Sigma on new Frontier with reverse deal for subsidiary

SIGMA Capital, the Edinburgh investment company, is to demerge and list its university spin-out division, Frontier IP, in a bid to improve commercialisation prospects at the firm.

Frontier is set to complete a reverse takeover of ARH Leisure, a cash shell quoted on the Plus market, to give it a listing on the lightly regulated stock exchange.

The move is aimed at increasing Frontier's profile, enabling easier deal-making, and giving it more access to outside capital through share sales.

Frontier has commercialisation agreements with Dundee and Robert Gordon universities and equity stakes in a handful of early stage spin-out companies.

Sigma will initially control 77.4 per cent of the new group but this will be reduced as it raises further cash to inject into early-stage companies.

Graham Barnet, Sigma's chief executive, said Frontier was "awash with opportunity" and already in talks with "nine or ten" companies about funding deals.

It was also seeking commercialisation contracts with universities across the UK.

Sigma is also leading a share placement to raise 633,000 for Frontier. Added to the cash reserves from ARH, it will give the new company about 1 million in working capital. The deal would value Sigma's stake in Frontier at 3.5m.

Alister Minty, who has more than 15 years' experience working with spin-out companies in Scotland, will be managing director of Frontier, while Neil Crabb, one of Sigma's co-founders and a former investment analyst, will chair the company. Crabb will personally invest 150,000 into Frontier.

Barnet, who will sit on Frontier's board, said that, when the university intellectual property (IP) business was established 18 months ago, it was always intended eventually to become a standalone group.

The new structure would allow Sigma to share the funding risk and potential gains from building a larger business.

Plus is a lightly regulated exchange, where companies including Rangers and Arsenal football clubs are listed.

ARH will buy Frontier in return for issuing new shares to Sigma, giving the Edinburgh company a controlling stake.

Although the deal is subject to the approval of ARH shareholders, owners of more than 80 per cent of the group's capital have already given irrevocable undertakings to accept it.

As well as a university IP division, Sigma has property and renewable energy businesses. Its shares leapt 68 per cent to 9.25p yesterday after the company revealed that results for 2008 would be slightly ahead of market expectations for a pre-tax loss of 500,000.

Barnet said the share price in recent days was "a bit of a nonsense" with Sigma holding about 10p a share in cash.