With strong regional roots and an established track record, Mercia is a ‘one stop’ responsible financial partner contributing towards the growth of the UK economy. Our physical presence in some of the key cities across the UK, including Birmingham, Manchester, Sheffield, Leeds, Bristol, Newcastle and London, results in sight of a significant number of investment opportunities in our sweet spot of ambitious business owners who are looking for between £250,000 and £10million of investment. It is interesting to reflect on the progress made in the last three years since COVID struck in March 2020, with AuM up by c.80%, revenue up by c.103% and NAV per share up by c.41% and, with the completion of FY23, our third consecutive year of adjusted operating profits.
Despite a challenging FY23 for specialist asset managers in general, Mercia has nevertheless been able to continue with its growth journey. We are now two years into our current three-year strategic plan, Mercia 20:20. Our strategy is to grow our AuM by an average of 20% per annum and deliver average pre-tax profits (“PBT”) of £20million per annum over three years. Another way of looking at this is reaching c.£1.6billion in AuM and achieving c.£60million in cumulative PBT by the end of FY24.
Mercia 20:20 is set in parallel with our aspirations to also achieve top quartile performance by our managed funds in their asset categories, plus continued growth in the direct investment portfolio as the key element of our consolidated balance sheet. We also remain focused on growing our third-party funds under management resulting in further growth in adjusted operating profit. To achieve these growth targets, we have established interconnected pools of capital and a capability to invest from as little as £250,000 through to £10million. Our average investment size per investee continues to grow, standing at £0.9million in FY23, and we are looking to increase this further in FY24 as we continue to scale Mercia’s capital deployment and AuM.
Our focused approach of only investing in domestic UK businesses with relatively modest capital needs (typically less than £30million in their entire growth journey to exit) as a generalist, but with several key sector themes, means that we have a portfolio which we can, if necessary, support entirely from within our own capital resources – thus protecting and preserving value during periods of economic instability. The majority of our AuM (c.86%) is in third-party managed funds, all of our direct investments benefit from shared equity positions alongside one or more of the funds we manage and, as a debt-free Group, we remain confident in Mercia’s profitable and cash generative investment model.
Positive progress during the year
Whilst the markets, both public and private, have cooled over the last 12 months, we have seen this as an opportunity to step forward with both corporate and organic investment activity. Testament to this is the recent acquisition of FDC, a business capable of lending up to £10million per transaction, now with c.£441million in third-party FuM, headquartered in the heart of Birmingham. In addition, in the last financial year we have supported 176 businesses and invested c.£165million, of which c.£21million was from our own cash resources. Since Mercia’s inception, we have backed countless founders with their ambitious goals for growth and we will continue to do so, as we seek to become one of the leading wealth enablers in the UK.
In addition to the acquisition of FDC, we have seen capital inflows of c.£134million from the three pools of capital that we manage: retail (c.£31million from EIS and c.£43million from VCT), British Business Bank (c.£30million) and institutional capital (c.£30million). We are targeting further organic growth from all three pools of capital during FY24.
The last 12 months have been tough for many, with the technology sector being largely out of favour with investors, impacting confidence and valuations. Despite the war in Ukraine, double-digit inflation, interest rates growing almost six fold, and marked domestic liquidity reductions, it is pleasing to report continued year-on-year growth, as summarised by:
- AuM of c.£1.4billion, a c.50% increase
- Revenue of c.£26million, a c.12% increase
- Final proposed dividend up 6.0% to 0.53 pence per share making, if approved by shareholders, 0.86 pence per share for the year, an increase of 7.5%.
Whilst the sector that we operate in has generally seen liquidity pressures and material reductions in portfolio values, we see an opportunity during this current financial year to increase our investment activity by taking advantage of our strong, unrestricted liquidity of c.£378million across the Group. Based on our physical presence across the UK and continued improvement in both the quality and volume of investment opportunities, we have set an ambitious target of increasing capital deployment to a record level of £250million in FY24.
Since our IPO in December 2014, each year we have either met or beaten market forecasts from a trading outturn perspective. To achieve this requires an exceptional team at Mercia, as we look to deliver on our vision of being the first choice for investors, investees and employees. At the top of our list of ‘value drivers’ for any acquisition that we make is cultural fit, and I warmly welcome all FDC staff to Mercia, as we continue on our growth journey together underpinned by our shared values. I am sincerely grateful to the entire team at Mercia, our portfolio companies working tirelessly to fulfil their own growth aspirations, our managed fund investors, and last but by no means least, the continued belief and support of our shareholders.
Dr Mark Payton
Chief Executive Officer