Network International notes report by ShadowFall

ShadowFall published a paper on DPO deal which Network International announced in July

Network International Holdings PLC has noted a recent report published by ShadowFall Research concerning its planned acquisition of payment solutions provider DPO Group.

We take any critique of the company seriously, Network International said in a statement. While we believe many of the issues raised have already been addressed, the historical nature of certain statements in the report means that a full response will take some time.

ShadowFall, a research house setting out to uncover unethical practices in equity markets, on Wednesday published a paper on the US$288mln DPO deal which Network International announced in July.

DPO, which focuses on Africa, was founded in Ireland in 2016, “birthed by the ‘back-room boys’ to Wirecard UK & Ireland; it is even registered two floors above,” ShadowFall's analysts said.

Wirecard is a financial services provider that is now insolvent due to accounting scandals, which saw some senior executives implicated in criminal proceedings.

The first business DPO bought on its four-year roll-up was from a former Wirecard director, who in November 2016 was convicted of fraud and money laundering. The auditor to DPO was a colleague of the convicted money launderer, they added. The secretary and initial director to DPO are two individuals who were also associated with a company which is subject to an ongoing US CFTC court case regarding binary option scams.

ShadowFall noted that DPO is to be acquired on 12x its financial year 2019 pro-forma revenue, even though it has acquired its revenue on what the researchers calculated to be between 1.0x-2.5x sales; less than a year ago DPO acquired around 37% of its pro-forma revenue on 2.5x sales.

Analysts highlighted that this significant mark-up in value in such a short period of time has similarities to when Wirecard acquired the Indian business, GI Retail.

We believe that the major pre-IPO shareholder, who also happens to be Network International’s major customer, could have been incentivised to boost Network International’s numbers ahead of IPO, they said.