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Tern – acquisition at no-one-is-interested o’clock

By Nigel Somerville, the Deputy Sheriff of AIM | Friday 24 June 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

AIM-listed investment company  Tern plc (TERN) updated the market this morning that its acquisition of some bits of Flexiant Ltd which was all off a few days ago has now completed – in the form of a purchase from the administrators. But a previous investment into the parent has been written off. Ouch.

Of course, on the day when the UK has just voted to leave the EU, nobody is really very interested in the antics of a little AIM investment company worth about £9 million in the face of the billions being wiped off banking shares in the FTSE100. A great day to bury bad news, then (and bad EUs, for that matter).

Tern had previously invested into the parent company in the form of loans and equity valued at just shy of £270,000 in its FY15 accounts – which has now all been written off as the company looks to have gone into administration (although we are not told whether it is the parent of the subsidiary). I guess that is the risk of pre-revenue or pre-profit sexy technology investing. Flexiant was Tern’s first investment, and one wonders whether others – Seal Software, Device Authority (formerly Cryptosoft) and Push Technology could just go the same way.

But undeterred, Tern has picked up some left-overs from the administrators for £75,000 – assets which were valued at approx. £20,000 in Flexiant’s FY14 accounts. That seems a bit of a premium, given that the purchase is from administration. But I guess it allows us all to believe that despite the involvement of the administrators, there was something of value in there all along.

But I guess it is less than the £1.3 million implied by the proposed 8 million shares in Tern under the now defunct original deal – which we were told would clear the outstanding debts of the subsidiary to the parent. Wash my mouth out with soap and water, surely that original deal wasn’t intended to save Flexiant from the administrators, was it?

Of course, the bulk of Flexiant was to be sold under the original deal. Today we are told that There was interest from major corporate buyers in acquiring Flexiant Ltd. Maybe that’s why Tern had to fork up £75,000. Or perhaps that £75,000 was for the bits left over that nobody wanted. Who knows, but whatever there seems to be a bit of hype.

Tern tells us that it expects to achieve significant returns following the commercialisation process. Well I guess that’s all very exciting, then. Almost as exciting as Cryptosoft (now Device Authority). By the way, where are the contracts?

I continue to believe that Tern is overvalued, overhyped and over-promoted. And the memory of the placing done during a big share price rise on the back of widespread market misinformation about Cryptosoft just before Christmas 2014 still sticks in the craw.

Time will tell: perhaps Angus Forrest and his crew have alighted on the next Google. Or perhaps the failure of Flexiant (Mark I) will not be the first in the Tern's jam-tomorrow locker.

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