Jelf raises £19m

Financial adviser Jelf Group is raising £19m before expenses through issues of ordinary and non-voting convertible shares. Both classes of shares are being issued at 36p each. The net cash raised will be £17m so the costs of the issue are a hefty £2m. At the beginning of 2008, Jelf raised £47m gross - more than twice its present market value - from a subscription and placing at at 212.5p a share. Interestingly this fund raising cost £1.9m. The latest share issue effectively more than doubles the number of shares in issue - if the convertibles are included. Cap Z Partners III is buying all the 25.06m non-voting convertibles being issued. It is also subscribing for ordinary shares and buying 3i's existing stake - which was acquired for £26m, more than Jelf's current market value, in January 2008. These purchases will give Cap Z at least 25% of Jelf's ordinary shares. That explains why it is subscribing for convertibles. If they had been ordinary shares Cap Z would have gone above 305 and had to bid for Jelf. Cap Z Partners has investments in a number of financial services companies in the US and Europe. The cash raised will be used to cut borrowings as well as improving the working capital position. Jelf has negotiated new debt facilities of £24m, which will replace previous debt facilities and last for five years. The interest rate will be LIBOR plus 6 percentage points once the debt is reduced by £8m. If no reduction is made then the interest rate will be LIBOR plus eight percentage points. Net debt was £23.6m at the end of September 2009. There was cash in the bank of £18.7m, including £16.5m of fiduciary cash. Six out of the seven Jelf directors are subscribing for shares and the seventh, Jon Manson, is taking deferred consideration due to him in shares at the placing price. Jelf reported an 11% increase in revenues to £70.3m in the year to September 2009. A profit of £3.51m in 2008-09 was turned into a loss of £11.3m. That figure is struck after £12.2m of reorganisation and impairment charges. All three main parts of the business made lower contributions. Insurance is still the biggest contributor but employee benefits profits held up best - the healthcare part of this business grew its revenues organically during the year. Wealth management slumped into loss. Cost savings of £2.8m were made last year and there is still £1.8m of these reductions to show through. Chairman David Walker says he is "cautiously optimistic about 2010".Broker FinnCap says that "market conditions are still favourable to consolidation trends, albeit at lower multiples than 2-3 years ago". Cap Z is certainly backing Jelf because it believes that it is a consolidator in the financial services market.