VM Wealth recruited to raise US$7.5m to help Hispanics
Marcella Scarlett, Business Reporter
AP Capital Partners, a United States-based private equity firm, has named Victoria Mutual Wealth Management Limited as arranger for a deal to raise US$7.5 million from Jamaican investors.
The funds will be used to invest in the expansion of New Futuro, a private business headquartered in Chicago, which operates a social networking website targeting young people in the Hispanic community in the United States.
New Futuro operates a social networking website which was launched in 2011 to help Latinos prepare, apply and pay for college, as well as obtaining employment after college.
Richard M. Powell, co-founder of AP Capital Partners, parent company of AP Capital Growth Limited, said the locally based BCW Capital is collaborating with VM Wealth to raise the funds. AP Capital Growth is a special-purpose vehicle created for the sole purpose of carrying out the transaction.
Powell is a member of the board of Victoria Mutual Building Society, the parent company of VM Wealth. Frantz Alphonse is the other founder of AP Capital Partners.
According to the prospectus made available by VM Wealth to potential investors, the issue will be securitised by preference shares that have a par value of US$0.01 in the capital of the issuer and each share is sold at an offer price of US$1.00 per share.
The offer is open only to accredited investors, with the minimum purchase being 125,000 shares costing US$125,000.
Extremely risky investment
The return on the investment is 12.5 per cent per annum, what several analysts and investors - all of whom preferred not to be identified for this story - describes as "the kind of return you would see on extremely risky investment".
VM Wealth has been seeking to get support for this offer through advertisements.
The offering memorandum said funding will be raised on a 'best effort' basis, meaning an agreement to do the best to oversee, while not guaranteeing the sale of the shares.
Responding to questions posed by the Financial Gleaner via email, Powell said the initial feedback has been outstanding and if the offer is oversubscribed the directors would consider accepting up to US$10 million.
The prospectus indicated that the issue date was March 25, 2013 with the shares scheduled to mature on March 25, 2018.
Powell said the official opening date of the offering was Tuesday, April 30 and he expects it to be completed some time this month.
The first dividend payment will become due and payable on a date six months after the closing date of the issue or September 30, 2013, whichever is later. Thereafter, dividends will be paid quarterly.
According to the prospectus, each prospective investor should pay attention to several risk factors outlined in the document.
Powell said "all investments have risk" and "great investors seek to manage risk relative to return, not eliminate risk entirely, in a portfolio".
Additionally, he said that if the expertise and competence of the management and board of AP Capital, along with the "extremely large market the company is addressing", are taken into consideration "this offering is less risky than many others we have seen in the local market".
Specifically, the risk factors mentioned in the offering document is the credit risk associated with the investment.
The prospectus said the New Futuro's debt instrument will be AP Capital Growth Limited's sole source of revenue, so the company will be exposed "directly and indirectly to certain risk that arise from New Futuro's business activities and the environment in which it operates".
exposed to credit risk
Therefore, since the company's profitability is directly linked to New Futuro's ability to honour its obligation under the terms of the offer, investors will be exposed to New Futuro's credit risk.
So, "If New Futuro defaults on its payment obligations due to AP Capital Growth Limited under the New Futuro debt instrument, the company will not be able to make dividend payments to the holders of the preference shares or redeem the preference shares," says the offering memorandum.
Another risk factor described in the prospectus is the liquidity of the shares. It explains that the shares may not be readily saleable and holders who may want to cash out before the redemption date may not be able to do so, or may be able to do so if they are willing to take a discount.
Additionally, the shares will not be listed on the Jamaica Stock Exchange or any other stock exchange. Consequently, there can be no assurance that a secondary market will develop or if it develops if it will continue to exist.
AP Capital Partners is the majority shareholder of New Futuro, owning 50.2 per cent of the issued share capital since July 2011.
brand marketing solutions
The offer memorandum said New Futuro will earn revenue by providing major brand marketing solutions targeted to this single demographic, offering school and corporate recruiting tools to businesses and institutions seeking to diversify their student population or workforce, and selling premium product services to its members.
Financial information included in the prospectus shows that at the end of December 2012, New Futuro had net assets of US$1.74 million and total liabilities of US$8.19 million. The company projects that assets will reach US$23.83 million and liabilities US$11.12 million by 2015.
With sales amounting to US$2.93 million in 2012, the company is projecting that this will increase to US$44.69 million by 2015. The associated cost of sales, which was US$5.31 million in 2012, is projected to reach US$9.24 million over the same period. Powell said that since New Futuro is a private business, it's credit is not rated and no credit rating is required for this offer. Additionally, he said there is no registration or licensing requirement.