Acquisition of Investment & Issue of Equity
8 July 2009
STRATEGIC EQUITY CAPITAL PLC
(THE "COMPANY" OR "SEC")
ACQUISITION OF INVESTMENT AND ISSUE OF EQUITY
Summary
* The board of directors of SEC (the "Board") announces that SEC has entered
into a conditional agreement with 3i Group plc ("3i") to acquire 3i's
limited partnership interest in Strategic Recovery Fund II ("SRF II"), an
English limited partnership with a similar investment mandate to that of
SEC, (the "Acquisition"). The purchase consideration will be satisfied by
the issue to 3i of 7,189,974 new ordinary shares of 10p each in the share
capital of SEC (the "Consideration Shares"), equivalent to 9.9% of SEC's
existing issued share capital.
* 3i's limited partnership interest in SRF II is represented by a drawn down
capital and loan commitment with a net asset value of £5.9 million as at 30
June 2009 (SRF II's latest valuation date prior to this announcement) and
an undrawn loan commitment of £5.1 million.
* The Consideration Shares value 3i's investment in SRF II (based on its
latest net asset valuation) at:
*
- a 36.2% discount to that net asset value, based on the net asset value
of 49.5p per ordinary share in the issued share capital of SEC (an
"Ordinary Share") as at 30 June 2009 and after taking into account
SEC's estimated transaction costs; and
- a 56.3% discount to that net asset value, based on the closing
mid-market price of an Ordinary Share of 35.75p on 7 July 2009.
* The Acquisition will result in a significant uplift to the net asset value
per Ordinary Share. Based on the net asset valuations of SRF II and SEC at
30 June 2009 and after taking into account SEC's estimated transaction
costs, the Acquisition will result in an increase in the net asset value
per Ordinary Share of 2.7p, an uplift of 5.4%.
* The Acquisition is conditional on, among other things, the passing by
holders of Ordinary Shares ("Shareholders") of an ordinary resolution
approving the Acquisition that will be proposed at a general meeting of the
Company (the "General Meeting"). The Company has received letters of intent
to vote in favour of that resolution, and any other resolutions required to
implement the Acquisition, in respect of, in aggregate, 36,053,312 Ordinary
Shares, representing 51.8% of SEC's existing issued share capital
(excluding Ordinary Shares held in treasury).
Information on SRF II
SRF II is an English limited partnership that seeks to deliver absolute returns
to investors using private equity appraisal techniques and a philosophy of
constructive corporate engagement. SRF II held a final close in June 2007 at £
70.2 million, including a co-investment scheme with SVG Capital plc.
SRF II is managed by the same investment manager as SEC, SVG Investment
Managers Limited ("SVGIM"), and has a similar investment mandate to that of
SEC. Accordingly, SRF II invests predominantly in quoted UK companies that
SVGIM believes are undervalued and would benefit from strategic, operational or
management initiatives. SVGIM uses the same investment process in managing both
SRF II and SEC. SVGIM has confirmed to the Board that no investment held by the
Company through SRF II, when aggregated with any existing investment in the
same investee company held directly by the Company, will exceed 15% of the
Company's total investments at the time of investment.
Of the £70.2 million of capital committed, £44.8 million has already been drawn
down and, as at 30 June 2009, had a net asset value of £28.9 million. SRF II
currently has investments in 11 companies (SEC is also invested in all of those
companies). SVGIM expects SRF II to invest the remainder of the undrawn capital
commitments during depressed market conditions and that, if markets continue to
recover, some of SRF II's earlier investments may be realised in the near
future.
SRF II may continue to make new investments up to June 2011 (although this
investment period may be extended to June 2012 with the consent of the general
partner, the general partner has confirmed that it will not seek to extend the
investment period). SRF II currently has a six-year life ending in June 2013,
although this is extendable to June 2015 with the consent of the general
partner. Again the general partner has confirmed that it is not its intention
to extend the life of SRF II beyond 2013.
Where an investment is realised by SRF II, the net proceeds (after payment of
all costs and provisions for all liabilities of SRF II) are distributed to the
SRF II partners, save that, during SRF II's investment period, the cost of the
investment (but not any realised gain) may be retained for investment or may be
returned to SRF II's limited partners subject to recall at a later date. The
general partner has confirmed that other than in exceptional circumstances, the
full proceeds from any disposals within SRF II will be distributed to partners
and not recalled.
The Acquisition
3i's limited partnership interest in SRF II is represented by a capital and
loan commitment of £14.1 million, of which £9.0 million has already been drawn
down and had a net asset value of £5.9 million at 30 June 2009 and £5.1 million
remains as an undrawn loan commitment.
SEC has conditionally agreed to acquire 3i's limited partnership interest in
SRF II. The purchase consideration will be satisfied by the issue to 3i of
7,189,974 new Ordinary Shares, equivalent to 9.9% of SEC's existing issued
share capital. The Consideration Shares value 3i's current investment in SRF II
(based on its latest net asset valuation) at:
* a 36.2% discount to that net asset value, based on the net asset value of
49.5p per Ordinary Share as at 30 June 2009 and after taking into account
SEC's estimated transaction costs; and
* a 56.3% discount to that net asset value, based on the closing mid-market
price of an Ordinary Share of 35.75p on 7 July 2009.
Applications will be made to the Financial Services Authority for the
Consideration Shares to be admitted to the Official List and to the London
Stock Exchange for such shares to be admitted to trading on its main market (
"Admission").
The Consideration Shares will be issued credited as fully paid and will rank in
full for all dividends and other distributions declared, made or paid on the
existing Ordinary Shares after Admission and will otherwise rank pari passu in
all respects with the existing Ordinary Shares.
The Acquisition is conditional on, among other things, an ordinary resolution
approving the Acquisition being passed at a general meeting of the Company
(that meeting is expected to be convened as soon as practicable) and Admission
having become effective on or before 28 August 2009.
3i has agreed to enter into an agreement to retain the Consideration Shares
until 31 December 2009, except in certain specified circumstances, and for such
shares to be subject to an orderly marketing arrangement during 2010.
Investment Management Arrangements
SVGIM is appointed to act as investment manager to both the Company and SRF II.
In order to avoid any double charging of management fees payable to SVGIM by
the Company resulting from the Acquisition, the Company and SVGIM have agreed
that, for the purpose of calculating that basic management fee payable by the
Company to SVGIM following the Acquisition, the net asset value of the Company
will be reduced by the value of SEC's investment through SRF II resulting from
the Acquisition (including further investments following draw downs of the
outstanding £5.1 million loan commitment).
Key Benefits of the Acquisition for SEC Shareholders
The Board believes that the Acquisition is a unique opportunity to enhance
significantly Shareholder value through an acquisition of a compatible
portfolio of assets at a very attractive price and funded by an equity issue.
In particular:
* SEC is invested in the same companies as SRF II. Accordingly:
*
- SRF II's investments are well-known to SEC; and
- the Acquisition will enable SEC to add to existing investments at a
substantially discounted price (36.2%), based on latest net asset
valuations of SRF II and SEC as at 30 June 2009 and after taking into
account SEC's estimated transaction costs.
* Consequently, the Acquisition will result in a significant uplift to the
net asset value per Ordinary Share. Based on the net asset valuations of
SRF II and SEC at 30 June 2009 and after taking into account SEC's
estimated transaction costs, the Acquisition will result in an increase in
the net asset value per Ordinary Share of 2.7p, an uplift of 5.4%.
* Whilst the Company will also be assuming an undrawn loan commitment of £5.1
million to invest through SRF II, SRF II's future investments will be in
accordance with the Company's investment policy.
In addition, the Acquisition will increase the capital base of the Company,
allowing SEC's fixed operating costs to be spread across a larger number of
Ordinary Shares and thereby reduce those costs as a percentage of the net asset
value per Ordinary Share.
Letters of Intent
The Company has received letters of intent to vote in favour of the resolution
approving the Acquisition, and any other resolutions required to implement the
Acquisition, to be proposed at the General Meeting in respect of, in aggregate,
36,053,312 Ordinary Shares, representing 51.8% of SEC's existing issued share
capital (excluding Ordinary Shares held in treasury).
Valuation Policy
SEC calculates and publishes the net asset value per Ordinary Share on a weekly
basis and as at the end of each calendar month. The net asset value of SRF II
is calculated as at the end of each calendar month. Accordingly, the Board
expects to value SEC's limited partnership interest in SRF II based on its
latest available month-end valuation, save that, in respect of the period from
the date on which the Acquisition is completed until the then calendar
month-end valuation of that interest is available, the Board expects to value
SEC's limited partnership interest in SRF II based on cost.
Continuation Vote
The Acquisition will not alter the Board's commitment to Shareholders, given in
October 2008, that it will present an ordinary resolution at the annual general
meeting of the Company in November 2010 allowing Shareholders to vote on the
continuation of the Company. The Board will consult Shareholders before making
any recommendation regarding that vote.
Expected Timetable
The Board expects to post a circular to Shareholders before the end of July
2009, which will include the notice convening the General Meeting at which the
resolution approving the Acquisition will be proposed. It is expected that the
General Meeting will be held in mid-August 2009. Subject to the conditions of
the Acquisition being satisfied, the Acquisition is expected to complete in
mid-August 2009.
Enquiries
John Hodson/ Strategic Equity Capital plc M: 07770 394 098
Mike Phillips M: 07973 141 998
Gordon Neilly/Sue Inglis Intelli Corporate Finance Limited T: 020 7653 6300
Tony Dalwood/Adam Steiner SVG Investment Managers Limited T: 020 7010 8900
Notes
This announcement is for information purposes only and does not constitute an
offer or invitation to acquire or dispose of any securities or investment
advice in any jurisdiction.
Intelli Corporate Finance Limited, which is authorised and regulated in the
United Kingdom for the conduct of investment business by the Financial Services
Authority, is acting exclusively as financial adviser to the Company and no-one
else in connection with the Acquisition and will not regard any other person as
its client in relation to the Acquisition and will not be responsible to anyone
other than the Company for providing the protections afforded to clients of
Intelli Corporate Finance Limited their customers or for providing advice in
relation to the Acquisition or any other matter referred to in this
announcement.
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