Vunani - see through the BS

I noticed this week that empowerment financial services firm Vunani has completed its second acquisition in the last two weeks buying an additional 31% in Peregrine iQ the fund management business held by Peregrine and a 51% stake in something called the Jala Group.

With that in mind I had given it some serious consideration as a potential investment as a bit of a rebound and thought I would take a closer look:

A couple of observations here:

• Peregrine are a very smart bunch of people and in the back of my head I am wondering why they are allowing Vunani to end up with 51% of this business? These two firms have a funny relationship with one another and I wouldn't be surprised if Peregrine were quite happy to turn Vunani into their patsy for something they don't want.
• Peregrine can't really place much value on a business which supposedly has R11bn in assets under management - the transaction didn't even warrant a cautionary or a disclosure of the level of investment. For a tiny little business like Vunani (in the listed sense) that's odd.

But it is this Jala Group thing that really stoked my curiousity and got me digging around a bit...

Ok so here is the deal - 28 May Vunani says it has bought a 51% stake in this thing called the Jala Group.

• This Jala Group thing - a quick Google search doesn't come up with much except a bunch of media whores reproducing the press release that Vunani put out. More curious is that if you go to the website Jala.co.za the page has already been rebranded as Vunani Technology Ventures... but no real sign that there was ever any kind of cached web presence for these guys 20 or 30 days ago. Seems to ring a little hollow. Wonder if there was anything there in the first place?
• For an IT company with a track-record of just 9 months, this is a bit peculiar. If there is one thing IT companies are good at it is in leaving a track record of their transactions and skills on the various search engines.
• The site itself is designed in HTML. I can't think of any graphic designer who would design a new website - it has to be new because it has all been rebranded from Jala to Vunani in the last month - who would design anything in HTML.
• A quick look at the LinkedIn profiles for the directors makes for interesting reading as well. The guys had updated their employment profiles in April 2010 (i.e. before the market was informed of the transaction). Surely there has to be a disclosure issue here?
• Apart from Maree and McKellar who have something of a track record in IT, the associates seem to be a little lightweight. They have a psychologist for some bizarre reason and then they have Alon Hendel whose claim to fame (according to the website) was launching Tycoon.co.za that light-weight entrepreneurs thing for Moneyweb. No offence but we know how that ended up
• I don't put too much faith into Cipro but a quick search reveals that the Jala Group was registered in June last year and provides "Supply of Stationary and Related Services"
• There is no registered business called "Vunani Technology Ventures" or anything along those lines which has a link to Vunani. I appreciate its a new "re-named" venture but still the business needs to be registered.
• For an empowerment company Vunani Technology Ventures seems to have an awful lot of white faces on its board

But the real kicker for me is the claim that Jala / Vunani Technology Ventures has been helping some of its clients since April 2008. That's odd because the business only came into being at the end of last year.

In other words the Jala Group is not really a business. It is a couple of people who get asked for some advice from time to time and may sit on a few boards but there is very little in the way of assets here. The IP for this business sits in the hands of Maree and McKellar and whoever they are mates with and if they decide to walk away there is very little that would be appear to be classified as an "asset" at the moment.

And THIS is the problem with Vunani - they are so busy cobbling together shit that they don't stick to what they could be good at.

As tempting as it is that Vunani is suddenly coming good the numbers still don't give any indication that they are on the recovery path - rather the acquisitions are a case of bullshit trying to baffle brains.

For the year ended 31 December

• Turnover of R121m plus R15 in other income produced an operating profit of R8m
• Cash negative from operations of R135m out the door
• Net cash - R3m in the bank. If Vunani sneezes or has one bad month its screwed
• It obviously didn't use its own cash resources to pay for either of these acquisitions so does that mean more debt has been taken on a group which has just had to restructure?
• Vunani's debt effectively sunk it - there is a note in its March report saying that if its debt wasn't restructured it was effectively game over. The debt got restructured but then it runs around doing odd things rather than getting its house in order.

At first glance this might have the look of an interesting punt but if you peel back the curtain even a little bit the risk-reward trade-off is not even remotely attractive.