Elephant Capital may seek compensation as £8m ClinTec investment dives

Elephant Capital bought into the pharmaceutical contract research company in August 2010 but what the investment company described as a “significant shortfall in performance against budget” has led to it twice slashing the value of its 28.5 per cent stake.

Elephant said although it was continuing to work with ClinTec’s management to improve the operating performance of the business, it also said it was considering other “remedies” that are available to it including a potential warranty claim under the original share purchase agreement.

Warranties are commonplace in such transactions to provide purchasers with potential redress against vendors if investments do not perform as expected.

Last week Elephant revealed it had written down the value of its investment to £1.65m from £5.5m last February.

In total it has now written down £6.35m on its original investment.

Elephant said Glasgow-headquartered ClinTec’s performance had “rapidly” fallen short of budget in the months following its investment.

“The company continues to significantly underperform compared to original expectations and to the budget provided at the beginning of 2011,” said Aim-quoted Elephant in its full-year results. “The continued underperformance is clearly a cause for concern.”

The writedown was the main factor in a significant fall in net asset value reported by Elephant which recently appointed chairman Vikram Lall said he was “very disappointed” by.

At the time of its previous writedown last year, Elephant stressed that the “board continues to have confidence in the [ClinTec] business model and is supportive of management’s efforts to get the business back on track”.

Elephant, which specialises in investments related to India, bought its stake in ClinTec through its Tusk Investments Fund.

Gaurav Burman, managing partner of Elephant, also pumped in £150,000, with fellow director James Hauslein investing £200,000.

At the time, the Scottish firm said the money would be used to fund its Indian expansion and its move into the Asia-Pacific region.

Buttar, named Ernst & Young Scottish Entrepreneur of the Year in 2010, founded ClinTec in 1997 to carry out clinical research work for pharmaceutical firms, biotechnology companies and medical device makers.

It has opened offices in 25 countries over the past three years, expanding its network to cover 40 nations and in June last year opened bases in China, Singapore and Thailand. At the time it also unveiled plans to add offices in Indonesia, Malaysia South Korea and Taiwan.

ClinTec did not respond to calls when contacted.