Mercia Asset Management Interim Profit Rises; Buys NVM Private Equity

Tue, 03rd Dec 2019 11:53

(Alliance News) - Mercia Asset Management PLC said Tuesday its revenue growth in the first half met expectations, as the firm embarks on a GBP25.0 million takeover of NVM Private Equity LLP.

In the six months to September 30, Mercia's pretax profit grew 11% year on year to GBP2.1 million from GBP1.9 million.

Revenue grew 3.8% to GBP5.5 million from GBP5.3 million.

The firm's net assets at the end of the period stood at GBP128.4 million, up 2.6% on the GBP125.2 million seen the year before. Third party funds under management, however, were down 8.5% on the prior year, slipping to GBP361.3 million from GBP394.9 million.

Mercia invested GBP11.1 million in 16 portfolio companies during the first half.

"We are six months into our three-year plan to double assets under management, move the group to a profitable trading position and evergreen our balance sheet. We expect that this will be achieved through both organic growth and selective acquisitions," said Chief Executive Mark Payton.

The company said it "remains optimistic" about its ability to double its assets under management.

Mercia noted its managed funds are principally closed-end 10-year funds with long-term "predictable" fee income.

Payton continued: "I am pleased to say that we have made a solid start to the year, demonstrating our ability to deliver for all our stakeholders. We have strong liquidity across our managed funds and a maturing balance sheet investment portfolio which is now attracting increasing third-party syndication, particularly from venture capital trusts.

"Mercia is now a highly differentiated group which is poised for further growth. We remain confident in our ability to deliver strong returns for shareholders and fund investors alike over the near to medium-term."

Elsewhere, Mercia said it will acquire NVM Private Equity for a maximum GBP25.0 million through a combination of cash and shares.

To fund the cash consideration portion of the deal, Mercia will conduct a GBP30.0 million placing, priced at 25 pence per share. About GBP15.0 million of the placing will go towards the deal, with the rest being used to provide "further balance sheet growth".

Shares in the asset manager were down 13% in London in midday trading at 27.80 pence each. The placing represents a 22% discount to Mercia's closing price on Monday.

An initial GBP16.6 million will be paid to NVM, which will be made up of GBP12.4 million in cash and GBP4.2 million in Mercia shares, with a three-year deferred contingent consideration of up to GBP8.4 million being made available based on certain conditions being met. The contingent consideration is made up of GBP6.3 million in cash and GBP2.1 million in shares.

NVM currently manages London-listed Northern Venture Trust PLC, Northern 2 PLC VCT and Northern 3 PLC VCT. In total, NVM's VCT funds invest in 60 portfolio companies, 17 of which are listed and 16 are private equity.

NVM's total funds stand at about GBP270 million, which would increase Mercia's total assets under management to GBP770 million.

Mercia said the deal is expected to be earnings enhancing in the first full year.

Payton said NVM's business is "highly complementary" to Mercia's.

He continued: "By the end of financial 2022, we have said that we will seek to grow AuM to about GBP1billion, move the group to a profitable trading position ahead of balance sheet fair value movements and realised gains, and evergreen the balance sheet. The acquisition of the NVM VCT fund management contracts with a high quality team also transferring to Mercia, together with a promising portfolio of VCT investee companies greatly accelerates this strategic intent."

By Paul McGowan; paulmcgowan@alliancenews.com