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Highlights:
- Mutares faces scrutiny over accounting irregularities: Gotham City Research highlights discrepancies in the firm's reported cash positions, raising concerns about financial transparency.
- Increased reliance on debt noted: Mutares' debt has surged significantly since 2020, prompting comparisons to Aurelius' troubled financial history.
- Shares plummet amid concerns: Following the report, Mutares shares fell 25%, reflecting investor unease regarding the company's financial stability and operational model.
Shares of German private equity firm Mutares plummeted on Thursday following a report from Gotham City Research that highlighted potential accounting irregularities and indicated the company’s increasing dependence on debt. The report cast doubt on the accuracy of Mutares' financial statements, particularly noting discrepancies between its reported cash positions.
According to Gotham, Mutares’ first-half balance sheet reported a cash position of €394.2 million, which conflicts with the €422.2 million stated in its H1 2024 cash flow statement. This inconsistency raises concerns about the firm’s financial transparency and the reliability of its accounting practices.
The short-seller further warned that Mutares appears to be significantly reliant on debt financing. The company's debt level, which was relatively low before 2020, surged to €150 million by the end of 2023, with an additional €235 million accrued so far in 2024. Gotham likened Mutares’ situation to that of Aurelius in 2017, suggesting that Mutares may have less margin for error due to its current net debt position, contrasting with Aurelius’ net cash status at that time.
Gotham also pointed to troubling similarities between Mutares and Aurelius, emphasizing issues such as a rapid rise in income derived from negative goodwill and discrepancies between reported earnings and actual cash flows. The report highlighted that while Mutares claims to enhance the long-term prospects of its portfolio companies, approximately half of the outcomes post-sale raised suspicions, with several instances of insolvency noted.
The firm expressed regret at needing to issue another warning regarding a similar business model, indicating that it had hoped not to revisit this issue after its previous analysis of Aurelius. However, the report concluded that the apparent circularity in Mutares’ cash flows, along with recent cash balance irregularities and increasing debt accumulation from public markets, warranted attention for potential risks far exceeding those observed with Aurelius.
As a result of these revelations, Mutares shares experienced a significant drop of 25%, trading at €19.38 at 1220 BST. This decline underscores the heightened scrutiny and uncertainty surrounding the company’s financial health and operational practices.
