No Pain, No Gain: Long-suffering investors could score with Servoca

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The Independent Online

If you don't succeed, try and try again. Bob Morton, the serial investor, adopted such a time-honoured approach as he wrestled with the affairs of what was, until earlier this year, known as the Multi Group.

After a number of false dawns it seems that the company, renamed Servoca, has, thanks to the Morton persistence, found a rewarding role that should eventually benefit long-suffering shareholders. He has been involved with what has so far been an underperforming constituent of his small-cap portfolio for three years. But, after his patience finally snapped, he assumed a hands-on role and became the chairman and a 40 per cent shareholder.

Multi's chequered career saw it abandon its original activity of hiring tools to builders and switch into medical recruitment, but it was hammered by one particularly unsuccessful venture. A complete revamping exercise was required – and it came, under the Morton direction, in early summer this year.

He oversaw a massive share consolidation, a £4m cash call and a reverse takeover. The resultant group retained some Multi activities but, following the acquisition of a company called Dream, it also embraced a host of outsourcing operations.

Dream, which cost £4.5m in shares and likes to call its staff "problem solving people", is an unusual creation. It has close ties with various police forces, offering them a range of services including assistance with investigations. One of its attributes is a databank of retired police officers who can be called on to give a helping hand when necessary.

Its education side provides supply teachers, and its healthcare division can supply social workers. The group also has medical interests, some of them inherited from Multi.

Since the reorganisation, Servoca has acquired, for an initial £1.4m, a company called Windsor Recruitment, specialising in healthcare and education people. Takeover talks are taking place that could increase its security side.

It is probably significant that John Foley, the former chief executive of an old Morton company, MacLellan, has joined the board. MacLellan, acquired by Interserve in a £116m deal, had a thriving security arm.

Servoca's shares are around 46p, capitalising the company at £19m. For the cash call and reverse takeover, the shares were priced at 25p.

In its former incarnation, before it ran into trouble, the shares topped the equivalent of 450p. The medical recruitment deal that caused so much anguish involved a company called Global Medics. When acquired, it was valued at £13.7m. But Global Medics failed to perform – and was unloaded for a mere £520,000.

I last commented on the Morton empire in March. I had contemplated adding another of his companies, Lorien, an online recruitment group, to the No Pain, No Gain portfolio.

At that time he was chairman and a 40 per cent shareholder, and was bidding 40p a share for full control. But I missed the boat. The shares quickly took off, hitting 70p. Lorien once held takeover talks with Servoca (but that was back in its Multi days), and was also at one time rumoured to be looking at Dream.

The Morton bid for Lorien was triggered when his family investment vehicle acquired, at 40p a share, an 18.2 per cent stake from Eaglet Investment Trust, renowned for its success with small companies.

Only a few shareholders followed Eaglet's example and sold out. Indeed, Morton ended up with a little under 50 per cent of the capital. But he was happy; he had effective control and wanted to retain the share quote. Lorien shareholders who stayed on have done well; the company is being taken over at 100p a share.

As the Multi experience has so far proved, not every runner in Morton's quoted stable has emerged a winner. But he has a remarkable record, underlined by his Lorien adventure. I would be astonished if, under its Servoca banner and with 20 per cent shareholder Darren Browne as chief executive, the new group fails to deliver.

Its figures for the year ended March were, as expected, unimpressive. A £2.7m profit was swamped by exceptional charges, leaving a £7m loss.

The next results, covering a half-year, will also be distorted by special factors. But from then on profits (and, I suspect, acquisitions) will provide excitement. The portfolio scored with MacLellan. It could well try its luck with Servoca.

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