Direct Investments

A point of view – Dr Mark Payton

16th May, 2022

History often informs our actions. Today, we see many similarities with the 1970s – high inflation, energy price hikes, climbing interest rates pushing up national debt and full employment – albeit conceivably temporary in nature. With indicators pointing towards a sharp economic levelling with the real possibility of a near-term recession, regardless of whether you recognise these as parallels in history or as new challenges, refreshed attitudes are needed.

The age we are living in is increasingly uncertain. Concepts we have considered foundational to our existence – like the widespread health of populations in mature economies or an era of peace in Europe – are no longer as assured. But what is certain is that Mercia will meet these challenges with a spirit of optimism, seeking clarity in a dynamic and rapidly changing environment. As a purpose-led organisation, we operate with a mindset of opportunities rather than challenges.

Mercia was founded with the intent of addressing the regional funding and investment support gap. When we began to address this funding disparity back in 2010, Mercia was a team of five working in one room in the Midlands. Today, we are a team of over 120 with eight regional offices around the UK, including our recently opened office in Bristol. I believe that our focus on solutions, instead of obstacles, has been pivotal to this successful growth.

This attitude is encapsulated in Mercia’s success in Deep Tech investments, particularly when others were reluctant to invest in the space.

Deep Tech businesses are often seen as capital-intensive early-stage concepts, notorious for taking a longer time to generate returns than conventional consumer-facing businesses. Mercia views these businesses through different eyes, recognising the role these regional SMEs have as ‘enabling technology’ businesses. We back innovators who look at capital-efficient ways to use existing base technologies to solve global problems. Last year, our exit from Faradion was a great showcase for this approach of combining patience with capital capability. Our successful sale of Faradion saw us pass the baton of this emerging business to Reliance Industries for a £100million, full-cash exit. Faradion focuses on using existing manufacturing capabilities and modified technologies to create a sodium-ion battery platform. The business continues to grow in the UK, now supported by its new owner. Libertine is also worth mentioning. After listing Libertine last year, it accessed the scale-up capital it needed to accelerate its growth as an innovative developer of smart engines for automotive and distributive power generation set-ups.

Excitingly, our Deep Tech pipeline remains strong. Many of these next-generation businesses are providing creative solutions to environmental challenges and supporting mature economies in their quest to achieve net zero.

Nova Pangaea in the Tees Valley is a promising portfolio company that is primed for international expansion. To help resolve the problem of crops, such as corn, being harvested for use in fuel, Nova Pangaea uses non-food plant residues to develop advanced biofuels and other chemical products.

Other portfolio businesses, such as Tribosonics and Slingshot Simulations, are applying scientific research to reduce the impact of waste on the environment. The smart sensors that Tribosonics develops help industries monitor the degradation of parts to support the development of more efficient and sustainable outcomes. Leeds-based Slingshot takes large, accumulated datasets that are currently neglected and transforms them into legible insights that are actionable in sectors including logistics and urban planning.

We are also encouraged by the progress of two Midlands-based businesses – Warwick Acoustics and Impression Technologies. Despite industries such as car manufacturing experiencing setbacks and delays during the pandemic, these companies have demonstrated remarkable resilience. As electric vehicles become more commonplace, Warwick Acoustic’s low power, superlight speakers are primed to help reduce power usage by reducing the weight of cars. Impression Technologies, with its highly scalable pressing technology, is enabling aluminium’s additional strength and lightweight advantages to be a solution to what will, no doubt, be a commonplace demand in vehicle manufacture.

Our approach to responsible investing is to provide the capital that will allow more purpose-led businesses to continue growing, so that SMEs can positively impact their communities, their regions and the people they serve.

Mark Payton

CEO, Mercia Asset Management PLC

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