Small cap specialist has $120 million to invest

Dec 01 2006 - Australian Venture Capital Journal

Co-Investor Capital Partners closed its first fund raisings at the end of September and now has access to investment capital of up to $120 million.

The private investment company manages two funds for high net worth individuals and family offices, Co-Investor No 1 and Co-Investor No 2.

Co-Investor invests in small cap companies on the Australian and New Zealand stock exchanges. The firm's investment model generally involves a restructuring or intervention to enhance earnings. Managing director Roger Sharp said restructuring of the firm's first two investees had created significant shareholder value with both stocks now trading at significant premiums to the funds' costs.

In July, Co-Investor changed its name from Co-Investor Private Equity Pty Ltd to Co-Investor Capital Partners. Mr Sharp said the change had been made because "whilst our investment processes resemble those of private equity, the skill set required to operate as an active investor in small listed companies is quite different".

The Co-Investor funds are the largest shareholders in ASX-listed travel.com.au Limited, NZX-listed Software of Excellence International Limited, unlisted public company Tru-Test Corporation Limited and - via Tru-Test - small cap ASX-listed BrainZ Instruments Limited.

The two funds and co-investors hold a combined stake of just under 27 per cent in travel.com.au Limited, the online travel company that operates the websites www.travel.com.au and www.lastminute.com.au. Mr Sharp is chairman of travel.com.au Limited.

The Co-Investor Funds and co-investors jointly hold just under 19 per cent of Software of Excellence and have board representation. Software of Excellence is a developer and vendor of software used in dental practices in Australia, New Zealand, the UK and Ireland.

The Co-Investor funds and co-investors acquired the largest minority stake in Software of Excellence earlier this year and are represented on the board. Co-Investor has since advised the company on capital restructuring and a pro rata offer to buy back convertible notes.

Mr Sharp said the company had emerged from its restructuring as a lean, focused and profitable business generating around 85 per cent of its revenues in the UK.

He said the restructuring had been well received by the market and the company's share price had increased from NZ$1 - the Co-Investor funds' entry price - to over NZ$2. Software of Excellence is to pay a maiden dividend in December 2007.

Mr Sharp said Lastminute.com.au is the company's growth engine with year on year revenue growth in its key products consistently exceeding 50 per cent.

"When Co-Investor first invested in travel.com.au Limited, it was an unprofitable conventional travel agency experiencing mixed success in launching an online travel business. Co-Investor initiated a significant restructuring, introducing a suite of new technologies, a new online business model, improved customer experience, personnel changes, and a capital injection."

"In April, News Corporation, via Daniel Petre's vehicle netus (AVCJ, May 06), acquired a 19.9 per cent shareholding in travel.com.au Limited which has been the catalyst for a significant improvement in travel.com.au Limited's offerings."

Speaking in late November, Mr Sharp said travel.com.au Limited's shares were trading at around 36 cents compared to the Co-Investor funds' average entry price of 16 cents.

The Co-Investor funds acquired a 13.25 per cent stake and became the largest shareholder in Tru-Test Corporation Limited in April, buying the stake from ANZ Private Equity and Colonial. Co-Investor is represented on Tru-Test's board.

Tru-Test is a New Zealand based unlisted public company which manufactures and exports rural industry technology products such as electric fences, milk meters and weighing machines for livestock. Annual sales are around NZ$100 million.

Mr Sharp said the company's products are highly regarded and have strong market shares.

Tru-Test holds a 57 per cent shareholding in ASX-listed medical device manufacturer BrainZ Instruments Limited. BrainZ Instruments is an early stage medical device manufacturer that produces a bedside monitor which measures brain activity. The company distributes the product in Australasia and South Africa while GE Healthcare distributes it in 35 other countries including the US, UK and those which represent the larger markets in Europe.

Co-Investor expands team

Co-Investor Capital Partners has expanded its professional team to seven with three senior appointments during 2006.

Phillip Pryke, joined as a partner in March, Christin Burns joined in March as a financial analyst and Roger Croker joined in September as chief financial officer.

Mr Pryke is an experienced company director and financial adviser. He is deputy chairman of Contact Energy, New Zealand's largest energy utility and a director of Macquarie Goodman (NZ) Limited.

Christin Burns was formerly with Accenture where he was a strategic management consultant.

Roger Croker replaced Richard Marriott, principal of Altair Financial Consulting, who had been chief financial officer on a part time basis. Mr Croker is a chartered accountant who trained with KPMG and has held finance roles with Macquarie Telecom, Qantas and Westfield.