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Financial Ltd buyer’s shares dive amid ‘discount’ raising

Financial Ltd buyer’s shares dive amid ‘discount’ raising

Listed consolidator Tavistock Investments has seen its share price plummet 60 per cent on the back of an announcement of a massively discounted share issuance to raise funds for the buyout of advice network Financial Ltd.

As at 3.30pm this afternoon and according to London Stock Exchange data, the Aim-listed company is trading at 2.10 pence per share, 60 per cent down on Friday’s closing price of 5.25 pence.

This follows the news earlier today (19 January) that Tavistock has struck a deal to acquire troubled Financial Ltd for a sum of £2.7m, to be funded through a share placing at a “substantial discount”.

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In the announcement this morning, Tavistock said that the purchase price will be funded via a placing of 135,000,000 new ordinary shares at a subscription price of 2 pence per share. It also said it could launch an open offer of up to a further 30,455,624 new ordinary shares.

Brian Raven, the group’s chief executive, told FTAdviser the share price plunge was an understandable market reaction to the firm trying to raise a “substantial amount of money at a substantial discount”.

These “growing pains” were perfectly normal given the market capitalisation of Tavistock, which stood at £6.4m on Friday, explained Mr Raven, adding that “you can only raise money at the price people are willing to pay”.

Mr Raven continued that a price drop to this level was part of the firm’s five-year plan, with the majority of shareholders backing the deal that he expected to complete at the general meeting on 12 February.

Earlier today Mr Raven dismissed concerns around the state of Financial Ltd, calling the deal “transformational” and stating that the network’s new management team has “remedied every possible issue”.

Financial Ltd’s latest accounts revealed it was seeking investment to secure the business, after posting post-tax losses of over £120,481 for the year ending March 2014, up from a loss of £28,193 in the previous year.

Difficult trading conditions post-RDR were exacerbated by an Financial Conduct Authority recruitment ban last July for failures to control appointed representatives, with fines of over £13m only escaped due to having insufficient funds.

The number of adviser members of Financial Ltd fell around 40 per cent to 300 by the time the ban was lifted in November.

Jonathan Barrow, director at Retiring IFA, told FTAdviser that acquisition is a bold move from Tavistock “when taking into account the well documented struggles” the network has been encountering over recent months.

“The Tavistock model lends itself to the network model with their desire to grow their IFA footprint across the UK, this will clearly strengthen the Tavistock proposition albeit operational synergy will play a huge part in its success.

“It may open the flood gates for more consolidators to bail out ailing networks ​and time will tell whether such acquisitions can result in success.”

In November an analyst note from WH Ireland praised Tavistock’s model acquisitive model, stating that it was able to grow adviser numbers in a “relatively low risk and earnings enhancing” way, citing the focus on “smaller IFA firms”.