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Draper Esprit VCT plc (DEVC)

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Tuesday 16 February, 2021

Draper Esprit VCT plc

Publication of Prospectus and Circular

Publication of Prospectus and Circular

Draper Esprit VCT plc (“the Company")
LEI: 2138003I9Q1QPDSQ9Z97
16 February 2021
Publication of Prospectus and Circular

The Company has today issued a prospectus (the “Prospectus”) relating to an offer for subscription for ordinary shares of 5p each in the Company ("New Shares") to raise up to £5 million (with an over-allotment facility of up to an additional £15 million) (the "Offer") following the approval of the Prospectus by the Financial Conduct Authority. This is equivalent to approximately 45 million New Shares assuming the Offer is fully subscribed, with the over-allotment facility fully utilised, based on the current net asset value (“NAV”) and maximum offer costs of 5.5%.

In addition, the Company has today published a circular to shareholders (the "Circular") seeking approval for some minor amendments to the Company's articles of association, the cancellation of the Company's share premium account and capital redemption reserve and two related party transactions with the Company manager Elderstreet Investment Limited (the "Manager") being (i) the entry into a promoter agreement in respect of the Offer and (ii) the entry into a new Investment Management Agreement following the acquisition of the Manager by Draper Esprit plc.

Promoter Agreement
Under the proposed Promoter Agreement, the Company will pay to the Manager a promoter’s fee of 3.0% of the NAV per New Share for each New Share subscribed under the Offer. From this, the Manager will pay all of the costs and expenses (save for commission and adviser charges payable to intermediaries) of the Offer and will contribute to such costs should they exceed the promoter’s fee actually received. The Promoter Agreement contains standard provisions indemnifying the Manager against any liability not due to its default, gross negligence, fraud or breach of FSMA.

New Investment Management Agreement
In recognition of the change of ownership of the Manager, now becoming a formal part of the Draper Esprit plc group, it is proposed that the existing investment management agreement be terminated and, subject to Shareholders’ approval, the New Investment Management Agreement be entered into.

A comparison of the key terms of the Existing Investment Management Agreement against the proposed New Investment Management Agreement are set out in the table below:

  Existing Investment Management Agreement New Investment Management Agreement
Investment Management Fee 2.0% of annually of net assets.


This equated to a total payment in the year ended 31 March 2020 of £848,000.

 
Unchanged at 2.0% of annually of net assets. 
Annual Running Costs Cap 3.5% of Net Assets with any excess being refunded by way of a reduction in fees payable to the Manager and the Administration Manager. Unchanged at 3.5% of Net Assets with any excess being refunded by way of a reduction in fees payable to the Manager, subject to the Manager's oversight in case of the incurrence of excessive costs.

 
Arrangement and Monitoring fees The Manager is entitled to certain non-executive directors’ fees, arrangement fees and expenses in respect of any investee company. The Manager's entitlement to annual non-executive directors’ fees and monitoring fees is capped at 1.0% of the amount invested into the relevant investee company.

 
Performance Incentive Performance incentive fees are payable when dividend payments and/or distributions equivalent to not less than 3.5p per Share in any one financial year are made provided that the NAV, before the distribution, is higher than 70.6p per Share.

Where such threshold is met, the Manager will receive 20% of the distribution amount over 3.5p per Share. The performance incentive fee will also have a catch-up (subject to the cap mentioned below) should any previous year’s distribution not be met. This catch-up will be cumulative so that in any years where the distribution is less than 3.5p, the shortfall must be made up prior to awarding any further incentive fees.

Any performance incentive fee payable in any period of 12 months is capped so that in any 12 month period, the fee payable under the incentive arrangements (together with any other fees payable to the Manager by the Company which have not been approved by Shareholders) is capped at 24.9% of the lesser of the Company’s current Net Assets, market capitalisation or gross assets. Any such fees which result in this cap being exceeded will be waived, will not be carried over to another period and will cease to be payable to the Manager.


These fees are calculated in respect of each year end following approval of the audited accounts by Shareholders.
No performance fee is payable unless a realised gain is made on the disposal of an investment where both the hurdles below are met:

  1. an IRR hurdle requiring the achievement of at least 7% p.a. in respect of investments made within a five-year pool, the first such period starting on 1 April 2021; and
  2. a NAV per share hurdle requiring the NAV per share at the end of the year in which the gain is made to be higher than the NAV per share at the commencement of the five-year pool period in which the investment was made.
Where a realised gain is made and both hurdles are met, a performance fee equal to 20% of the realised gain is payable to the Manager.

To the extent a performance fee is not paid due to failure to meet either hurdle, it may be paid at a later date if the hurdles are then achieved.

 

Other changes made to the management arrangements, reflected in the New Investment Management Agreement, include:

  • the requirement for specific Board approval of investments made of over £1 million;
  • the requirement for the Manager to maintain insurance to cover its activities (on groupwide basis with other Draper Esprit entities); and
  • consequential amendments required following Brexit.

The New Investment Management Agreement will be made available to Shareholders on request.

Related Parties
The Manager is regarded as a related party of the Company under the Listing Rules. Therefore, the entry into the Promoter Agreement and the New Investment Management Agreement constitute related party transactions for the purpose of the Listing Rules (LR11.1.5) and requires Shareholders’ approval.

Neither the Manager nor Draper Esprit plc, as related parties of the Company under the Listing Rules, is permitted to vote and as such will not vote (to the extent they hold shares in the Company) on the resolutions to be proposed which approves the above arrangements, and each will take all reasonable steps to ensure that its associates (including any of its members, partners or employees) will also not vote on those resolutions.

The Offer will open on 16 February 2021 and will close at 3.00 pm on 1 April 2020 for the 2020/2021 tax year and 3.00 pm on 31 July 2020 for the 2020/2021 tax year, or earlier if the Offer is fully subscribed. The board of the Company reserves the right to close the Offer earlier or to extend the Offer (to no later than 15 February 2022).

The Prospectus and Circular have been submitted to the Financial Conduct Authority and copies of the Prospectus and Circular will shortly be available for download from the Company's website, https://www.draperespritvct.com and from the National Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.




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