Shares in Derriston Capital (DERR) have nearly doubled from a 10p a share initial public offering (IPO) in which the investment vehicle raised £2.1m to invest in the medical devices sector.
Derriston floated as a cash shell on Thursday 29 December and plans to complete a reverse takeover, a deal where smaller companies look to acquire larger public or private businesses.
Backed by the UK's 350th richest individual Nigel Wray, who has an 8% stake, and Domino's Pizza UK chairman Stephen Hemsley, who owns 4%, Derriston is looking at companies in the UK, Europe and the US with a view to securing a deal in the first half of 2017.
Fund management business Hargreave Hale is Derriston's biggest investor, owning 10% of the equity.
TARGETING CARVE-OUTS
Derriston's backers are looking to bid for small medical devices businesses currently owned by big pharmaceuticals players so the units can be carved out of the parent and run separately.
Buying and combining a number of these businesses under one corporate umbrella and outsourcing the manufacture of their products should help reduce production costs, lower prices and help relieve funding strains on national healthcare budgets, according to Derriston's IPO document.
Derriston says this approach should also allow the businesses it acquires to offer more competitively priced products to increasingly cost-conscious providers, helping it increase market share.
POTENTIAL RISKS
Investors should tread carefully as Derriston is a newly formed entity with no operating history and no current acquisitions.
One of the risks highlighted in Derriston's IPO prospectus is that future acquisitions may not be profitable, which is not uncommon as medical device business can be loss-making due to huge research and development (R&D) costs.
Derriston aims to mitigate this risk through buying companies whose devices have already received regulatory approval. As a result it does not expect to incur significant R&D spend.
Consultants may also be required to identify acquisition targets and assist with operational management following an acquisition, leading to higher operating costs.
Derriston trades 2.3% higher today at 17.9p.
