Strategic Co-Investment Agreement

RNS Number : 2345H

Gresham House Strategic PLC

16 August 2016

 

GRESHAM HOUSE STRATEGIC PLC

Strategic Co-Investment Agreement

Reduction of Interest in IMImobile

and Intention to Resume Dividend Payments

Gresham House Strategic plc ("GHS" or the "Company"), the engaged investor applying private equity techniques to investing in smaller quoted companies, announces that it has signed a co-investment agreement under which it will co-invest £7.5m with the Gresham House Strategic Public Equity Fund LP ("SPE Fund LP") ("The Co-Investment Agreement"), a sister fund to GHS launched today by Gresham House Asset Management Ltd ("GHAM" or the "Investment Manager").  The SPE Fund LP is managed by the same investment team as GHS and follows the same Strategic Public Equity ("SPE") investment strategy, but is targeting investors who favour limited partnership structures. Gresham House plc will also be entering into the Co-Investment Agreement and intends to co-invest up to £3.75m alongside the SPE Fund LP.

§ The Directors and Investment Manager believe that the Co-Investment Agreement will benefit the Company by reducing its exposure to IMImobile ("IMO") while still maintaining a substantial interest in that company, which the Investment Manager continues to believe has significant upside and in excess of its 15% IRR target.  

§ As a result of the transaction there will be a realised gain on the sale of IMO ordinary shares, which the Company intends to be distributed to shareholders by way of a dividend at the end of the financial year, in line with its return on investment policy. 

§ Together with the realised gain on the sale of Castle Street Investments earlier this year, the total available for distribution currently equates to £0.6 million (or 15p per ordinary share).

§ The Co-Investment Agreement will also benefit the Company's shareholders by increasing the funds available to invest in SPE as a result of a larger combined unit size across the two funds.  The Directors believe that this will provide the Company with access to larger deals and also reduce costs through shared resources and cost synergies.

§ It is one year since the Company first published its NAV under the management of GHAM and performance has been strong with low volatility against an uncertain backdrop.  The team delivered NAV growth of 8.9%, significantly outperforming the FTSE Small-Cap Index which rose 1.2% over the same period.

GHS' £7.5m co-investment commitment will initially be satisfied by transferring 3,875,969 ordinary shares in IMO at a price of 193.5p per share (being the closing mid-market price on 15 August 2016) into the co-investment structure, as set out in further detail below.

As a result, the Company will reduce its position in IMO from a value representing more than 50% to below 40% of the portfolio and realise a gain on the sale of the IMO ordinary shares.  Currently 50% of the applicable gain is available to be returned to shareholders in accordance with the Company's stated return on investment policy of returning half of net gains realised from its portfolio, measured since the appointment of GHAM in August 2015. 

Related Party Transactions

The entering into the Co-Investment Agreement and the commitment to sell up to 3,875,969 ordinary shares in IMO to GHE and the SPE Fund LP (the "Sale") are both deemed to be related party transactions under Rule 13 of the AIM Rules for Companies. The Directors of GHS (being David Potter, Helen Sinclair, Charles Berry and Kenneth Lever) consider, having consulted with the Company's nominated adviser finnCap Ltd, that the terms of the Co-Investment Agreement and the Sale are fair and reasonable in so far as its shareholders are concerned. 

David Potter, Chairman of GHS, commented:

"We are delighted that GHAM has been able to launch the SPE Limited Partnership sister fund as it adds further scale to the strategy.  The Co-Investment Agreement has enabled GHS to reduce exposure to IMO, which has performed strongly, whilst still providing the same level of support and influence through the 18% shareholding managed by GHAM and importantly maintaining a material share of the potential upside of IMO."  

Graham Bird, Head of Strategic Investment at GHAM added - "The launch of SPE Fund LP is a further endorsement of the strategy, which has performed well in its first year since we took over the mandate with NAV growth outperforming the FTSE Small-Cap by 7.7% and with very low volatility against what has been an uncertain political and economic backdrop. We continue to see attractive opportunities for investment deploying capital in primary growth, secondary and pre-IPO opportunities and remain optimistic for the funds."

For further information, please contact:

Gresham House Strategic plc	David Potter	07711450391
Gresham House Asset Management Ltd	Graham Bird Jonathan Dighe	0203 837 6270 0203 837 6273
finnCap Ltd	Matt Goode / Emily Watts	0207 220 0500
Attila Consultants	Charles Cook / Sorrel Davies	0207 947 4489

Key Terms

Under the terms of the Co-Investment Agreement dated 15 August 2015, GHS will undertake to transfer in aggregate 3,875,969 IMO ordinary shares into the co-investment structure, of which 305,998 ordinary shares in IMO will be sold to GHE's co-investment account and 2,039,983 ordinary shares to the SPE Fund LP, at a price of 193.5p per ordinary share ("First Close").  GHS will initially receive £4.54m in cash consideration and the Company will retain a direct legal interest in the remaining 1,529,988 IMO shares held within the co-investment structure. The Company's total beneficial interest in IMO, including shares held outside the co-investment structure, will consequently reduce to 8,191,410 ordinary shares.

Between the First Close and final close of the SPE Fund, which is expected to be no later than 12 months from the First Close (the "Final Close"), up to a further 1,142,391 ordinary shares in IMO are expected to be automatically sold to GHE and SPE Fund LP at a price of 193.5p per share subject to a rebalancing exercise which will depend on the final level of investment received by SPE Fund LP at Final Close.  This would give rise to a further receipt of up to £2.211m in cash and a further realised gain of up to £0.439m, leaving GHS with a balance of 387,597 IMO ordinary shares held in its co-investment account.  The total GHS commitment under the Co-Investment Agreement will remain at £7.5m irrespective of the total size of the SPE Fund LP at final close. 

The Directors intend that cash received under the First Close and the Final Close will be used to make further investments, to fund future commitments via the Co-Investment Agreement or be used to return capital to shareholders in accordance with its stated return on investment policy.

There will be no impact on the Company's net asset value as a result of entering the Co-investment Agreement at the First Close and it is not expected that there will be any adverse future impact to the Company's Net Asset Value at the Final Close.

The Co-Investment Agreement

The successful launch of SPE Fund LP was today announced by GHAM, with a First Close of £24 million (including co-investment commitments, which will form the initial cornerstone investment of the SPE Fund LP) and which is expected to hold a final close no later than 12 months after the First Close. The SPE Fund LP will be managed by the same investment team and committee and adopt the same SPE investment strategy as GHS, investing and divesting in the same opportunities, however the SPE Fund LP will target investors that favour limited partnership structures that are more regularly associated with private equity.

The Co-Investment Agreement sets out the terms under which GHS and GHE will invest and divest alongside the SPE Fund LP, in all the investments or divestments that SPE Fund LP shall make from 15 August 2016 up to a value of £7.5m for GHS and £1.5m for GHE, which currently intends to increase its commitment up to £3.75m at final close.  Each investment through the Co-Investment Agreement will be made pro-rata with the SPE Fund LP. For the avoidance of doubt, the Company's investments and divestments outside the £7.5m commitment can be made independently of the Co-Investment Agreement.

As part of the Co-Investment agreement, the Company notes that there will be no additional fees paid to GHAM by GHS and the Company will hold no beneficial interest in SPE Fund LP. All investments made pursuant to the Co-investment agreement will continue to be held directly by the Company.

Return on Investment Policy

The Directors' stated in the circular dated 21 July 2015 that it is the Company's intention to return up to half of the net realised profits, as measured from the date on which GHAM was appointed the investment manager, to shareholders by way of dividends, share buybacks or other returns of capital. The disposal of IMO shares at First close will give rise to a realised gain of approximately £0.9m since the adoption of the new investment policy and appointment of GHAM.  Taken together with the gain realised from the sale of the investment in Castle Street Investments plc earlier this year, the total available to be returned to shareholders currently stands at £0.6m, equating to 15p per share.  It is currently the board's intention to consider the distribution of these gains as a final dividend at the end of the financial year.

 

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