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Strategic Equity Capital Plc (SEC)

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Wednesday 09 February, 2022

Strategic Equity Capital Plc

Corporate Update

The information communicated in this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of the domestic law of the United Kingdom pursuant to the European Union (Withdrawal) Act 2018 (as amended). Upon the publication of this announcement, this information is considered to be in the public domain.

9 February 2022

Strategic Equity Capital plc

Corporate Update

The board of directors (“Board”) of Strategic Equity Capital plc (“SEC” or the “Company”) announced on 23 December 2021 that it had received a proposal from the board of Odyssean Investment Trust plc (“OIT”) concerning a proposed combination of the two companies.

Following due consideration of the proposal from OIT, consultation with shareholders, and alternatives developed in conjunction with the Company’s investment manager, Gresham House Asset Management (“GHAM” or the “Investment Manager”), the Board today wishes to announce a series of proposals (the “Proposals”) which it believes will enhance shareholder value creation and allow the continuation of SEC as a successful standalone vehicle, allowing investors continued access to the investment team of GHAM and the Company’s differentiated investment proposition. Accordingly, the Company will not be proceeding with further discussions with the board of OIT on the proposed combination.

Summary of the Proposals

The Company will seek to return cash to shareholders with a focus on reducing the discount to NAV at which the Company’s ordinary shares ("Shares") trade. Subject to shareholder approval, it is proposed that this will be effected through:

  • The implementation of a tender offer for up to 10 per cent. of the Company's share capital (the “Initial Tender Offer”). The Initial Tender Offer will be at net asset value (“NAV”) less costs and will replace the previously announced tender offer due to be completed in November 2022 which was to be implemented at a three per cent. discount to NAV (less costs).
  • Following the completion of the Initial Tender Offer, the implementation of a share buyback programme for up to an additional 9 per cent. of current NAV[1] (the "Share Buyback Programme") with Shares repurchased during the 2022 calendar year at a discount to NAV of greater than 5 per cent.  
  • A new buyback policy will be put in place in order to return 50 per cent. of proceeds from profitable realisations, at greater than a 5 per cent. discount on an ongoing basis, in each financial year, commencing in the financial year ending 30 June 2023 ("New Buyback Policy").
  • A commitment by Gresham House plc (“Gresham House”) to use £5 million of its cash resources to purchase Shares by June 2023 at greater than a 5 per cent. discount (the "Balance Sheet Commitment").
  • An ongoing commitment by GHAM to reinvest 50 per cent. of its management fee per quarter in Shares if the Shares trade at an average discount of greater than 5 per cent. for the quarter (the "Reinvestment Commitment").
  • The deferral of the continuation resolutions that would otherwise be proposed at the Company's annual general meetings in 2022, 2023 and 2024 in favour of the implementation of a 100 per cent. realisation opportunity for Shareholders in 2025 (the "2025 Realisation Opportunity"), the structure and timing of which will be communicated by the Board in due course.

Corporate update

Ken Wotton (Managing Director, Public Equity at Gresham House) has been Lead Manager of the Company for over a year. Working closely with the wider Public Equity Team, Ken’s strong leadership produced very encouraging results. The Board is pleased to note that NAV total return performance has been 47.1 per cent. since Ken became lead manager, whilst also recognising that the investment strategy involves taking a long-term approach.

Following the appointment of GHAM, the Company implemented a strategy to maximise engagement opportunities and is now focused on investments that have a market capitalisation in the region of £100m to £300m at the point of entry. The Board believes that this strategy remains consistent with the original ethos of SEC and provides the potential for outperformance over the long term, with investors continuing to have access to Ken’s investment track record as well as the substantial public and private equity resources at GHAM.

The discount at which the Shares have traded has been a source of frustration to the Board and it has taken significant steps to address this, with an increased focus on marketing of the Company. While these measures are still at an early stage, the Board believes they will be significantly enhanced by adoption of the Proposals.

Shareholder support

Pursuant to the terms of the Commitment Agreement (as defined below), Gresham House and GHAM have each irrevocably undertaken to vote their Shares in favour of any and all resolutions required to give effect to the Proposals, including the resolutions required to implement the Initial Tender Offer, Share Buyback Programme and the 2025 Realisation Opportunity.

In addition, the Company has received letters of intent supporting the Proposals from shareholders representing 26.4 per cent. of the issued share capital of SEC.

Richard Hills, Chairman of SEC, commented:

Ken is an excellent fund manager with an impressive long-term track record. The Board believes the Proposals will strengthen the Company’s investment proposition and benefit shareholders, who have already begun to see encouraging results and NAV performance since Ken took over managing the Company’s investments in September 2020.

The Board strongly believes that Ken and his growing Strategic Equity team’s differentiated strategy, the realignment of the portfolio and the measures proposed to address the discount to NAV will benefit SEC’s shareholders.”

Ken Wotton, Lead Manager for SEC, commented:

I am delighted that the Board has announced its support for me as lead fund manager and for the GHAM team. We have made significant progress since taking over and we look forward to continuing this as the Company implements the Proposals. Effective engagement forms a key part of our strategy, and the current Strategic Equity Capital portfolio is positioned to reflect this, geared towards a long-term perspective of creating value for our shareholders.

Further information on discount control measures

Initial Tender Offer

The Board is proposing that the previously announced conditional tender offer proposed for November 2022 will be replaced by the Initial Tender Offer in early April 2022, and a circular to Shareholders will be published shortly in connection with the Initial Tender Offer convening the general meeting at which the required Shareholder authority to implement the Initial Tender Offer will be sought.

As contemplated in respect of the November 2022 tender offer, the Initial Tender Offer will be for up to 10 per cent. of the Company's current issued share capital but will be completed at NAV (less costs), rather than the previously proposed 3 per cent. discount to NAV.

Share Buyback Programme

Following completion of the Initial Tender Offer, a further (approximately) 9 per cent. of current NAV (dependent upon the completion of certain transactions) will be committed to share buybacks over the remainder of the 2022 calendar year. It is the intention of the Company to buy back Shares up to a target discount level of no less than 5 per cent. to NAV per Share. 

New Buyback Policy

Following completion of the Initial Tender, the Company is also proposing that its discount control mechanism is changed, such that 50 per cent. of the capital proceeds from realised profitable transactions will be available in each financial year to buy back Shares, again up to a discount of 5 per cent. to NAV per Share.

The Share Buyback Programme referred to above represents a portion of the proposed new buyback policy for the year ending 30 June 2023. If the proceeds of realisation cannot be used to purchase Shares at a discount to NAV per Share of greater than 5 per cent., any remaining proceeds will be redeployed into investments that meet the Manager’s investment criteria following an agreed period. This will be done to minimise any cash drag impact to performance.

The Initial Tender Offer and the Share Buyback Programme are subject to Shareholder approval and a circular to Shareholders convening a general meeting at which the relevant authorities to implement the Initial Tender Offer and the Share Buyback Programme will be sought will be published shortly.

Further details regarding the 2025 Realisation Opportunity will be published by the Board closer to the time of implementation of those proposals and the required Shareholder authority sought in due course.

Commitments from Gresham House and GHAM

The Company, Gresham House and GHAM have today entered into a commitment agreement (the “Commitment Agreement”) pursuant to which the following terms have been agreed:

Balance Sheet Commitment

Gresham House will, by no later than 30 June 2023 (or such later time as the Board may agree), invest £5 million (inclusive of taxes, fees and commission) from its own cash resources in the Shares (the "Balance Sheet Commitment"). Liberum Capital Limited ("Liberum") (or any broker appointed to the Company from time to time) shall be irrevocably authorised and instructed by Gresham House to buy Shares for its account using the Balance Sheet Commitment, which will be satisfied through the investment by Gresham House in each quarter commencing on 1 April 2022 of an amount equal to (as nearly as practicable) £1 million, unless otherwise agreed between the Board and Gresham House. The price at which Liberum (or any broker appointed to the Company from time to time) shall be authorised to buy Shares pursuant to the Balance Sheet Commitment shall not be greater than the price which is equal to a 5 per cent. discount to the latest published Net Asset Value. The authority and instruction for each quarter shall only be exercised once the Reinvestment Commitment has been satisfied in full in the relevant quarter. In the event that the Balance Sheet Commitment investment for any quarter is not invested it shall be added to the amount which Liberum (or any other broker to the Company from time to time) is authorised to purchase so that Gresham House, shall only be discharged from the Balance Sheet Commitment on the earlier of (i) the date on which it has completed its investment of £5 million in the Shares and (ii) 1 November 2025.

Reinvestment Commitment

GHAM will invest in each Qualifying Quarter an amount (including any relevant fees and commission) equal to 50 per cent. of the management fee paid to it (excluding any value added tax) in respect of the quarter preceding the relevant Qualifying Quarter in Shares. For the purposes of the Reinvestment Commitment, a "Qualifying Quarter" shall be the quarter period commencing after a quarter period during which the Shares have traded at an average discount to the published Net Asset Value per Share (on a cum income basis) of greater than 5 per cent. over that quarter period. For these purposes the quarter periods shall commence on 1 April 2022. Liberum (or any other broker appointed to the Company from time to time) shall be irrevocably authorised and instructed to buy Shares for GHAM's account pursuant to the Reinvestment Commitment, provided always that the price at which Liberum (or any other broker appointed to the Company from time to time) may buy Shares pursuant to this authority shall not be greater than the price which is equal to a 5 per cent. discount to the latest published Net Asset Value per Share.

The Balance Sheet Commitment and the Reinvestment Commitment shall terminate in the event that the investment management agreement with GHAM is terminated.

In connection with the Balance Sheet Commitment and the Reinvestment Commitment each of Gresham House and GHAM has entered into lock-in and orderly market provisions that will apply to the Shares that they will each acquire pursuant to those commitments.

The Proposals are subject to shareholder approval and a further announcement will be made upon publication of a circular in March.

LEI: 2138003R5GB8QZU2G577

Enquiries:

Strategic Equity Capital plc

Richard Hills (Chairman)

(via Juniper Partners below)

Juniper Partners (Company secretary) +44 (0)131 378 0500

Steven Davidson

Liberum Capital Limited

Chris Clarke      +44 (0) 20 3100 2000 

Darren Vickers

Owen Matthews

Camarco (Media enquiries)

Jennifer Renwick  +44 (0)203 757 4994

Eddie Livingstone-Learmonth  +44 (0)203 757 4993

[1] This is an approximate number and the exact amount will be dependent upon completion of certain transactions.


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