8 December 2013

IPO for 'Shell' Companies

If you think that these companies have anything to do with the collection or selling of shells you are mistaken. This particular type of company is making occasional appearances in the UK stock market. The name refers to the fact that the company has no or only very marginal real business activities and is in the main designed to allow new management or controlling shareholders to raise money for a new venture or use an existing (usually languishing) listed business as a quick way to gain control over a company whose shares can be used as acquisition currency. Unfortunately in most cases the new promoters behind the shell company are able to create an air of excitement and even hype and any new investors that subscribe to shares in the IPO or subsequent secondary share issues are required to pay a hefty premium for the privilege to be on board for the ride. As in any IPO investors should be careful not to fall for a good 'story' and only invest on the basis of value and solid fundamentals.