Consoldiator to hit the acquisition trail after fresh investment, but will it turn out a success?
After jumping through a series of burning financial hoops, chief executive Alex Alway has come out the other side smiling. Insurers and clients will be pleased, as the firm has a decent reputation for service. However, the long-term future for Jelf is still somewhat unclear.
There are two alternatives paths for Jelf. The first is the vision of its new private equity backer Cap Z and Jelf’s directors. That is the £19m and new banking facility are used to pay down debt which was last reported at £24m, strengthen organically – especially its poor-performing wealth management arm – and grow carefully. The end result in five years is a raised share price which Cap Z exits at a nice profit. The directors, having immediately taken a personal fortune hit by allowing Cap Z in the door to dilute their own holdings, will make up the lost ground and some more. Happy days you might think.
But that was the idea 3i had when it invested in Jelf, and looked how the share price crashed from 240p to 36p. Which brings us to the next scenario. If Jelf expands too quickly it could be left in a similar situation, especially if the economy goes against them – high debt against earnings, a less than sparkling trading performance and all this reflected in a poor-performing stock. The Alternative Investment Market (AIM) is a scary place to be when times are bad. Unlike a private company, there’s nowhere to hide. Every creak and splutter is entirely conspicuous.
The Jelf management will have to learn from the mistakes of paying over the odds in the boom years. They will have to carefully scrutinise the price of every deal, and make sure the debts can be paid off. Next time round there will be less room to maneouvre for renegotiating the debts. The days of super-leveraged businesses ruling supreme died in the flames of Lehman and the subsequent recession.
For the time being, Jelf’s directors have performed some nimble footwork and the company is looking up, though it’s certainly no out the woods.
See story: Jelf is back in acquisitions game as Cap Z steps in with equity
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