Many of those who watched mainstream UK terrestrial TV in the 1980’s and 1990’s will remember the hugely popular show, “Surprise, Surprise”, hosted by the 1960’s ‘Scouse sensation’, Cilla Black. The show was about re-uniting relatives, friends and long lost work colleagues. Move forward to 22 December 2011 and Avacta (LON:AVCT) 's announcement that it was to raise £5.13 million by way of issuing 1.026 billion shares at 0.050p which included the purchase consideration of £1.4million for a private business – Aptuscan – a hi-tech spin out from the University of Leeds.
Strange connection? Well, at the very beginning and end of Cilla’s show, she would sing her famous “Surprise, Surprise” song and, for those of us who have particularly poor memories / didn’t watch the show / are too young to care, I just wanted to remind you of the lyrics to the chorus:
“Surprise, surprise, the unexpected hits you between the eyes
The unpredictable, that’s the surprise you see. Surprise, surprise!”
Without wanting to bring back any more memories of this sickly track from yesteryear, I think this chorus says it all about investing in the stockmarket generally yet it had a very hollow feel when it streamed back to me back in late December 2011, just before the Christmas break.
All investors like predictability and if there is a feeling that management are going ‘off-piste’ from what had been stated in its strategy in the past, a company’s share price can get savaged and the long haul back to credibility and trust can take years – indeed, most companies don’t make it and soon depart, stage left. To the private investor, Avacta hadn’t quite followed the script it was espousing previously.
So, following this announcement and a previously written article on Avacta, we wanted to understand why Avacta had pursued this acquisition and raised sizeable funds (for them) which in turn diluted existing shareholder’s by around 30%, especially when most existing shareholders – I’m thinking small private shareholders as opposed to the three ‘strategic’ Avacta shareholders of IP Group, ORA Capital and Henderson Global Investors – were not given the opportunity to participate.
After…
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