The Group intends to meet its investment objective by: (i) providing innovative businesses with management support and access to capital from its third-party managed funds; (ii) making direct investments via Mercia Asset Management (“Mercia”) into businesses that progress through its third-party funds needing next level capital to scale and (iii) undertaking strategic corporate transactions via investing in or acquiring complementary businesses or sub-critical funds.
The Group will seek exposure to innovative companies with ambitious teams and will invest where the investment team sees potential for future growth and shareholder return.
The Group will seek exposure for its direct investments into companies, but not limited to, the following sectors of the UK economy: 1) Digital & Digital Entertainment; 2) Software & the Internet; 3) Electronics, Materials, Manufacturing/Engineering; and 4) Life Sciences & Biosciences.
There is no limit on the size of a direct investment made by Mercia into a business. The Board anticipates that Mercia will typically manage a direct investment portfolio of 30-40 companies at any given time, once fully established.
Mercia manages each of its third-party funds in accordance with their respective investment objective and policy each of which, for the avoidance of doubt, is distinct from the investment objective and investment policy of the Group.
Investments are expected to be mainly in the form of equity, although investments may be by way of debt, convertible securities or investments in specific projects. In the case of equity investments, the Directors intend to take positions (with suitable minority protection rights where appropriate), primarily in unquoted companies. Mercia is a proactive investor, typically taking a board position on the investee company into which it invests.
Given the time frame to fully maximise the value of an investment, the Board expects that investments will be held for the medium to long term, although short-term disposals of assets cannot be ruled out in exceptional or opportunistic circumstances. The Directors intend to re-invest the proceeds of disposals in accordance with the investment policy unless, at the relevant time, the Directors believe that there are no suitable investment opportunities, in which case the Directors will consider returning the proceeds to shareholders in a tax efficient manner.
Mercia does not currently intend to utilise gearing. However, the Group may, in the future, use gearing if it believes it will enhance shareholder returns over the longer term. If, in the future, Mercia does decide to introduce gearing it will look to maintain a conservative level of gearing and would intend to limit its borrowings to a maximum of 20 per cent of Mercia’s net asset value at the time of investment.
Cash held by the Group pending investment, reinvestment or distribution will be managed by the Group in accordance with its treasury policy and placed in bank deposits with major UK financial institutions, in order to protect the capital value of the Group’s cash assets.
In respect of direct investments made by Mercia, the Directors will apply some or all of the following investment criteria to achieve the investment policy:
- A pre-identified strong market potential and high opportunity for growth
- The identification of likely exit opportunities, such as trade sales, flotations or partnerships
- The investee management team should be recognised as leaders in their field
- There should be defensible intellectual property and ideally comprehensive patent protection, with the ability to enhance this position as the investee company develops.
In the event of a material breach of the investment policy or of the restrictions set out above, the Directors shall, upon becoming aware of the same, make a notification to a Regulatory Information Service.
No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. The Directors will review the investment policy on an annual basis and will implement any non-material changes or variations as they consider fit. Details of any such non-material changes or variations will be announced as appropriate.