Shareholders of VCT private equity investor Core Capital have voted in favour of the firm creating a new £76.2 million limited partnership (LP) fund to commit further capital to its largest VCT portfolio companies.
Shareholders of VCT private equity investor Core Capital have voted in favour of the firm creating a new £76.2 million limited partnership (LP) fund to commit further capital to its largest VCT portfolio companies.
Core Capital will now move ahead with plans to launch Core Capital I LP and transfer six companies to the new fund after winning ‘overwhelming shareholder support’, according to a statement from the firm.
The new fund’s size will total £76.2 million including the assets transferred from the Core VCTs and new capital of £46.8 million that will be used to support the growth plans of each company. The transaction will also provide Core VCT shareholders with a cash distribution of 10 pence per share.
The six companies to be transferred to the new fund are Kelway Holdings, Ark Home Healthcare, Brasserie Bar, Colway, Better at Homes and SPL Services.
Core Capital managing partner Stephen Edwards says the structure is an ‘innovative solution’ to a problem that the firm faced after its Core VCTs (Core VCT, Core VCT IV and Core VCT V) became fully invested. He says the firm examined ways for shareholders to best benefit in a situation where the largest portfolio companies require further capital to accelerate growth and execute business plans and appropriate exits.
As debt was not considered a practical alternative and any third party equity investment would involve dilution, an alternative strategy involving new investors agreeing to invest in a new fund, Core Capital I LP, was proposed. Lawyers Howard Kennedy advised on the structure, which is hoped to be replicated across the sector.
The firm claims the transaction will reduce risk for existing shareholders because the portfolio companies will be ‘fully and appropriately’ funded. Shareholders will also be able to participate in any upside on the same terms as new investors and will continue to benefit from the tax reliefs of the VCT structure.
Edwards says, ‘We are delighted to receive the overwhelming support from our VCT shareholders for this innovative solution to delivering substantial additional capital for our portfolio companies to accelerate their growth.’
Keith Lassman, corporate partner at Howard Kennedy, which acted as both adviser and sponsor to the project, comments, ‘The innovative approach to inject such a sum of capital to accelerate growth, execute business plans and achieve exits was extremely creative and is the first of its kind to tap into the institutional private equity market to support an exit strategy for VCT shareholders.
‘This could be a model for other VCTs with a focussed private equity portfolio to follow as the lack of available debt continues to constrain developing portfolio companies, and corporate disposals are being done at depressed valuations.’
Stephen Edwards and Walid Fakhry founded Core Capital LLP in 2004. The firm invests £5 million to £20 million in companies seeking growth capital in a range of sectors.
