as the retail distribution review have increased transparency in the sector, requiring independent financial advisers to move away from commission-based pay to a fee-based structure instead.
Tavistock said it wants to use the County acquisition as a platform to attract smaller advisers to join its network under multi-year contracts with guarantees to buy-out their businesses at some point in the future depending on recurring revenue targets and investment and compliance methodology. The company's goal is to have an investment firm with the permission to act as a discretionary fund manager, allowing it to retain income that would otherwise be paid to third-party investment services. Tavistock said it may acquire additional discretionary fund managers as it expands.
Its resulting business model would be one that offers financial advice, model portfolio and discretionary investment management, estate planning, pensions and retirement planning, employee benefits, insurance and mortgages to both private and corporate clients.
County operates the Sterling McCall wealth management network and was established in 2003. It reported a GBP482,959 pretax profit on a GBP2.8 million turnover in 2013.
Blacksquare was established in 2005 and initially operated as an unregulated, offshore, fund of hedge fund manager. However, when investors put in "very substantial redemption requests" to its Blacksquare Capital Access Fund in the wake of the financial crisis, the decision was made to convert the business model and to run an onshore, regulated version of the offshore strategy, where it was envisaged by the principals that market conditions would be more stable. According to Tavistock, the maximum drawdown of the Access Fund was 5.3% between May and August 2007, from which it recovered to return growth of 3.2% that year.
Windsor-based Blacksquare is now authorised and regulated by the UK Financial Conduct Authority and manages the Acumen Defensive Portfolio. This product aims to deliver positive absolute returns that are uncorrelated to equity or bond markets. In 2012 the portfolio returned growth of 5.5%.
"However, having been unable to replicate earlier success in securing significant institutional funds to manage, Blacksquare is currently loss making. It is intended that following completion of the acquisitions, Tavistock will inject additional capital into Blacksquare to cover its ongoing regulatory and working capital requirements," Tavistock said in a statement.
In 2013, Blacksquare reported a GBP408,798 loss on revenue of GBP177,029. It had net liabilities of GBP133,157 at the end of 2013.
Blacksquare already has the necessary regulatory permissions to operate as a discretionary fund manager.
"The directors anticipate that Blacksquare will return to profitability relatively quickly as a consequence of it being appointed as the discretionary fund manager for clients of the enlarged group's advisory division," Tavistock said.
Tavistock was formerly known as SocialGO PLC but sold its loss-making software business last year.
The reverse takeover required the UK Takeover Panel to waive certain rules on takeovers that would under normal circumstances force the founders of County - Stephen Moseley, Kevin Mee and Paul Millott - to make a cash offer for the remaining shares in Tavistock as a result of receiving shares as part of the acquisition. The waiver still depends on shareholder approval.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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