This is the first in a series of posts that will attempt to make sense of the relationship between Querist and the Quester Group and Spark Ventures Plc. Quester Venture Partnership is the last remnant of this relationship that still lurks around like a bad smell in SPK’s investment portfolio under “Other investments”. Foraging for value by its very nature requires a strong constitution since the process can unearth some stomach churning discoveries that need to be surgically removed and the target disinfected to restrict contamination before value can be evaluated.
The first sighting of Querist Ltd and Quester Group was in the introduction to SPK’s 2006/07 annual report when it was announced that SPK had acquired Querist Ltd in May 2007 for a consideration of approximately £4m paid in cash and deferred consideration of £1m is payable in two instalments of £0.5m providing that certain revenue targets are met in future years. Querist Ltd was described as the parent company of the Quester group of companies with funds under management of over £200m in the form of the Quester VCT’s, Quester Venture Partners and several University Technology Transfer funds with £175m of which are on long term or rolling contracts.
However, note 4 of the 2007/08 interim report drip-fed the fact that the total purchase price paid by SPARK is expected to be £5.6m, including £1m of deferred consideration payable in two instalments of £0.5m on 11 May 2008 and 11 May 2009 subject to earnings targets being met. The net assets of the business at the point of acquisition were £0.3m. The difference between the price paid and the fair value of the net assets acquired of £5.3m is represented by the value of the fund management contracts which have been included on the consolidated balance sheet as an intangible asset. The bottom line: the Quester transaction had relieved the AIM-list SPK shareholders of £5.3m in hard cash within 24 months without any providing any transparency of what the ‘certain revenue targets’ were or whether these targets were fully achieved.
At the time of the May 2007 acquisition, the composition of Querist Limited aka Quester Group companies was disclosed as comprising:
Querist Ltd, Quester Services Limited
Quester Capital Management Ltd (FSA regulated)
Quester Venture Participations Ltd
Quester Venture Managers Ltd
Quester Venture GP Ltd, and
Quester Academic GP Ltd
At this point, it may be informative to examine the management structure of Querist and SPK’s management from 2007 to present.
Directors of Querist Limited on acquisition by SPK in 2007
Mr Andrew David Norman Betton (11 May 2007 — Present)
Mr Thomas Teichman (11 May 2007 — Present)
Mr Andrew Bruce Carruthers (11 May 2007 — Present)
Mr Jayesh Ramesh Patel (11 May 2007 — 13 May 2014)
Directors of Spark Ventures Plc on Querist acquisition in 2007
Mr Andrew Bruce Carruthers (27 Sep 1999 — Present)
Mr David Potter (20 Mar 2002 — Present)
Mr Andrew David Norman Betton (27 Aug 2003 — Present)
Mr Charles Richard Berry (15 Sep 2004 — Present)
Mr Michael Keith Whitaker (27 Sep 1999 — 11 Dec 2013)
Mr Jayesh Ramesh Patel (30 Jan 2004 — 19 Feb 2013)
Fast forward to SPK’s 2009/10 annual report and a note is published pertaining to prior period errors for Querist Limited explaining that, as at 31 March 2008, the additional consideration payable to the sellers of Querist limited (£1 million) was not reflected in the company only statement of financial position at the time. Further, the report waffled on about offsetting this £1.0 omission against the increase in the subsidiary company cost of £1.0 million and concluded that none these errors have had any effect on the Group results reported by SPARK Ventures plc in the current or prior years. Happy days!
The hapless investors of AIM-listed Spark Ventures Plc (SPK), having been relieved of north of £5m in 2007 made up of £4m cash in May 2007 and a further £1m cash paid in equal instalments in May 2008 and May 2009 through the acquisition of Querist Ltd, was now being relieved of their £5m investment through an MBO on 9 October 2009 for a consideration of £1m made up of £0.8 million cash and £0.2 million for a 30% stake in SPARK Venture Management Holdings limited (SVMH). SPK’s management, now also SVMH directors, also made the kind gesture of leaving SPK the former Querist subsidiary Quester Venture Gp Limited for £25k consideration in return for SPK selling Spark Investors Ltd to SVMH for £170k. What nice chaps!
As unpalatable as it may be, it’s important to note that as part of the MBO, Spark Venture Management Ltd (a subsidiary of Querist Ltd), was awarded an investment management contract to manage the investments of Spark Ventures Plc and to provide administrative services to it. This is in addition to D shares awarded by the AIM-listed SPK management to recognise the sterling contribution made by it’s management (Mr Andrew Carruthers, Mr Jay Patel, Mr Tom Teichman and Mr Andrew Betton) in brokering and disabusing SPK investors of their £5m investment in Quester Group. The key question for us at this point is what value is left to be stripped from Quester Venture Gp Limited, a company gifted to SPK for £25k by the generous management team.
Majority shareholders of SVMH after MBO of Querist in 2009
Spark Ventures Plc ~ 30%
Mr Andrew Carruthers ~ 23.33%
Mr Jay Patel ~ 23.33%
Mr Tom Teichman ~ 15.56%
Mr Andrew Betton ~ 7.78%
In conclusion, it’s fair to say that, in addition to directors fees and salaries, 2009/10 was the year that the AIM-list Spark Venture Plc almost bled to death while being leached of professional fees of £436; professional fees in connection with MBO, return of capital and corporate finance advice of £535k; management fee of Quester Venture partnership of £456k and management and secretarial fee of Spark Ventures plc of £258k. This cash haul of over £1.5m was probably enough to pay SPK for the £0.8m cash purchase price of Querist and its subsidiaries with its own money. Further, it doesn’t take a genius to figure out that sooner or later the hapless investors of AIM-listed SPK will be further disabused of that their 30% stake in SVMH prior to the exit of its mature investment portfolio. A first stab at estimating the potential value to be stripped from Quester Venture Partnership gives a result of zilch plus nada.
Oodutty
OODUTTY 