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Gerry Harvey jumps aboard a Funtastic opportunity

The founder and Chairman of Harvey Norman (ASX: HVN), Mr Gerry Harvey, might have the bulk of his fortune tied up in the retail chain that bears his name but he also had a diversified portfolio of other investments including The Magic Millions and shareholdings in a number of listed companies.

One of those listed shareholdings is toy wholesaler and distributor Funtastic (ASX: FUN), which holds the licenses to popular brands such as Cabbage Patch Kids, Toy Story, Chupa Chups and Ben 10. Funtastic recently announced an acquisition and capital raising which appears to have tempted Harvey to raise his holding in Funtastic from 2.57% to 6.25%. This elevates Harvey to join Lachlan Murdoch, the son of Twenty-First Century Fox (ASX: FOX) founder Rupert Murdoch, and pub barons the Mathieson family, as a substantial shareholder.

Funtastic has agreed to purchase the CHILLFACTOR and Slushy Magic brands for $10 million. The consideration is 50% cash and 50% script.  Given that net debt to equity stood at 71% at the time of the interim results, the board has obviously taken the opportunity to use the acquisition to raise funds, $15 million in all, to not only pay for the acquisition but also to strengthen the balance sheet.

Funtastic’s management also used the acquisition and capital raising announcement to release revised full year guidance. Earnings before interest, tax, depreciation and amortisation (EBITDA) is now expected to fall in the range of $20 to $21 million compared with a previously advised range of $23 to $25 million. With its shares trading just above the raising price of 17 cents, Funtastic’s current market capitalisation is around $120 million.

Foolish takeaway

Before investors get too excited at the idea of following the ‘smart money’ onto Funtastic’s share register, consider for a moment its past investment performance. While each of these businessmen may have been involved with building great businesses, it doesn’t automatically correlate that they will always make profitable investment decisions.

Indeed a review of the returns so far from Funtastic show that the investment has been anything but a good one. In fact the investment returns for the high profile shareholders at Funtastic is not dissimilar to those over at Ten Networks (ASX: TEN) which also boasts a number of high profile investors.

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Motley Fool contributor Tim McArthur owns shares in Twenty-First Century Fox.

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