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Gresham House plc

Gresham House Plc Acquire Livingbridge VC Fund Management Business

Gresham House, (LON: GHE) the specialist alternative asset manager, announced the acquisition of the fund and investment management businesses of Livingbridge VC LLP, for an initial consideration of £30.0 million, increasing up to £40.0 million dependent on the achievement of certain targets.

Key Highlights

Strategic rationale:

UK equities asset manager with a strong brand and track record

Product development – creates platform for accelerated organic growth

Significant increases in investment capability with consistent investment philosophies (public and private equity combination)

Diversifying and expanding the client base including platforms and wealth manager distribution channel

Additions to existing VCT products and Strategic Equity division

Increases group AUM to over £2bn, and profitability enhancement

Materially earnings enhancing plus additional cost synergies allows acceleration toward operating margin targets

Identified cost synergies and opportunity for cross fertilisation between investor bases

The acquisition will include the Baronsmead VCT products alongside two open-ended vehicles, LF Livingbridge UK Micro Cap Fund and LF Livingbridge UK Multi Cap Income Fund

The Acquisition combines two UK focussed asset managers with aligned investment philosophies, and enhances the investment expertise and depth in Gresham House’s existing Strategic Equity team. Upon completion, Gresham House’s assets under management (“AUM”) will be over £2 billion.

The Acquisition will be funded through the allotment of 1,562,500 ordinary shares of £0.25 each in the Company (the “Consideration Shares”), to Livingbridge VC, a new credit facility, a vendor placing of 2,617,628 ordinary shares of £0.25 each (“Placing Shares”) (the “Placing”) and existing cash resources of the Company. The Placing Price of 448 pence per Placing Share is at the middle market price of 448 pence per Ordinary Share on 7 November 2018 (being the last business day prior to the release of this announcement).

Subject to the acquired business achieving certain performance targets over approximately a three-year period, further consideration of up to £10.0 million will be payable, comprised of cash and Ordinary Shares. The Company expects the Acquisition to exceed its medium-term ROIC target of 15%.

The Acquisition will increase the Group’s momentum towards its 40 per cent. operating margin target. The Group has identified a number of cost synergies in the business and will also benefit from greater investment management and distribution capacity following completion of the transaction.

The Placing has raised approximately £11.7 million. Canaccord Genuity Limited (“Canaccord”) is acting as financial adviser, nominated adviser, joint broker and bookrunner in relation to the Placing. Jefferies International Limited (“Jefferies”) is acting as joint broker and bookrunner in relation to the Placing. The Placing is not being underwritten.

Completion of the Placing is conditional on, inter alia, completion of the Acquisition and Admission of the Placing Shares

Livingbridge VC

The fund and investment management business of Livingbridge VC has built a strong investment track record, serving a client base including private individuals, wealth managers, IFAs and institutions. It manages approximately £0.5 billion of quoted and unquoted equities via the Baronsmead venture capital trusts, (“VCTs”) and two open-ended investment companies (“OEICs”), LF Livingbridge UK Micro Cap Fund and LF Livingbridge UK Multi Cap Income Fund.

The approach to investing is similar to that of the Group’s Strategic Equity unit, targeting superior returns through investment into UK smaller public and private companies over a longer-term investment horizon.

All 16 employees at the fund management businesses of Livingbridge VC, comprising 8 specialist investment and research professionals alongside 8 distribution, finance and operational staff, will join the Company’s Strategic Equity operations and the funds will add to the Group’s product stable. The gross assets being acquired as part of the transaction by the Company are valued at £1. The Directors believe that the Company will maintain and, enhance the service provision offered to existing clients, through increased network, further investment, support of the team and increased resources. The three-year transition process has been designed to ensure a smooth integration.

The combined Baronsmead and Equity Funds business generated unaudited EBITDA and profit before tax of £5.0 million, (ex-performance fees) on revenues of £9.1 million in the year ended 31 December 2017. In the five years to 2017, the combined business achieved an 8.0 per cent CAGR in assets under management (“AUM”), which is expected to accelerate with the growth of its OEICs.

Commenting on the Acquisition, Anthony Dalwood, Gresham House’s chief executive, said:

“The Livingbridge VC fund management business’ investment philosophy across public and private equity companies has generated strong performance and has clear financial and strategic benefits for long-term Gresham House shareholder value. The excellent team will add to our existing high-quality investment and client personnel, enabling additional growth opportunities for the Group. We look forward to supporting the Baronsmead VCT and Equity Funds brands, which are well respected in their markets, alongside their strong investment track record.

“The acquisition is an extension of Gresham House’s organic strategy, aligning investment goals of the two teams. Additionally, we expect the deal to be immediately earnings enhancing, taking the Group’s AUM past £2 billion, increasing our scale and relevance to investors and creating additional shareholder value. We’re very much looking forward to welcoming the Livingbridge VC fund management team to Gresham House with whom we have a close cultural fit.”

Further details of the Acquisition

The Company has agreed to acquire, through its subsidiary Gresham House Asset Management Limited and subject to the satisfaction of certain conditions, the fund and investment management business of Livingbridge VC for a total initial consideration of £30.0 million, which may rise to £40.0 million subject to trading performance of the acquired assets over the three period following completion of the Acquisition.

The Acquisition will be funded through the allotment of 1,562,500 ordinary shares of £0.25 each in the Company (the “Consideration Shares”) to Livingbridge VC, a new credit facility, a vendor placing of 2,617,628 ordinary shares of £0.25 each (“Placing Shares”) (the “Placing”) and the existing cash resources of the Company. The Placing Price of 448 pence per Placing Share is at the middle market price of 448 pence per Ordinary Share on 7 November 2018 (being the last business day prior to the release of this announcement).

Completion of the Acquisition is expected to occur on or around 30 November 2018. Completion of the Acquisition is not conditional on completion of the Placing and in the event that the Placing does not complete, the cash payable to Livingbridge VC that would have been funded by the proceeds of the Vendor Placing will be satisfied by the Company using its existing cash resources and Livingbridge VC will sell the Placing Shares to the Company’s employee benefit trust for nil consideration.

Trading Update

The Directors are pleased to confirm the Company is currently trading in line with market expectations.

Details of the Placing

The Company and Livingbridge VC today entered into a vendor placing agreement with the Banks (“the Vendor Placing Agreement”). Pursuant to the Vendor Placing Agreement, the Banks have secured purchasers of the Placing Shares at the Placing Price and accordingly have raised approximately £11.7 million.

In addition, the Company today entered into an arrangement agreement with the Banks (the “Arrangement Agreement”) pursuant to which the Banks agreed to arrange the Vendor Placing in order to facilitate the Acquisition. The Company has given warranties and indemnities customary on a placing in favour of the Banks in the Arrangement Agreement.

Your attention is drawn to the detailed terms and conditions of the Placing set out in the Appendix to this Announcement (which forms part of this Announcement).

The Appendix to this Announcement contains the detailed terms and conditions of the Placing and the basis on which investors agreed to participate in the Placing . The Placing has not been underwritten by the Banks. Placees are deemed to have read and understood this Announcement in its entirety, including the Appendix, and to have made their offer on the terms and subject to the conditions contained herein and to have given the representations, warranties, undertakings and acknowledgements contained in the Appendix to this Announcement.

The Placing Shares will be issued credited as fully paid and will rank pari passu with the existing Ordinary Shares, including the right to receive all dividends and other distributions (if any) declared, made or paid on or in respect of such shares after the date of their issue.

Application will be made for the Consideration Shares and the Placing Shares to be admitted to trading on AIM (“Admission”). It is expected that the Acquisition will complete and Admission will occur at 8.00 a.m. on 30 November 2018 with the transfer and settlement of the Placing Shares with Placees shortly following Admission. In this regard, the Placing Shares are expected to settle in the CREST accounts of Placees within two Business Days of the date of Admission.

Completion of the Placing is conditional on the Completion of the Acquisition, Admission of the Placing Shares and on each of the Vendor Placing Agreement and the Arrangement Agreement becoming unconditional in all respects. In the event that, for whatever reason, the Placing does not become unconditional or is terminated, the cash payable to Livingbridge VC that would have been funded by the proceeds of the Vendor Placing will be satisfied by the Company using existing cash resources and Livingbridge VC will sell the Placing Shares to the Company’s employee benefit trust for nil consideration.

Related Party Transaction

Royal County of Berkshire Pension Fund has committed to subscribe for up to 490,228 Placing Shares in the Placing. Due to the size of RCBPF’s existing holding of 3,937,316 Ordinary Shares in the capital of the Company, representing approximately 19.1 per cent. of the current issued share capital, this transaction is considered to be a related party transaction pursuant to AIM Rule 13 of the AIM Rules.

The Directors consider, having consulted with the Company’s nominated adviser, Canaccord Genuity, that the terms of RCBPF’s participation in the Placing are fair and reasonable in so far as Shareholders are concerned. Immediately following Admission, it is envisaged that RCBPF will hold 4,427,544 Ordinary Shares representing approximately 18.28 per cent. of the enlarged share capital.

Details of the credit facility

The Company has entered into new banking facilities in connection with the Acquisition provided by Banco Santander S.A. (London branch). The facilities include a new term loan of £6.0 million and a revolving credit facility of £4.0 million. The new facilities are conditional upon completion of the Acquisition and are repayable in November 2021.

Placing and Acquisition Considerations

The Directors believe the Acquisition to be in the best interests of Gresham house and its shareholders as a whole. In making this statement the Directors have spent time, and have taken appropriate advice, in considering the Acquisition and the method by which the cash consideration payable in respect of the Acquisition should be funded. The Directors concluded that the Placing was the most appropriate structure to raise equity funding, alongside funds raised from the new credit facility and the existing cash resources of the Company.

By incorporating a vendor placing into the cash consideration payable in respect of the Acquisition, the Company is utilising the authorities granted to it under Resolution 7, being the ability to allot shares for shares, passed at its last annual general meeting held on 7 May 2018. The Company retains the disapplication of pre-emption rights in respect of issues of shares for cash granted under Resolution 8, at its AGM. The Company believes it is important to retain its cash allotment authorities as it provides funding flexibility in relation to future corporate or strategic events,