Issue 10 / Spring 2014
Creating Value The Newsletter of Maven Capital Partners
In this issue 03/ VCT Offer open until April 2014 04/ SPS 05/ Global Risk Partners 06/ R&M Engineering 07/ DMACK 10/ The Recovery of Commercial Property 11/ VT Maven Smart Dividend UK Fund
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This has been an excellent season generally for VCTs, with fundraising up around 70% over the same period as last year (AIC, January 2014). Over the past decade or so, VCTs have steadily become a mainstream product, as investors increasingly recognise the opportunity for tax efficient investment in an asset class which produces attractive levels of tax-free income from a broadly based portfolio, and at the same time provides exposure to something quite different from conventional equities. 2013 was the first year since the financial crisis which emerged in 2008 where we saw tangible evidence of recovery in the UK. M&A activity increased, the market for IPOs began to open up, banks started to lend again, and property values steadied or increased. This more positive business operating environment has allowed us to deploy capital in a range of interesting and varied businesses. As many longer term Maven investors will be aware, we have a strong and proud presence in the upstream oil & gas sector, with a track record of successfully investing in a wide range of service related companies which support this important sector of the UK economy. We do not invest in exploration or development, preferring to commit capital only to later-stage companies which have predictable revenues and earnings, and which typically supply the ‘picks and shovels’, rather than investing in those which ‘dig the holes’. This approach has historically served us well, and our long established local presence in Aberdeen allows us to access some of the most entrepreneurial companies in the UK, many of which have a global reach. These companies will often gain sufficient traction
during the time of our investment to become attractive to international trade buyers, or are acquired by larger private equity houses, allowing us to unlock profits for our VCT investors. As a slight word of caution to balance the overall improving picture, there is some evidence that the increased flows into the VCT sector, with the resultant need to deploy capital, may tempt some investment managers to under-price equity risk when competing for new assets. This issue is compounded by the emergence of new market participants outside of the VCT sector, where we have to be increasingly flexible to compete.
Bill Nixon Managing Partner
W
elcome to our Spring 2014 Newsletter. I would like to open with a thank you to the new investors who have subscribed to the current Maven Linked Offer across our six established VCTs. More than 900 investors took advantage of the Early Bird incentive, although some capacity remains within the offer maximum.
In this positive but competitive operating environment, we believe it is vital that investors look to invest with well-resourced VCT managers with a strong regional presence, where embedded local relationships will tend to prevail in securing the better quality investment mandates. Maven has invested heavily in its regional network across six UK cities, which helps drive a large number of introductions, and our team typically sees around 500 companies each year seeking private equity funding. I’m pleased to be able to say that since I last wrote we have been very busy with a number of new transactions. Since November we have completed four investments in the energy services, automotive, insurance and consumer goods sectors, which are all separately profiled in this newsletter. I hope you enjoy this edition of Creating Value.
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Linked VCT Offer
Open until April 2014 There has been very strong early support from both existing shareholders and new investors for the £20 million Maven Linked VCT Top-up Offer, with over £14 million already raised. Investors still have the opportunity to invest - the Offer will close on 5 April for subscriptions for the 2013/14 tax year and on 30 April for tax year 2014/15. The offer provides access to six established VCTs, with a later-stage investment strategy and invested in a broad mix of profitable and high-growth UK private companies. The VCTs each aim to achieve long term capital appreciation and generate maintainable levels of tax-free distributions, and investors before the end of April will be immediately eligible for dividends from the VCTs, including any final dividends payable between May and August 2014. Maven has a track record for building highly diversified and income producing VCT portfolios, and is recognised as one of the most active private equity investors in the UK SME sector. Since March 2012 Maven has completed eleven new private company investments for VCT clients, including four since the Offer was launched in October last year. These new investments are profiled later in this newsletter and help to illustrate Maven’s multi-sector investment capability across its UK-wide investment team.
Over £14m Raised to Date (as at 01/03/2014)
Key to delivering steady improvements in VCT shareholder returns is the ability of the investment manager to continuously develop and refresh the portfolio, with a regular turnover of assets via a cycle of new investment, realisation and distribution, with exit proceeds re-deployed in making further investments and paying regular dividends. Maven has consistently achieved profitable realisations in recent years and our portfolio executives work closely with each management team to develop the business and ultimately exit strategies. Since March 2012 the Maven VCTs have achieved seven profitable private company exits, including sales to trade buyers from the UK, South Africa, USA, Canada and Germany. If you would like further information about the VCTs or the Offer, or additional copies of the Securities Note and Application Form, please contact us on 0141 306 7400 or enquiries@mavencp.com. Prospective investors should note that the Offer uses a fixed pricing structure but each of the VCTs reserved the right to announce a revised Offer Price if there is a movement of 5% or more in its underlying NAV, at which time the VCTs may also elect to issue a Supplementary Prospectus (SP). Since the Offer opened Maven Income and Growth VCT 5 PLC has announced an increase of more than 5% in its unaudited NAV and a resultant change in its Offer Price, which is explained in the SP available at www.mavencp.com/vctoffer. When a VCT announces the publication of final annual results before the Offer closes, the issue of a further SP will be announced and copies also made available on the Maven website. This is an advertisement. An investment in the Maven VCT Offer should only be made on the basis of information set out in the Prospectus issued at the time of the Offer. Investment in a VCT carries a higher risk than many other forms of investment. A VCT’s underlying investments will normally be in unlisted companies whose securities are not publicly traded and are therefore likely to be illiquid, carrying substantially higher risk than investments in larger, listed companies. Investors’ attention is drawn to the Risk Factors set out in the Prospectus.
Maven Income and Growth VCT
Maven Income and Growth VCT 2
Maven Income and Growth VCT 3
Maven Income and Growth VCT 4
Maven Income and Growth VCT 5
Maven Income and Growth VCT 6
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Chasing Promotion Promotional products manufacturer SPS benefits from Maven investment in support of a £7.25m management buyout from 4imprint Group plc.
Blackpool-based SPS is a market-leading supplier of promotional merchandise, with over twenty years’ operating history. With annual turnover exceeding £17 million the business has experienced impressive growth over recent years, stemming largely from its focus on innovative product sourcing, investment in branding technology and a commitment to operational and service excellence. SPS is the UK’s largest provider of promotional products, serving over 2000 independent distributors in the UK and Europe, many of which supply products to leading global brands. Employing over 200 people, the business operates out of a 90,000 ft² state-of-the-
art freehold property with manufacturing, branding and storage facilities. There is considerable scope for SPS to capitalise further on its market position and the management team, led by CEO Phil Morgan, has a clearly developed strategy to continue to expand the business.
SPS has a wealth of experience and expertise in designing and manufacturing plastic and paper promotional items. The business stocks an extensive range of products including drinkware, keyrings, mousemats, rulers, notepads, memo-blocks and other stationery items.
The UK promotional merchandise market is worth over £760 million per year, and SPS is well placed to take advantage of increasing demand for its products as advertising budgets increase due to improving market and economic conditions.
Maven’s investment will help the management team in delivering the SPS growth strategy, which includes further product development, expanding the existing sales channels to have a greater focus on the European and UK retail markets, and setting up new license and distribution agreements with key strategic partners.
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Risk & Reward Maven participates in the £55m insurance sector buy-and-build investment in Global Risk Partners
In November 2013 Maven client funds participated in a £55 million investment syndicate established to fund a new business, Global Risk Partners (GRP), in a transaction led by Penta Capital LLP (Penta). Maven provided £5 million of the aggregate funding to GRP. This deal represents another opportunity to invest in high quality private equity transactions led by Penta. Maven VCT funds previously invested with Penta in the 2010 acquisition from Lloyds Banking Group of leading online insurance provider esure, which last year undertook a successful IPO, and subsequently the 2011 investment in buy-and-build platform Six Degrees Group, which has successfully completed and integrated 13 separate acquisitions in the telecom services sector over the past three years. GRP has been set up by David Margrett who had a number of senior roles at Willis, including being CEO of their international business where he was responsible for 5,000 staff, and also running their Global Specialties business. He is joined by former Deloitte partner Stephen Ross, as the company’s COO, and Chairman Peter Cullum, the founder of insurance broker Towergate which became the UK’s largest independently owned insurance broker, with a turnover of £400 million. The new business is a buy-and-build vehicle targeting acquisitions in the global specialty
insurance and reinsurance markets, and intends to pursue the same successful growth strategy employed by Towergate. GRP will focus on the Lloyd’s market, where David and Peter have built a strong pipeline of prospective acquisitions. The aim is to acquire a broad mix of accredited brokers and Managing General Agents and offer an unrivalled concentration of specialist underwriting expertise and knowledge. GRP has already made its first acquisition, with the £9.25 million purchase of Towergate Commercial Property Underwriting, which underwrites large UK and European property risks. Lloyd’s is the acknowledged global centre for specialty insurance and reinsurance of risk, writing gross annual premiums of £25 billion. Although Lloyd’s has delivered strong growth and significantly outperformed the general insurance sector in recent years, there is an opportunity for a strong and well financed consolidator in a market which remains highly fragmented below the three main brokerages.
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Maven invests in energy services specialist Maven invests in the £8m MBO of R&M Engineering Maven Capital Partners has invested £5 million for a majority equity stake in R&M Engineering (R&M), which provides integrated engineering and fabrication services to the North Sea oil & gas industry. R&M operates out of purpose-built premises in Huntly (Aberdeenshire) and is one of the few independent energy services companies in the UK with the expertise and infrastructure to carry out large and complex projects including hydraulic, pneumatic and electrical work. The business undertakes all processes in-house, including design, machining, welding and final fabrication. Established in 1979 and now employing around 70 people, the company has developed a reputation as a provider of precision products and services to a broad customer base of blue-chip oil & gas operators and tier 1 contractors. The energy service sector is currently benefitting from record levels of investment, as ageing asset infrastructure is driving the need for ongoing fabric maintenance. R&M is therefore well positioned to benefit from this activity due to its established relationships with some of the most active operators in the sector. R&M has enjoyed a sustained period of organic growth in the North Sea in recent years, with annual turnover approaching £15 million, and is now starting to complete work on a ‘build to ship’ basis for overseas customers through its existing key relationships and their connected subsidiaries. Maven will provide strategic support to R&M through its next exciting phase of growth, including the development into vertical markets via a new Laser Survey & Scanning Division, which will provide a 3D survey capability using advanced scanning technology and software. This innovative product will allow R&M to offer customers a significant additional benefit, through a survey process that creates a 360o wrap-around image with outstanding accuracy.
This is an exciting time for R&M Engineering. We are looking forward to a bright future working together with Maven. This new partnership will not only allow us to drive our business forward but will also enable us to provide our valued clients in the oil and gas industry with an expanded range of services. Alan McLean Managing Director at R&M Engineering
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DMACK wins backing from Maven Maven invests £3.5m in global tyre manufacturer DMACK
DMACK is a trusted supplier to several high profile motorsport events across the globe, and in 2011 was appointed, alongside Michelin, as an approved tyre supplier to the FIA World Rally Championship (WRC). The company’s affiliation with the WRC in particular served to provide a global platform for the product and created a market opportunity for DMACK to introduce a range of PCR (passenger car) tyres in 2012.
In January Maven client funds invested £3.5 million into Carlisle-based tyre manufacturer DMACK to fund the next stage of expansion for this innovative, high growth business which has established a global footprint.
The strategic decision to develop and supply PCR tyres which exhibit proven motorsport engineering and performance attributes at affordable prices, has resulted in significant interest and demand worldwide. Maven’s investment will allow the company to invest in new tyre moulds to increase the range and quantity of tyres it produces as the business continues to scale up. With the global tyre market currently valued at c.$90 billion per annum, and forecast to grow by a further 50% by 2017, DMACK is well placed to achieve further significant growth in the coming years.
DMACK designs and manufactures high performance tyres for the automotive market, specialising to date in the motorsport sector. Founded by Managing Director and former senior Pirelli executive Dick Cormack in 2006, the company has achieved impressive levels of growth over recent years, with distribution agreements already established in 72 countries. With an efficient, state-of-the-art manufacturing facility in China, DMACK is also able to ensure that its tyre quality exceeds global regulatory safety and environmental standards, including the 2012 EU Tyre labelling regulations.
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Maven has raised £6 million to fund a new student accommodation development in the West End of Glasgow. The student accommodation sector has seen substantial growth in investor interest and has emerged as one of the best performing property asset classes in the UK. However there is a limited supply of good quality direct investment opportunities available to private investors.
Maven’s First Student Property Development
With UK student numbers steadily increasing, particularly among the better-regarded Universities such as University of Glasgow, there is significant under-provision of purpose built student accommodation in many cities. Claremont House is an empty office block located just a short walk through Kelvingrove Park from the University of Glasgow, and will be refurbished into a 108-room student accommodation unit, scheduled to be open for the start of 2014/15 academic year. The completed development will be managed by CRM, which is one of the top five specialist student accommodation management companies in the UK and already operates 50 units across the country, including two in Glasgow.
GREATER MANCHESTER
Loan Fund
The mezzanine loan fund invests in three more Greater Manchester based businesses Since making its first investment last August, the Greater Manchester Loan Fund has continued to gather momentum by investing in a further three local companies with ambitious growth plans. The £20 million fund was established by the Association of Greater Manchester Authorities in 2013. With SMEs continuing to struggle to raise finance as a result of tighter lending criteria, the GMLF was set up to provide flexible funding solutions for promising businesses, helping to encourage growth while creating and safeguarding jobs. Maven was appointed as the fund manager for the GMLF in August, since when it has been actively looking to provide
finance to some of the region’s most ambitious businesses and has already made a number of investments. Celebrating its 35th anniversary this year, Wilkinson Star, a leading distributor of welding equipment, air compressors and power generators, received funding from the GMLF to provide working capital to help diversify its product offering and develop further distribution agreements. In November the GMLF invested in Love Energy Savings which provides brokerage services in the energy supply sector, acting as an intermediary between businesses and energy suppliers in order to deliver the best deal for its clients. Focused on businesses, the company has diversified and developed new
channels to market, including an innovative price comparison website which is unique to the sector. Although comparison sites are common in retail, they are rare in the business space. The most recent investment by the Fund was in Camwatch, one of the UK’s leading CCTV security companies, which provides remote monitoring technology and security services to the construction and utilities sectors. GMLF funding has provided the working capital to allow the business to continue to grow and expand into new markets.
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Maven
collects key industry award Maven’s continued investment success was recognised by our industry peers, in being named as UK Private Equity Manager of the Year 2013 at the Acquisition International Finance Awards.
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FINANCE AWARDS
UK Private Equity Manager of the Year
In acknowledging the outstanding achievements of individuals and companies within the finance sector, encompassing everything from insurance brokers and specialist IT providers to advisers on subjects ranging from equities to renewable energy, these awards identify and honour success, innovation and ethics across international business communities. 2013 proved to be a very successful year for Maven, with the business picking up a number of awards including the UK Small Buyout House of the Year at the ACQ Global Awards.
Shaven Maven for
Movember
Throughout November 2013 Maven’s Male colleagues put their top lips and masculinity on the line to take part in Movember, a month-long event to raise awareness of men’s health issues, and in particular prostate and testicular cancer. The annual Movember campaign has been raising awareness of men’s health since 2004, and the Maven team was up for the challenge of raising some much needed funding for worthwhile charitable causes. The inspiration was simple. One of our valued colleagues had recently battled the illness and we were delighted to welcome him back after a period of treatment and recuperation. Our team was keen to show its support and recognise his strength and resilience in bouncing back so positively. The 1st of November heralded the final time many Maven top lips would be clean shaven for a month. As the days turned into weeks ‘moustaches’ of all shapes and sizes were on show in Maven’s offices, with some more noteworthy than others. As the month drew to a close and we dusted off the razors, Maven had raised a total of £10,000 for cancer charities. A fantastic effort from those taking part and all of our supporters.
ONE MEMBER OF THE MAVEN STAFF IS TOO EMBARRASSED TO SHOW OFF HIS WELL GROOMED FACIAL HAIR
Maven would like to take this opportunity to thank everyone who kindly donated and helped make our Movember efforts a success.
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THE RECOVERY OF
COMMERCIAL
PROPERTY
Maven’s Commercial Property specialists Ramsay Duff and Andrew Whiteley discuss the current market trends for this resurgent asset class.
2013 has seen a marked resurgence in the fortunes of the UK commercial property market, which seems set to continue into 2014. The key ingredient of course is real economic recovery and sustainable future growth, and the UK economy certainly entered 2014 in stronger shape than it entered 2013, with all the indicators looking encouraging. GDP growth was recorded to be 0.7% for Q4 2013 and 1.9% for the whole of 2013. Employment in the 3 months to November 2013 increased by 280,000, driving unemployment down to 7.1%. Despite strong signs of economic recovery, recent forward guidance by the Bank of England suggests that the base rate is unlikely to rise until at the earliest well into 2015, and even then will only climb at a very slow pace. The December RICS Housing Market Survey showed demand still outpacing supply by some distance, supported by lower mortgage rates, less harsh credit conditions, a pick-up in consumer confidence and policy actions such as the government’s Help to Buy Scheme. Business confidence too appears to be picking up. At the same time, income yields on commercial property compared to the mainstream asset classes are attractive based on historical comparisons. All in all, the environment appears to strongly favour investment in UK commercial property. Predictably, it has been the prime Central London market that has led the recovery, buoyed by huge overseas demand for safe haven investment opportunities. As a result, prime London office and retail rental levels and capital values are now being seen to exceed those achieved at the previous market peak in 2007/8. Regional and secondary property on the other hand has, until recently, been relatively overlooked, particularly by overseas investor groups. It is becoming increasingly apparent however that regional markets offer many of the most compelling opportunities. Such opportunities include but are not limited to: • Regional offices: outside Central London speculative office development has dried up since the onset of the
financial crisis. Corporate occupiers are becoming increasingly confident but the supply of good quality modern space in many towns and cities is relatively scarce. Shortages of space are emerging, with increased demand and rental growth already becoming apparent. • Local retail: many high streets across the UK continue to suffer high vacancy rates. However, demand for neighbourhood convenience stores continues to build as evidenced by the increasing number of local stores being opened by the larger supermarket chains. • Small logistics warehousing: the continued growth of online retail sales is changing the logistics industry, with growing demand for smaller warehouses around cities which can be used as express parcel hubs and for next or same day deliveries. • Student accommodation: Many of the UK’s key university cities and towns face a marked shortage of purpose built accommodation, largely because funding constraints force the universities themselves to focus limited resources on educational needs, rather than the provision of bed space to students. Maven recently raised £6 million for a student accommodation development in Glasgow as profiled on page 8. • Commercial to residential changes of use: UK Planning policy changed in May 2013 to allow vacant commercial property to be converted to residential use without the need to seek full planning consent or make expensive Section 106 payments to planning authorities. In locations where residential values outstrip commercial values, such changes of use can be lucrative.
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VT MAVEN
Fund Manager Rob Davies explains why the VT Maven Smart Dividend UK Fund is a simple and cheap way of investing in the UK stock market.
Smart Dividend UK Fund Investing in shares can be an effective way to protect and grow wealth over time and particularly during periods of inflation. Picking individual shares is exciting and can be very rewarding. However, it takes time and research, can be a roller coaster ride with the risk of significant falls in value, and will often have tax consequences. A boring but easier alternative for the core of a portfolio is to find a collective investment vehicle, though of course that still requires a selection process. The first choice is between active and passive investment approaches. Passive investing is regarded by some as an acceptance that the market can’t be beaten, but the reality is that there are over 750 companies in the FTSE All-Share Index alone and the news flow is overwhelming. Each company releases final and interim results, as well as at least two sets of trading updates every year, and that is before considering corporate actions such as takeovers and rights issues. Faced with an average of 15 reports a day, some of them stretching to over 100 pages, it is easy to see the appeal of a simple passive approach. Until recently all passive funds used the simple measure of market capitalisation. In other words they held more in the largest companies by value. Allocating capital by price is appealing because it is simple to do. Yet in few other areas of life or business most of us don’t buy something simply on price. Normally we look at other features to ensure that we getting good value. Companies are however not easy to value. Revenue can be inflated by sales made at low margins and book value can often be out of line with market realisations. Profits should be a better measure but are often distorted by one-off factors. That leaves dividends. The ultimate test of any company is its ability to throw off cash, and dividends are the evidence that the company has generated surplus cash it can return to shareholders. Unlike other figures in the accounts, dividends can never be restated and can be independently verified. There is another important reason for using dividends as the measure to construct a portfolio. Research by Barclays, Professor Elroy Dimson of the London Business School and Professor Siegel
of Wharton, all demonstrates that dividends are by far the largest component of long term returns. It may surprise some investors to learn that dividends, growth in dividends and reinvested dividends have generated over 90% of the returns from equities since 1945. By ignoring share prices and looking only at dividends the Smart Dividend UK Fund takes a unique approach to determining the amount held in each company, using consensus forecasts from all the analysts that follow each stock to calculate how much each company is expected to pay out in the next year. The forecasts for the largest 350 are then totalled and each company’s % share of the total forecast dividend pool determines how much the fund should hold in that company. This ensures that the largest holdings are in the biggest dividend payers, not the largest by value. This allocation process is repeated every month, to capture changes in economic conditions as well as moves in exchange rates, commodity prices and so on. The net effect is a low cost fund (0.5% annual management charge) with no initial charge, spread or dilution levy. This means that the fund can closely mirror the overall return of the asset class i.e. large and medium sized UK companies, but suffers less volatility than three quarters of its competitors (source: FT adviser, as at 5 February 2014). Investors recognise that markets will be volatile for periods, but funds with a demonstrable bias to value typically suffer less in rocky times than other funds. The benefit of the tilt towards value achieved using this investment model can be demonstrated by the 4.1% yield achieved on the income units of the fund over a 12 month period (as at 5 February 2014), which was 10% more than the yield on the FTSE 350 (source: Citywire) over the same period. robert.davies@mavencp.com The value of investments in the fund, and the income from them, may fall or rise and investors may get back less than invested. Past performance is not a guide to future returns. If you are in any doubt about whether the fund is suitable for you, you should seek advice from an authorised financial adviser.
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Access to VCT Shareholder Information Shareholders should contact Capita Registrars with any questions about their VCT shareholding. For your protection Capita Registrars can only provide information about your shareholding directly to you, unless your adviser has provided written authority to obtain information on your behalf. Alternatively you can call the VCT shareholder helpline on 0871 664 0324* or register for the share portal at www.capitashareportal.com where you can manage your shareholding online. *Calls to Capita cost 10p per minute plus network extras. Lines are open from 8.30am until 5.30pm on Monday to Friday.
Stay Connected with Maven If you would like to receive our newsletter and information about new investment opportunities via email, please contact enquiries@mavencp.com Investors can now stay up-to-date with Maven in real-time. If you want to be one of the first to hear about new investments, portfolio exits or any VCT news then it is only a click away. Find and follow Maven on Twitter, Linkedin and Google+
Contact Maven Maven Capital Partners UK LLP Kintyre House 205 West George Street Glasgow G2 2LW T/ 0141 306 7400 E/ enquiries@mavencp.com W/ mavencp.com
Important Information Please note that Maven Capital Partners UK LLP cannot give any investment, legal or taxation advice in respect of any fund or product featured in this document. This document is not an invitation or a recommendation to invest, and is for information purposes only. Past performance is not a guide to future performance. Prospective investors should regard an investment in a VCT, or directly in an unlisted company, as a long term investment which carries a higher risk than many other forms of investment. A VCT’s underlying investments will normally be in unlisted companies whose securities are not publicly traded and are therefore likely to be illiquid, carrying substantially higher risk than investments in larger, listed companies. The value of shares in a VCT, and the level of income derived from them, may fall as well as rise and investors may not get back the money originally invested. Any investment in an EIS qualifying investment, or otherwise directly into an unquoted or private company, or in asset classes such as commercial property, carries a higher degree of risk than many other forms of investment and may be difficult to realise. The value of any such investment, and the level of income derived from that investment, may fall as well as rise and investors may not get back the money originally invested. Reliance on the information in this document may expose you to a significant risk of losing any property or assets invested. Certain investments are not available to retail investors, and are only available to Investment Professionals or Sophisticated Investors. If you have any doubt about the suitability for you of any fund or investment referred to in this document, or whether you can afford it, we recommend that you seek professional advice from an authorised financial adviser. Issued by Maven Capital Partners UK LLP which is authorised and regulated by the Financial Conduct Authority (FCA registration no. 495929). Registered office: Queens Chambers, 2nd Floor, 5 John Dalton Street, Manchester M2 6ET.
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