It has been a very successful year for Mercia’s Enterprise Investment Scheme (“EIS”) portfolio, particularly in the Life Sciences and Software sectors. Importantly, existing clients are pleased with the performance of Mercia’s EIS funds, and the industry is now recognising the considerable potential of Mercia, both in terms of its EIS funds and more broadly, the Group. Critical to this is Mercia’s ability to support small companies that are thriving in the regions.
When catching up with Dr Paul Mattick, Head of Sales and Private Investor Relations, it was evident that he was buoyed by Mercia’s strong investment returns over the last financial year and the impact that this would have for Mercia’s future fundraisings:
“The UK’s business environment and ability to support start-ups has always been strong and recognised across the world, indeed EIS as a catalyst for entrepreneurial growth and the significant contribution of SMEs to the economy is widely well regarded. The UK’s SME sector is very progressive with the UK Government being supportive of it.
“It really is a win/win situation. The Government benefits from the tax it receives, investors have a tax efficient investment plus a return and, then of course, SMEs get the investment they need to grow. However, more needs to be done to highlight that this is the case and there is no better way to do this than showcasing strong exits and an ability to deliver them with consistency. Mercia completed four successful exits over the past financial year: The Native Antigen Company (c.13x ROI), Clear Review (c.8x ROI), Refract (c.2x ROI) and OXGENE (c.20x ROI).
“Apart from the realised gains generated by these exits, what is crucial about these transactions is that they reaffirm the significant opportunity and value-creation potential of promising companies located in the UK’s regions. Ultimately, investors want results and without doubt, this year Mercia has delivered, returning more money to its investors than was raised in the year despite it being a record year for fundraising.”
Notwithstanding the increased exposure that the EIS investment team has to deals that are generated across the wider Group, and the ability to tap into its wider ecosystem, Paul maintains that Mercia’s EIS funds will ultimately be judged on their track record as he outlines:
“Investors have an appreciation for the role that EIS funding has in the UK’s regional growth story and Mercia’s ability to identify high-growth businesses, especially those that fit with the Group’s responsible investment philosophy.
“Mercia has always been a responsible investor, and to be a responsible investor there is a need to invest in companies with a strong emphasis on ESG. Within Mercia, there is a focus on finding businesses with great management teams and there there is opportunity to generate value. We do, however, have deep expertise in Tech, Healthcare and Digital. Mercia’s investment model is to seek out appropriately priced regional businesses seeking modest capital, achieve a diversified portfolio and deliver reasonable consistent returns from these unquoted companies, avoiding the risk of ‘boom and bust’ sometimes associated with investing in early-stage businesses.”
Successes that reflect Mercia’s investment thesis include Aceleron, a Birmingham-based business that designed a maintainable battery to service the electric vehicle market with a solution that is cost-effective and supports net zero emissions. Founded by Dr Amrit Chandan and Carlton Cummins, this sustainable battery technology has recently completed a £1.2million follow-on investment round that included Mercia’s EIS funds.
In other areas of the green agenda, where tech is a critical enabler, EIS-backed CorrosionRADAR uses smart sensors to detect and predict corrosion in pipelines to reduce the cost and minimise the risk of catastrophic failures across the Oil and Gas, Pharmaceutical and Chemical industries. Founded by CEO Chiraz Ennaceur, CorrosionRADAR brings a digital solution to an old problem but solves it in a smarter way and helps the industry become more sustainable.
The return on investment for investors (net of charges and income tax relief) across all the EIS investments, both realised and unrealised made in the last financial year, currently stands at 1.5x. This number has of course been impacted by the recent COVID-19 pandemic, although Mercia’s efforts within EIS investment have not gone unnoticed, receiving a score of 86 from leading independent research house, Allenbridge.