BusinessCorporate FinanceCash shell windfall fails to materialise

Cash shell windfall fails to materialise

The London Stock Exchange’s suspension of the shells was expected to generate a wave of business for dealmakers

Just like a young child who has been looking forward to Christmas for months,
only to be disappointed on the day he unwraps his presents, so corporate
financiers would have been disillusioned by the lack of opportunity that flowed
from the suspension of 38 cash shells on AIM last week.

The London Stock Exchange’s suspension of the shells, which occurred after
the exchange gave AIM cash shells worth less than £3m a year from April 2005 to
complete a deal, was expected to generate a wave of business for dealmakers.

Observers predicted that the cash shell companies would complete a frenzy of
deals as the AIM deadline approached, and corporate financiers were anticipating
steady work, where they would be working on due diligence for both the shells
and the private businesses eyeing reverse takeovers.

The reality, however, is that the potential business locked up in these cash
shells is far less enticing than initially thought.

Philip Secrett, capital markets partner at Grant Thornton, said the problem
with the shells for corporate financiers was that the cash they held was so
small that it would fail to trigger sufficient interest.

‘As a cash shell your main attraction is that you can provide a company with
access to cash, but if your funds are too small it is going to be difficult to
generate interest,’ Secrett said.

He added that it would be just as easy for a company seeking funds to list
itself or pursue a private equity deal. ‘Why consider the cash shell option when
you can access capital in so many other ways?’ Secrett said.

Nick Bayley, head of trading services at the LSE, however, said he was
confident that a portion of the suspended cash shells would be able to conclude
deals before having their listings cancelled.

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