The Northern VCTs – Northern Venture Trust (NVT), Northern 2 VCT (NV2) and Northern 3 VCT (NV3) – are among the longest-standing VCTs with a history going back to 1995.
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Review: Northern VCTs 2019/20 share offer
- Longstanding and highly respected VCT manager, now part of the larger Mercia group
- Targets annual dividends of 4% to 5% of NAV, not guaranteed
- Combined net assets of £270 million and a diverse portfolio of 61 unquoted and quoted companies (as at 9 January 2020)
- Strong performance track record to date: total returns of 107.5% to 137.5% over ten years – past performance is not a guide to the future and dividends are not guaranteed
- Around 45% of the portfolio is in mature investments, predominantly from management buyouts, which could support dividend payments, with the remaining 55% in newer growth capital deals
The three VCTs are some of the longest-established, having launched in 1995 (NVT), 1999 (NV2) and 2001 (NV3). From the start, they have been managed by NVM Private Equity LLP (“NVM”), under the lead of Tim Levett, recently in conjunction with former IP Group director Charlie Winward.
In December 2019, the NVM VCT business was acquired by AIM-listed asset manager Mercia Asset Management plc (“Mercia”). As a result, Mercia has taken over the management of the Northern VCTs and NVM’s VCT investment management team has joined Mercia to form a new VCT division within the Mercia group.
The management team will continue to manage the three VCTs under the same investment strategy. The management buyout portfolio will continue to be managed by NVM Private Equity until these assets mature. The newly formed VCT division at Mercia will be headed by former NVM partners Tim Levett and Charlie Winward, although it is expected Tim will leave the business after two years. Charlie has over 12 years’ experience in venture investing, having joined NVM in 2016 from IP Group. He now serves as Managing Director of VCT funds at Mercia and is a member of the Mercia senior management team. Key members of the senior management team will support Charlie in managing the VCTs, namely Mark Payton, CEO and founder of Mercia, and Julian Viggars, Chief Investment Officer.
Mercia is an AIM-listed regionally focussed venture capital business that has been growing rapidly in recent years by consolidating other smaller regionally focused venture capital firms.
Watch a video interview with Tim Levett of NVM:
Wealth Club met with Tim and Charlie following the acquisition announcement. In our view, there are a number of benefits for VCT shareholders under this deal.
Firstly, the VCTs’ investment management team will gain access to a wider regional presence. Mercia employs 60 investment professionals across eight regional offices and manages a portfolio of over 300 companies. The VCTs should be able to benefit from this larger team and deal flow. Mercia also manages non-VCT funds, which could provide additional liquidity to portfolio companies where VCT rules prevent further investment. For instance, if a particularly attractive acquisition opportunity were to arise within a portfolio company, Mercia could potentially provide the funding required. This is seen as strategically important in delivering returns to shareholders and was a key attraction for NVM when agreeing the deal with Mercia.
As noted above, the VCTs’ investment management team has joined Mercia and will continue to manage the trusts under the same investment strategy. This provides important continuity for both the investment team and investors in the VCTs.
The executives of NVM Private Equity and directors of the Northern VCTs intend to invest £720,000 between them in this offer.
All three Northern VCTs are generalist and have shared the same investment strategy since inception. The vast majority of the investments are common across all three portfolios, but NV3 has a marginally greater proportion in AIM-listed companies.
Deal flow has historically been sourced from NVM’s established regional network of accountants, lawyers and corporate finance houses. This approach has historically generated around 400 opportunities to assess each year, leading to an average of eight new investments. Following the acquisition by Mercia, we expect deal flow to increase. Mercia typically assesses 2,000 opportunities and makes 40-50 new investments a year, although not all will be eligible for VCT investment.
For NVM, a good partnership is key to making an investment work. It’s not unusual for the management team to spend over a year getting to know each company before investing, in addition to extensive due diligence. Above all else, NVM prioritises capable and successful management as well as the company’s track record, market potential and the quality of the product or service.
The VCTs will look to invest in a mix of qualifying unquoted and AIM-quoted investments.
Prior to the 2015 VCT rule changes, NVM largely focused on management buyouts and has since had to adapt its investment strategy towards newer growth capital investments. NVM has recruited significantly to broaden the team’s experience. Since 2015, NVM has invested £103.6 million in 30 qualifying companies. The acquisition by Mercia is expected to add further resource to aid this transition.
Exit track record
Since 2015 the Northern VCTs have achieved 26 exits from the mature portfolio and generated total proceeds of £183.2 million on these investments – an average return multiple of 2.7x (as at September 2019), although past performance is not a guide to the future. A recent example is MSQ Partners.
MSQ Partners is a London-based marketing group of six agencies, each specialising in one particular discipline, from brand design to PR, digital and B2B.
Northern VCTs first invested £4.8 million into the business in 2014. Today, the business has offices in the UK, Asia and the US, and employs over 600 people. It supports an international client base which includes many household names such as Coca-Cola, Nasdaq, Unilever and HM Government.
The Northern VCTs fully realised their investment in May 2019 following a £37.5 million management buyout of the business, which provided the VCTs with a 2.7x return.
Not all investments go to plan. An example from the Northern VCTs portfolios is Britspace Group. NVM invested £2.2 million in 2010, after previously backing Britspace Holdings, the company’s predecessor, for eight years.
Founded in Yorkshire in 1972, Britspace specialised in off-site manufacturing by supplying modular structures and bathroom pods to buildings such as schools, hotels and hospitals.
Despite recording a turnover of £42 million in its last set of accounts, the company went into administration in 2011 due to severe cashflow issues and was unable to fulfil all customer requirements.
Tim Levett admits the investment was disappointing because the company had received significant orders and they had been working together for over a decade. The investment was held by NV2 and NV3 and was written down to nil value in 2011. Past performance is not a guide to the future.
|VCT||Development capital post 2015||Development capital pre 2015||MBO|
|Northern Venture Trust (NVT)||53.0%||18.6%||28.4%|
|Northern 2 VCT (NV2)||47.5%||18.2%||34.3%|
|Northern 3 VCT (NV3)||43.9%||26.5%||29.6%|
The manager expects the mature portfolio to continue to generate income to support dividend payments until the venture portfolio matures. Dividends are not guaranteed. Over time, as the venture portfolio becomes a larger part of the total portfolio, dividends are expected to come increasingly from capital growth and exits from the venture portfolio, which are not guaranteed.
The VCTs are broadly split across six sectors but NVM is open to opportunities in any area.
NVM is seeing a healthy flow of potential new investments in companies in sectors such as big data analysis, artificial intelligence, machine learning capability and blockchain, as well as companies that exploit the potential of social media as a way of communicating and sharing information, and as a marketing channel.
Examples of portfolio companies
Voxpopme – recent investment
In September 2019, the three Northern VCTs collectively invested £2.7 million into Voxpopme, a video-based market research software business. The Northern VCTs came across the deal after being approached by Mercia, an earlier investor in Voxpopme, to help fund a £7.5 million round.
Voxpopme has developed a mobile app and analytics platform which allows brands to understand their customers better by collecting and analysing insightful video-based customer feedback, in real time. Voxpopme was founded in 2013 and has since expanded into the US and Australia, winning a host of blue-chip clients, including Shell, Wendy’s and Microsoft.
Lineup Systems – largest holding
Lineup Systems is the largest holding within all three VCT portfolios. The business was founded in 2009 by Michael Mendoza, previously the global IT director for Metro International, the free newspaper media conglomerate. In this role, Michael struggled with clunky and expensive software and was unable to find a system able to help Metro generate more advertising sales. So, together with his Metro team decided to build their own proprietary software, Adpoint. It proved so transformative for Metro that Michael launched it to the global media market under newly created Lineup Systems in 2009. Today, the company counts a range of globally recognisable brands and multimedia organisations amongst its clients and has grown sales to over £9 million per annum.
The VCTs initially invested £2.9 million in 2012. As at 30 September 2019, the combined holding is valued at £13.5m.
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. Asset-based investments are no longer permitted. This results in considerably higher risks.
How to invest
The Northern VCTs have not yet announced any fundraising plans for 2020/21. As soon as further information is available, we will update this page.
In the meantime please register your interest here to be notified as soon as VCT offers open.
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.
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