EO, the online share distribution platform, faces being closed down by its major shareholder, NewMedia SPARK. Founded by John St John, the former head of global equity markets at Lehmans, EO aimed to bridge the link between brokers and retail investors. But with the death of the IPO market, EO has struggled to convince investment banks of its business model. It distinguished itself from other online platforms by aggregating retail orders for new issues in partnership with the banks leading those deals.
NewMedia SPARK director Joel Plasco stresses EO is not in any financial difficulty. Quite the contrary, GBP6 million cash remains in the business. But he says shareholders have looked at the business and have decided that EO has taken a leading position in a market that is dead. Their USP was targeting the international IPO market, which is dormant. “The problem is that the carpet has been pulled out from under EO’s feet,” says Plasco. “There is now no market for EO’s business. We have to live with the reality of where the market is today and have asked our senior executives to take a look at the business and to pursue alternatives to generate revenues.”
There are all sorts of businesses that could take advantage of the network and contacts EO has, particularly its partnerships with broking firms such as Charles Schwab, Sharepeople, Stocktrade, Imiweb and Barclays Stockbrokers.
The firm has been taking some hard-nosed decisions over the past weeks. “There are a number of opportunities that are out there at the moment and we are hoping that it will come to a head fairly quickly,” said Plasco. As a last resort the cash in the business will be returned to shareholders. “That’s an alternative, but not the one we would prefer. But in the current climate everyone is taking the view that cash is king.”
Around GBP20 million has been invested in the company in a number of rounds. NewMedia SPARK is EO’s largest shareholder, with a 38 per cent share in EO as part of its acquisition of GlobalNet Financial, the US-based online financial services company.
Last year, EO established itself as a leader in its niche when it acquired main rival, EPO.com, a pioneer of European online new issue distribution. At its height, EO had a workforce of 50, but this has been scaled back significantly and the management is aiming at reducing the team to a skeleton of around half a dozen. At the time of its launch, EO looked set to dominate its market, but unfortunately in the current climate that market just doesn’t exist.