Has the Internet incubator company Antfactory closed down

Asks howardpiercy

A. It has not closed down as such, but rather it has been bought out by the stock broking and asset management company Seymour Pierce, in a complicated deal said to be worth �50 million.

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Q. Why is the deal complicated

A. It is not straight forward, but rather a share and loan notes deal. It will see Seymour Pierce paying just over �50m in new shares for the core Antfactory investment banking business, together with a portfolio of 15 new economy investments, which Seymour Pierce plans to sell over time. It will be left with about �30m in cash, which it will use to develop its existing asset management business. It will also issue up to 380 million new shares - representing 53% of the enlarged share capital - and short-term loan notes to a value of up to �50.1 million.

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At the time of the sale, Antfactory still has �81 million cash in the bank, and it is believed that a large portion of this will be returned to its original shareholders - some of which will also join Seymour Pierce. Harpal Randhawa, Antfactory's chairman and chief executive, is expected to join Seymour Pierce as vice-chairman, while James Pitt, a director of Whitney & Co, will join the board as a non-executive.

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Q. Why is the buy-out of Antfactory such big news

A. Antfactory was set up two years ago during the dot.com boom as an Internet Incubator company - literally to invest in and help new Internet businesses get off the ground or help older traditional businesses migrate to the online world. Concentrating on the latter, it invested over �135 million in the Internet arms of such companies as Citicorp, CVC Capital Partners, Alliance Capital and Whitney & Co. Its demise is symbolically seen as another nail in the coffin of dot.com business initiatives, especially as one of Antfactory's competitors, Jelly Works folded last year in similar fashion (it was bought out by Shore Capital, whose shares have since slumped).

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Q. What is an Internet incubator company

A. In short, they usually provide the backing (financial and technical) for new dot.com businesses or established companies to get onto the Internet - in return for shares in the company instead of cash. For new ventures, incubator companies often provide office space too. According to the Internet Incubator Fund, their duties should include the following:

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(a) Provide an instructive and supportive environment for entrepreneurs in start-up and early-stage Internet businesses;

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(b) Operate a selection policy based on judgements about the viability of the prospective client Internet businesses;

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(c) Provide an effective technological infrastructure, which should include appropriate broadband communication links;

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(d) Provide access to networks of business support tailored to the needs of the Incubatees;

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(e) Provide their clients with visibility and credibility in the marketplace.

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By Karen Anderson