Constellation Healthcare (CHT:AIM) secured what looks like another AIM first today after it agreed to take itself over.
A company formed by Constellation founder and major shareholder Paul Parmar is looking to take the medical billing solutions provider off the London market in a 270p a share deal. While the deal is unusual it appears to be a fair one for minority shareholders and those who backed a December 2014 initial public offering (IPO) at 135p a share.
Constellation's move to acquire itself means it joins an AIM hall of fame which includes Taihua's (TAIH:AIM) decision earlier this year to issue new shares to investors only to immediately buy them back.
STRONG RUN ON AIM
Entrepreneur Parmar is understood to have been disappointed with the company's trading on AIM after moving Constellation onto the small cap specialist market to execute a buy-and-build strategy in a fragmented US medical billing market.
Buy-and-build strategies often rely on taking advantage of a rising share price by issuing new shares to purchase rivals.
Constellation's share price had gained around one-third from its IPO price prior to today's deal.
After attracting £9.6m of capital at its IPO, Constellation raised a further £30m from the market in December 2015 to buy more businesses.
INVESTOR OPTIONS
Investors don't have much choice over whether to accept the deal given tough conditions in the event they vote against or otherwise seek to block it.
Penalty payments, which would be paid from Constellation to the acquiring entity if the transaction does not complete, range from $2m to $16m (£1.6m to £12.8m).
Shares opened this morning at 250p before falling back to 229p, well short of the proposed take-out price of 270p a share.
The offer is made up of $2.93 in cash and 43 cents in promissory notes, meaning investors are preferring to lock in gains now rather than run the risk of being left with a potentially illiquid loan note after the deal closes.
WIDE DISCOUNT
Interestingly, Towry Law employed a similar transaction format when it bought AIM-listed wealth manager Ashcourt Rowan in 2015 offering cash and a small loan note as part of the offer.
Ashcourt's share price traded at a wide discount to the implied offer price for some time, presumably because investors did not want to be left holding the loan note after the transaction completed. Towry eventually offered to pay the entire consideration in cash shortly before the deal closed.
Given the complexity of the Constellation deal, there is no guarantee today's deal will play out in the same way.
