Document management software provider Invu was mid-way through a bold capital restructuring when the company fell foul of the regulators. FD John Agostini tells us what happened next.

For part 1 of Invu's story, click here

What did you do?

One of the key drivers for the whole transaction was getting rid of those two lines of stock, one of which was not CREST-able, and we were very much backed by our institutional investors.

We knew that the City was behind us having raised £4m in a private placing in June 2007, which was significantly oversubscribed. The money would be used to undertake the transaction and grow the business as well. We put aside £1.7m to cash out US shareholders and about £800,000 for transaction fees.

We knew there were many tangible reasons for the City to back this. We considered it to be our broker’s job to ensure as many of those institutional investors voted. They get so many notices through the door every single day of the week and in many cases they just cannot respond. In this case it was essential that a lot of them did.

I didn’t have sleepless nights but it did get very close. I’m pleased to say we did get 54 percent of the vote in favour of the merger. If we hadn’t lost the directors’ vote, that figure would have been 76 per cent, which would have been a marvellous achievement.

So, we got the vote and the rest is history. We’re now Invu plc and we will not have to report in the US again unless there comes a point where we have more than 300 US shareholders. That’s the same for any UK company that has a US subsidiary. We will obviously monitor the metrics and try to avoid this issue.

Did you use advisers?

We used our tax advisers, Mazars, as well as law firm Addleshaw Goddard. The Mazars partner, Lindsay Pentelow, and the Addleshaw Goddard partner, Matthew Doughty, moved heaven and earth to work out a structure and a step plan that would work from all aspects.

We also had to engage our US general legal counsel (Hunton Williams) to consider US corporate law, and US Colorado counsel to look after Colorado state law (Invu was incorporated in Colorado). Other pieces of the plan necessitated the use of valuation agents and of course our financial advisors were required to produce various reports.

Pre and post implementation we also needed US (Corporate Stock Transfer) and UK (Capita Registrars) share transfer agents to ensure the smooth exchange of US for UK shares and cash payments to US resident shareholders.

We also required the involvement of our brokers, Arbuthnot, because they had to handle the flotation of the new UK plc holding company on AIM.

Finally all the shareholder documentation required printing and distributing by specialist financial printers Millnet.

Would you recommend this to others?

I think this sort of transaction is a good move if you’re a US company that is, for all intents and purposes, a UK-centric company with a relatively small US shareholder base.

I also know there are a lot of US companies that have come to AIM recently because they couldn’t raise money in the US. It can be easier to raise money here but they’ve got the problem in that their shares have little liquidity because they have Regulation S limitations on them.

There is an argument that after two years, all the restrictions on Reg S shares disappear. But the problem is that if you then do a subsequent raise, you have another tranche of shares that are restricted. It’s problematic for businesses that are growing and that are going to be looking to raise successive sums of money on AIM. They have an element of shares that are CREST-able and an element that aren’t.

You also have to have a mechanism to know which shares are the original ones and which are subsequent issues, and you have to police that and prove to the SEC that you’ve got a foolproof method of ensuring that the ones that are restricted do not get traded to US persons.

Invu is now a UK plc, which is almost entirely funded from the UK. Going forward, whenever we want to raise money, we do it the UK way. We don’t have to worry about Regulation S shares, we don’t have to worry about dual reporting and we don’t have to worry about dual audits. We can work to the UK City code and we can embrace UK corporate governance standards. This just simplifies and streamlines the running of the business, which means we can concentrate a lot more effort on making Invu more successful.

Related article
Capital restructuing: Invu's story

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