Acquisition of Frontier Development Capital
06/12/2022 07:00
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RNS Number : 6764I Mercia Asset Management PLC 06 December 2022
RNS 6 December 2022
Mercia Asset Management PLC
("Mercia", the "Group" or the "Company")
Acquisition of Frontier Development Capital Limited
Continued execution of Mercia's '20:20' strategy, with the acquisition of a
leading, regionally-based lender to SMEs
Acquisition adds c.£415million of funds under management
Mercia is delighted to announce that it has acquired the entire issued share
capital of the central-Birmingham headquartered Frontier Development Capital
Limited ("FDC"), for a total consideration of up to £9.5million plus net
cash.
FDC is a leading, regionally focused lender to SMEs, with c.£415million of
funds under management ("FuM"). The acquisition is expected to be immediately
earnings enhancing. FDC has successfully built loan portfolios totaling c.100
companies, predominantly located across the Midlands and the North of England.
As well as its Birmingham head office, FDC also has offices in Manchester and
Bristol, two of Mercia's existing office locations.
FDC typically makes commercial loans from £2.0million upwards, whilst
Mercia's existing lending parameters are between c.£200,000 and £1.0million.
Combined, Mercia's lending team will now comprise 41 staff managing
c.£531million of FuM, of which 28 are experienced, regionally based lending
professionals.
This strategic acquisition is for an initial consideration of £5.5million,
satisfied in cash and funded from Mercia's own liquid resources, plus an
amount equal to FDC's net cash position (subject to certain adjustments) as at
30 November 2022 and estimated to be approximately c.£1.5million. In
addition, deferred consideration of up to £4.0million in cash will be
payable, contingent upon the achievement of future revenue and net new
institutional third-party fundraising targets for the two years to 30 November
2024.
FDC was majority owned by its senior management team and other staff, all of
whom are remaining with the enlarged Group.
Strategic Rationale
Mercia's specialist asset management acquisition strategy is centred on two
principles: 1) more of the same, principally profitable asset classes that the
Group already understands and is managing, and 2) adjacent asset classes which
would be complementary to Mercia's existing ones. Overarching these two
principles are people, culture and the opportunity for further organic growth
in the future.
Mercia identified FDC as a highly complementary fit following a detailed
review of a number of possible acquisition opportunities during the last 12
months, across its key specialist asset management areas of focus. The
Directors believe that the acquisition of FDC offers a number of strategic
benefits to the Group, including:
· Significantly expands the Group's profitable assets under management
("AuM") to c.1.4billion, and takes the Group within reach of one of its two
Mercia '20:20' goals. At the time of announcing its Preliminary Results for
the year ended 31 March 2021, the Group reported that it had largely achieved
its previous three-year strategic goals one year earlier than planned. Mercia
therefore announced its new strategic plan, Mercia '20:20'. The new twin
objectives are to grow AuM by an average of 20% per annum over the three year
period to 31 March 2024, and to deliver average pre-tax profits of
£20.0million per annum over the same three-year period. The start point for
its three-year, 20%, annual AuM growth target, was c.£940million on 1 April
2021, growing to c.£1.6billion by March 2024. The addition of FDC's
c.£415million of FuM therefore takes Mercia to within reach of its
£1.6billion target, with 18 months still to run. Mercia currently expects the
remaining c.£200million of targeted AuM growth to be achieved by organic
means. Whilst not ruling out one further acquisition between now and 31 March
2024, none are in active negotiation.
· Strengthens Mercia's position as a leading, regionally focused and
proactive supporter of SMEs. The addition of FDC's regional footprint and 24
staff to Mercia's own established regional presence and 120 staff broadens
Mercia's ability to support fast growing SMEs throughout the UK, and is
consistent with its long established 'Complete Connected Capital' offering of
venture, private equity, debt and propriety capital.
· Collaboration between the complementary expertise and deal flow
networks of both FDC's and Mercia's successful lending teams, should result in
additional lending opportunities for both teams across the UK. With FDC's 24
lending and support staff based in Birmingham, Manchester and Bristol focused
on lending opportunities from c.£2million upwards, and Mercia's own team of
17 lending and support staff based in Leeds, Preston and Hull focused on
lending opportunities up to c.£1million, there is no overlap and therefore
significant opportunity for both teams to work closely together and share
opportunities outside of each other's core scope.
· Positions the enlarged Group ready for further organic FuM growth
opportunities. A key aspect of Mercia's acquisition criteria is adding
businesses where the enlarged group is better able to target future organic
growth opportunities, as and when they arise. Since acquiring Enterprise
Ventures Group Limited in March 2016, its FuM has grown organically by
c.£150million, and the VCT fund management business acquired in December
2019, has similarly grown its FuM organically by c.£66million. The addition
of central-Birmingham based FDC strengthens the Group's ability to present its
regional lending credentials, as and when new mandate opportunities arise.
· Acquisition is immediately earnings enhancing and supports Mercia's
strategy of growing its adjusted operating and pre-tax profits¹. FDC is a
profitable and cash generative business. For the year to 30 November 2021, FDC
generated revenues of £5.1million and profit before taxation of
£1.3million. Its net assets were £1.7million. The business has a good
pipeline of current lending opportunities.
¹ This statement is not intended to constitute a profit forecast for the
current financial period or for any future period. In addition, this
statement should not be taken to mean that the earnings per share of Mercia
will necessarily match or exceed the historic reported earnings per share of
Mercia.
Mark Payton, Chief Executive Officer of Mercia, commented:
"We're delighted to be able to announce the acquisition of Frontier
Development Capital, which represents an important strategic milestone for
Mercia, as we drive towards our '20:20' objectives. Sue Summers and her team
have built an outstanding and highly regarded UK lender and the acquisition
will bring complementary capital, capabilities and reach across the UK's
regions, whilst also seeing our AuM grow to c.£1.4billion.
"Having worked closely with FDC over the past few months, during the due
diligence and integration planning phases, we also know that we will be
integrating a business with a culture that is aligned to our own, including an
investment approach underpinned by partnership and a belief in the long-term
potential to be found in the UK's regions. We welcome all FDC staff into
#OneMercia and will be helping accelerate their growth through access to our
networks, knowledge and broader footprint."
Sue Summers, Chief Executive of Frontier Development Capital, added:
"Mercia has long been a business we've admired. Our shared passion for helping
some of the UK's most exciting SMEs to thrive through supportive capital,
makes Mercia the natural partner of choice as we look to continue the growth
we have experienced since launching in 2016.
Furthermore, Mercia's reputation and reach will be highly additive to both our
future fundraising efforts and identification of potential lending
opportunities. Mercia has established itself as a go-to provider of capital
across the UK regions, and we're excited to be part of their vision to be the
first choice for investors, investees and employees."
-Ends-
For further information, please contact:
Mercia Asset Management PLC +44 (0)330 223 1430
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer
www.mercia.co.uk (http://www.mercia.co.uk/)
Canaccord Genuity Limited (NOMAD and Joint Broker) +44 (0)20 7523 8000
Simon Bridges, Emma Gabriel
Singer Capital Markets (Joint Broker) +44 (0)20 7496 3000
Harry Gooden, James Moat
FTI Consulting +44 (0)20 3727 1051
Tom Blackwell, Immy Ransom
mercia@fticonsulting.com
About Mercia Asset Management PLC
Mercia is a proactive, specialist asset manager focused on supporting regional
SMEs to achieve their growth aspirations. Mercia provides capital across its
four asset classes of venture, private equity, debt and proprietary capital:
the Group's 'Complete Connected Capital'. The Group initially nurtures
businesses via its third-party funds under management, then over time Mercia
can provide further funding to the most promising companies, by deploying
direct investment follow-on capital from its own balance sheet.
The Group has a strong UK footprint through its regional offices, university
partnerships and extensive personal networks, providing it with access to
high-quality deal flow.
Mercia Asset Management PLC is quoted on AIM with the EPIC "MERC".
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