Member Info for Raleigh

The MXCP model is to invest and take an active part in growing businesses to a point at which they can be sold at profit, through buy and build, and then reinvesting the proceeds into other ventures. This takes time, effort and cash for salaries and the like from central funds, in the case of some companies swallowing any profit from the related business activities. The last results showed a return to a small profit at trading EBITDA level, and excluding exceptional costs total administrative costs ( board, advisors, etc. ) were 1.1m for the 6 months. Hazarding £2.2m for the full year, that sum is covered every year on paper by the minimum £1.56m. return on loan notes ( recognised annually though not physically payable until end of term ) and ongoing £1m p.a. fee income from the Ravenscroft and Liberty Global partnerships, leaving a margin of £0.36m for any exceptional costs arising. Thus, as a generality, operating costs are secured under existing arrangements, allowing the increased value of investments to flow undiminished into the company bank account on successful exits, pending re-investment. It is a good position from which to concentrate on current and future investments.

I notice apparently scant regard on the chat boards for the price MXC Capital will exact for supporting and turning around Ide and Adept4. ( and not before time, resulting in previous deep gloom for MXCP shareholders - but the tide has turned and the share price is now on the way up again ) Ian Smith and Tony Weaver, together with other members of the concert party, are not philanthropists, and their efforts are geared to enhancing their personal fortunes through their individual holdings in MXCP, their interests being aligned with ours. I therefore revisited the loan notes, without which both Ide and Adept4 would likely not have survived. There are even suggestions on other forums that the companies are debt free. They are not, with MXCP being the major lender( Ide market cap £18.6m, debt to MXCP £8m plus interest, Adept4 market cap £7.04m. debt to MXCP 3.5m plus interest ) So both companies are quite heavily in hock to MXCP as one would expect, though this is not unusual and will aid their future success and intended increase in value of the MXCP portfolio, including those two. But it is an important, and I believe largely unrecognised, part of the MXCP investment case, catering for a substantial part of central costs for several years ahead. Loans have to be repaid, and the interest on them.
Ide - 8m. Loan notes of £8m @ 12% with first charge over Ide's assets compounded and rolled up = £15.7m at end of period, ROI of £7.7m. over 6 year term equivalent to £1.28m. pa. Even If redeemed early, all interest due until end of term will be payable to MXCP together with the arrangement and exit fees payable anyway and totalling 5%, ie. another £0.4m.
Adept4 - £2.1m Loan notes of £3.5m @ 8% p.a. = £0.28m. p.a. and may be compounded and rolled up with repayment of the original sum. This assumes the notes will carry similar terms to those with BGF, but they may well be varied when full details of the potential Cloudcoco acquisition emerge ( and they may or may not carry a similar share purchase option mentioned in my previous post )

The £5mil. BGF loan notes from early 2016 have a 7 year term, with redemption permissible from the third anniversary and required from the fifth anniversary, and carry interest at 8% a year. In addition, Adept granted BGF an option to subscribe for 50,000,000 ordinary shares at 6 p. We shall see if the same terms will apply to MXCP, or are varied by mutual consent, but if the option of 50mil. shares is exercised at whatever price, it would bring MXCP back to 26%. Perhaps something for the future.

Thank you. Perhaps that is one of the reasons it may be a related party transaction. In any event MXCP will notify their updated %age holding when new shares are issued..

There is yet no MXCP RNS, but the Adept4 RNS today indicates a probable purchase of Cloudcoco in return for shares. With new shares issued in payment it leaves MXCP with a reduced holding of 15 %, with Cloudcoco private investors the largest holders at 49%. This would be an unusual situation for MXCP, so I await MXCP comment. At the same time, MXCP will buy the £5mil in loan notes from BGF for £3.5mil., a good deal on the face of it for MXCP, and in the meantime, MXCP's 30% holding has doubled in value today.

I have little to add, except that I am now amazed that the share price, despite the continuing stellar performances of Ide and Adept4 ( previously the poor performers in the MXCP stable ) has shown little sign of reflecting the upward change in value of MXCP investments, and retained cash. It is not keeping pace with NAV. Investors Chronicle summarised the position back in May - https://www.investorschronicle.co.uk/comment/2019/05/09/mxc-returns-to-trading-profitability/
The writer ignored Ide and Adept4, though not in a previous article. I cannot judge the future of those 2 companies, though it is increasingly evident that Ide is very much part of MXCP plans.As can be seen, in May MXCP NAV was 62.3m ( market cap today £50m. ) or 97p a share, and Thompson in his earlier article had rated MXCP as a buy to a 'decent' premium to NAV, to take account of the ongoing Ravenscroft and Liberty Global partnerships, and this before the increase in value of MXCP's 43% of Ide and 30% of Adept4. I am sure Thompson will return to comment upon MXCP in due course, though I had hoped the price would be well advanced before then.

The heat has gone out of Ide and Adept4 now, and they are likely to behave more rationally and subject to published developments. MXCP is in a much improved situation, and with regard to Adept4 we shall see what occurs before long. I have no idea what that might be. It will be somewhere between cutting and running, short or medium term, or taking positive interest in building the company through buy and build. MXCP will have little interest in mediocrity - it is not their business model - and may be viewed as diversionary from the building partnerships with Ravenscroft and Liberty Global. The financial year ends shortly - but things will certainly become clear when MXCP results are published later, if not at the time Adept4's acquisition is finalised.

"The acquisition, if completed, would not constitute a reverse takeover, but would be classified as a substantial transaction under Rule 12 of the AIM Rules for Companies."
I have been mulling that over. MXCP must be party to an agreement with an entirely new business, with it's existing management, moving in. Relations with current Adept management must be strained to say the least, so that problem would be resolved, but I wonder what it means for protection of their 30% interest at board level, going forward. Historically they have been badly burned due to loss of control with Ide and Adept. "IDE Group Holdings plc ("IDE") and Adept4 plc ("AD4") are the last remaining public company assets that the Group holds and are both investments where MXC tried to scale its business by deploying executive management teams, a strategy which has not rewarded us as investors." But it does not matter, MXCP will have learned their lessons and the Adept case resolved one way or another, and not before time.

There have been many such transactions, through FinnCap, permitting liquidity and opportunity for significant holders to trade between themselves without impacting the share price. We are well-served. The price is where it was a year ago, though it has achieved 30% over 2 years. Dean Dickinson has warned that seasonality ( I have no idea within this business ) will mean earnings and cash flow will be stronger in the second half. Taking that on board, this half year will result in an 'in line with expectations' set. But that does not necessarily mean the price will not advance. I am hopeful that this half will show progress particularly on cloud migration and the ' 7 live tenders ' , earnings flowing through during the second half.

http://mxccapital.com/investor-centre/company-information

Oak Trust has since notified 11.99%.

Have no doubt, MXCP who have forced the issue here have only one ultimate interest, and that is improving the fortunes of MXCP ( dragged down by Ide and Adept 4 performance ) It is where partners Ian Smith and Tony Weaver have their personal interest. Their business is supporting investee companies for personal gain.

Frankly, I had written them off in relation to my investment at MXCP. It is such a joy to be proved wrong!

So they don't necessarily have to dilute their own holding. They won't do that.

I agree. But look at Ide. When refinancing that MXCP started at 30%, and finished with 40% ( and the loan notes )

I would be unsurprised if MXCP took care of the debt through substitute loan notes, if BGF felt unable to continue to support, bringing the debt in house, as with Ide. MXCP could wind up with more shares here also. We shall have to see, but they have obviously worked around it.

The price running away has forced an early RNS
Number : 7558H

adept4 plc

02 August 2019

Adept4 plc

("Adept4", the "Group" or the "Company")

Movement in Share Price

The Board of Adept4 notes the recent rise in the Company's share price and confirms that it is in discussions to make an acquisition. As previously announced, following a challenging period for Adept4, the Board has been considering the strategic options open to the Company and believes that the proposed acquisition represents the best opportunity to return the business to growth for the benefit of all stakeholders. Alongside and conditional on the acquisition, the Board is also in discussions to reduce its level of debt.

There can be no guarantee that the acquisition or the reduction in debt will complete. A further announcement will be made in due course. The acquisition, if completed, would not constitute a reverse takeover, but would be classified as a substantial transaction under Rule 12 of the AIM Rules for Companies.

MXCP will be heavily involved. Expect an announcement. The situation here has changed completely for the better. News from MXCP should bring attention and comment.

"Net debt at 31 March 2019 was £3.4 million (30 September 2018: £2.7 million).  This comprises the cash balances of £0.8m, less the amortised cost of BGF loan notes of £4.2m."

I have not researched in depth, but 'had a look ' ( because of my Mxc Capital investment ) having regard to today's rise, following closely on the heels of Ide's. Mxc have 40% of Ide and 30% of Adept. Long termers here will know more than I do. As I see it the debt here relates to £5m unsecured loan notes issued to BGF to fund Pinnacle's acquisition of Adept4 in early 2016 ( change of name ) The notes have a 7 year term, with redemption permissible from the third anniversary and required from the fifth anniversary, and carry interest at 8% a year. In addition, Adept granted BGF an option to subscribe for 50,000,000 ordinary shares at 6 p. BGF is a patient investor. It has supported MXCP before. MXCP is 'cashed up', to the extent that it is considering means of returning cash to shareholders, whilst currently in the midst of a buy and build and persuing other investments. MXCP have made it clear that significant action is required at Adept. It appears their relationship with management is at best strained. That action is anticipated soon. MXCP have indicated they will force it, and it is difficult to see why others should object. I have no idea what that action may be, and view Adept4 as it stands as a virtual shell, but the shell has value and cash will not be the issue. It will be open to them, subject to what future they have in mind for the company, to increase their shareholding through dispensation and/or finalise external investment and substitute their own loan notes as at Ide. In the end, whatever happens will serve MXCP's best interests. ( I am pleased to say )

I try to be factual with a little opinion, and am open to being wrong. I certainly did not foresee the rises at Ide and now Adept4. I have a few recent thoughts on Adept and will write and post them there in the morning I think, circumstances permitting. In short, I have persuaded myself there may be room for greater optimism there than I previously did. But facts will follow conjecture. I am as sure as is possible for me that our investment here will improve as the year passes. If not, Ian Smith and Tony Weaver are purely salaried and their personal holdings in MXCP might as well be in the Post Office, and Ian Smith could put something better in his SIPP.

That is good news for private investors - a widening of the major shareholder base, at this price, regardless of identities.

Ide reversed again today ( from 2.5p ) so there seems support at that level. And as a matter of record, Adept4 ( MXCP 29.98% ) has shot up by 35.7%. This is unquestionably good for MXCP NAV, though as yet there is no benefit to the share price.