Both VCTs fully subscribed
As of Tuesday 2 March both VCTs are fully subscribed and the offer is now closed. Applications are processed on a first come, first served basis – any applications received after the offer became fully subscribed will have their subscription monies returned.
The Baronsmead name is well known and respected amongst VCT investors. Baronsmead VCT was one of the first VCTs to launch in 1995. Today the two Baronsmead VCTs – Baronsmead Venture Trust (BVT) and Baronsmead Second Venture Trust (BSVT) – are amongst the largest and most diverse of all VCTs.
Combined, the VCTs have net assets of £347.2 million (September 2020) and a portfolio of more than 150 companies spread across legacy management buyout (MBO) investments, AIM-quoted companies and newer early-stage growth investments, as well as three Gresham House equity funds, and money market funds.
Over the last 10 years to 30 September 2020, the VCTs have generated a NAV total return of 94.3% (BVT) and 86.3% (BSVT) respectively: note past performance is not a guide to the future. The VCTs aim to make dividend distributions of 7% per annum – not guaranteed.
The current offer is seeking to raise £40 million with an overallotment facility of £35 million.
|VCT||Funds raised*||Offer capacity
(incl. £12.5m of overallotment)
|Baronsmead Venture Trust||£32.5m||£32.5m||CLOSED|
|Baronsmead Second Venture Trust||£32.5m||£32.5m||CLOSED|
- Portfolio of over 150 companies – split between legacy MBO investments, AIM-quoted companies and newer early-stage growth investments
- Preference for companies within the technology, services, consumer, healthcare and education sectors
- Target dividend of 7% NAV, not guaranteed
- 0.10% annual rebate for three years
- Only available for this tax year (2020/21)
- Minimum investment £3,000 – you can apply online
In 2018, the manager of the Baronsmead VCTs, Livingbridge VC LLP, was acquired by Gresham House plc. Gresham House is an AIM-quoted specialist alternative asset manager with a market capitalisation of £221 million (Sept 2020) and £3 billion assets under management across a range of investment mandates, including strategic public equity, private equity, forestry, renewable energy, housing and infrastructure.
The management of the two Baronsmead VCTs and the equity funds (LF Livingbridge UK Micro Cap Fund and LF Livingbridge UK Multi Cap Income Fund) and all 16 members of the Livingbridge VC team have moved across to Gresham House.
The VCTs continue to be led by the same senior team of four: Bevan Duncan, Ken Wotton, Tania Hayes, and Steve Cordiner. Together, they have more than 50 years’ experience managing the Baronsmead VCTs and are responsible for all aspects of portfolio management and investment strategy. They are supported by an additional eight investment professionals, including two new investment managers and an associate. In addition, Gresham House has recently appointed a Technology Operating Partner, Tamer Ozmen, previously CEO of Microsoft in Turkey, and a Head of Portfolio Talent, Hazel Cameron, who has 20 years of private equity experience. Both appointments seek to provide assistance and add value to the VCTs’ expanding portfolio of early-stage investee companies.
The two Baronsmead VCTs are the result of a series of mergers over the years.
Baronsmead Venture Trust (“BVT”) is the result of the merger between Baronsmead VCT 2 (established in 1998) and Baronsmead VCT (established in 1995). Baronsmead Second Venture Trust (“BSVT”) is formed from the previous Baronsmead VCT 3 (2001), Baronsmead VCT 4 (2001) and Baronsmead VCT 5 (established as Baronsmead AIM VCT in 2006).
Historically the VCTs have invested in a diverse portfolio of unquoted management buyouts and AIM-quoted companies. Following the rule changes to VCTs in 2015, new management buyout investments are no longer permitted, so the Baronsmead VCTs have developed a growth capital investment strategy.
The VCTs seek to back companies with strong growth momentum, high-quality management teams, proven and profitable unit economics and a scalable sales model. The investment manager typically invests in businesses with annual recurring revenue of £1 million or more.
Investee companies are split into three stages of maturity – emerging, developing, and core – which will help determine the size of the investment. This helps Baronsmead manage risk and create future deal flow for the VCTs if successful investee companies mature. Moteefe, mentioned below, is an example.
In addition to unquoted investments, between 34%–41% of each portfolio is invested in AIM-quoted companies. This asset split helps provide diversification and helps add liquidity to the portfolio.
Exit track record
The Baronsmead VCTs have historically achieved a high level of realisations, which has allowed the payment of generous dividends to date. Over the last two financial years to September 2020, the VCTs have realised investments in 23 companies, generating total realisation proceeds of £81.8 million. Please note, past performance is not a guide to the future.
Glide – example of previous exit
One of the leading providers of fibre broadband in the UK, Glide specialises in underserved areas of the market such as multi-tenanted buildings and business parks.
Originally known as Cablecom, the company has invested extensively in its own network. It now services more than 100,000 premises across 7 countries. The business has won multiple contracts with universities and property developers across the UK to develop or restructure existing broadband infrastructure.
The Baronsmead VCTs originally backed the MBO in 2007. In 2013, the VCTs sold a majority stake to private equity house Inflexion but continued to support the business. Earlier in 2020, the company was acquired by US infrastructure investor Alinda Capital for a 2.6x return on the original investment. Past performance is not a guide to the future.
CR7 – example of previous failure
Investing in VCTs is not without risk and there have been failures within the portfolio – payment processing company CR7 is an example. CR7’s management team had previous experience in building and exiting businesses in this sector and was looking to replicate the strategy.
The business was split between cash-generative terminal hire and software development, with the former supporting the latter. However, development was more costly and time consuming than originally anticipated.
Eventually, the investment team decided to sell the company to DNA Payments as the VCTs could not provide further investment. The company was sold for nil proceeds in 2019, generating a total loss of around £4 million across both VCTs .
As is to be expected, the VCTs’ consumer-facing businesses, particularly those with multi-site outlets, such as restaurant chain Pho, have been significantly impacted. However, they represent a small portion of the portfolio. These businesses have been supported by senior investors and encouraged to focus on downside planning and cash preservation. In contrast, a number of the unquoted and AIM holdings appear resilient.
At the onset of the Covid-19 pandemic the trusts’ NAVs fell from 77.1p (BVT) and 82.4p (BSVT) on 31 December 2019 to a low of 62.0p (BVT) and 62.5p (BSVT) on 23 March 2020. However, following a strong recovery led by the AIM portfolio, the trusts’ NAVs have risen to 71.4p (BVT) and 73.7p (BSVT) as at 30 September 2020. Each of the two trusts has also paid a 6.5p dividend during this period – past performance not a guide to the future.
The investment team is confident in the level and quality of deal flow it is currently assessing. The pandemic has accelerated business transformation and changes in consumer preferences. For smaller and more agile businesses, this could provide a significant opportunity to scale rapidly. The team’s current pipeline is heavily weighted towards unquoted opportunities.
Current portfolio overview
The combined portfolio contains more than 150 companies and has a net asset value of £347.2 million (September 2020). The portfolio is well diversified: £130 million (37.5%) is invested in AIM-quoted companies, £86 million (24.8%) in unquoted companies and £72 million ( 20.8%) in liquid assets. The remainder is split across three equity funds: LF Gresham House Micro Cap, LF Gresham House Multi Cap Income, and LF Gresham House UK Smaller Companies, with the majority allocated to the highly rated Micro Cap fund.
The portfolio has a bias towards technology and business service companies, particularly those with B2B models. Furthermore, the investment team has identified four sectors of interest: technology, services, consumer markets and healthcare & education. Currently, 68% of the portfolio by value is invested in companies with contracted or recurring revenue business models (August 2020).
Importantly, 62% of the investment portfolio is invested under the old rules. Baronsmead expects this part of the portfolio to be the primary driver of performance for the next 2-3 years whilst the newer growth capital portfolio matures (August 2020).
Over the last 12 months to September 2020, the VCTs have invested £18.6 million, of which £13.45 million into unquoted investments and £5.2 million into AIM-quoted companies. The manager is seeing more unquoted opportunities in its pipeline at present, particularly as the unquoted portfolio matures and requires follow-on investment.
Source: Gresham House, August 2020
Source: Gresham House, September 2020
Examples of portfolio companies
One of the world’s quickest growing software companies, Ideagen provides operational assistance to businesses in highly regulated industries. such as aviation, banking, and healthcare.
Ideagen offers a range of software packages, all aimed at optimising business processes and improving productivity whilst reducing costs and strengthening compliance and risk management . This has afforded the company with a wide user base, with clients ranging from Luxembourg Air Rescue to established brands such as Heineken .
In the last ten years Ideagen has expanded rapidly, acquiring 19 companies and increasing its client base by more than 23000%. Recently, it announced trading in the first quarter of 2020 had remained robust with strong demand particularly from the financial services and pharmaceutical sectors .
The VCTs first invested in Ideagen in 2013, backing the company’s buy-and-build strategy. The VCTs have a combined £13.4 million stake in the business (September 2020). Since investing in 2013, Ideagen has generated a 5.6x return on investment for the VCTs. Past performance is not a guide to the future.
Moteefe (Custom Materials Ltd)
Moteefe is a leading social commerce platform providing digital marketers and influencers with an instant opportunity to sell customised on-demand products globally. The Moteefe platform enables its sellers to market their products for sale to end customers globally, with Moteefe taking payment, organising fulfilment and logistics whilst providing a suite of data and analytics to the sellers.
The Baronsmead VCTs initially invested £500k in 2017, and have since followed on in a further three funding rounds, taking the total investment to £4.5 million. The Baronsmead VCTs are now the largest shareholder.
Since the initial investment, Moteefe has grown gross sales from £2.9 million in the year to December 2016 to £32 million in the year to December 2019. According to the Deloitte Fast 50, Moteefe is now the fourth fastest-growing technology company in the UK. Baronsmead’s combined holding is currently worth £8.4 million, accounting for 2.4% of the combined net assets of the VCTs.
Performance and dividends
Over the last 10 years to 30 September 2020, the VCTs have generated a NAV total return of 94.3% (BVT) and 86.3% (BSVT) respectively. In 2020, both VCTs have been impacted by Covid-19, although the AIM portfolio appears to have recovered strongly, leading to a material recovery in the net asset value of both trusts.
The current dividend policy is to pay dividends twice yearly. When setting the dividend for the financial year, the board will use, as a guide, the sum of 7% of the opening net asset value of the current financial year. In 2020, both trusts have distributed 6.5p per share in dividends.
As at 30 September 2020, the VCTs had a net asset value of 71.35p (BVT) and 73.47 (BSVT) indicating a target dividend of 5.0p to 5.2p, respectively. Please note dividends are variable and not guaranteed. The legacy unquoted portfolio along with the larger AIM holdings will be key to supporting the dividend payments in the short-term whilst the portfolio’s early-stage investments mature.
Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends per share for the period 31 Dec 2015 to 31 Dec 2020.
Source: Gresham House. Past performance is not a guide to the future. Dividends are variable and not guaranteed. Dividends paid per calendar year to 31 Dec 2020.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks.
Tax rules can change and benefits depend on circumstances.
VCTs can now only invest new money in growth capital deals. Management buyouts, replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.
Charges and savings
A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details.
Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.
|Full initial charge||4.5%|
|Early bird discount||—|
|Wealth Club initial saving||1.5%|
|Existing shareholder discount||—|
|Net initial charge through Wealth Club (new investors)||3%|
|Net initial charge through Wealth Club (existing shareholders)||3%|
|Annual management charge||Up to 2.5%|
|Annual administration charge||—|
|Annual rebate from Wealth Club (for three years)||0.10%|
More detail on the charges
Dividend reinvestment plan
There is a dividend reinvestment plan which allows shareholders to reinvest future cash dividend payments by purchasing existing shares in the secondary market. As these are NOT new shares they will not be eligible for tax relief and therefore will not count towards the VCT annual subscription limit.
- Final allotment for 2020/21 tax year deadline: 24 March 2021 (noon)
Share buyback policy
From time to time the VCTs may buy back their own shares through the market. The VCTs aim to maintain a mid-share price discount of approximately 5% to NAV. However, there is no guarantee that the VCTs will buy back shares and the discount to NAV could be greater or less than this. Historically, the discount on both Baronsmead VCTs has been closely managed, averaging 5% or less for much of the previous five years to 30 June 2020.
Annual rebate when you invest through Wealth Club
The VCT includes an annual rebate for Wealth Club investors, payable for the first three years.
This is a rebate of our renewal commission and should be equivalent to 0.10% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.
The two Baronsmead VCTs are amongst the largest and most diversified of all VCTs. The combined portfolio is spread across AIM-quoted companies, legacy MBO investments, newer early-stage growth investments, three Gresham House equity funds, and money market funds.
Investors continue to benefit from exposure to the legacy MBO investments, which generate income and provide a source of realisations for both VCTs. This exposure has helped the board maintain one of the most generous dividend policies, and support a 7% dividend yield (not guaranteed). The AIM exposure has also been a source of liquidity, with profits from strong-performing stocks used to fund dividend payments.
The new unquoted investment strategy, deployed after the rule changes in 2015 now, seems to be embedded within the team’s process. The VCTs have made a number of new and follow-on unquoted growth capital investments in the last twelve months. One in particular, Moteefe, is showing potential, although there are no guarantees. The team expects its unquoted portfolio to begin contributing strongly to deal flow as the portfolio matures, and as companies look to raise capital to take advantage of the changes in corporate and consumer behaviour caused by Covid-19.
For investors considering adding to their VCT portfolio this year, in our view, the Baronsmead VCTs are a high-quality offering which could add diversification to a wider VCT portfolio.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
- Target dividend
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- £65.0 million / £65.0 million
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