Update: offer now closed (1 April 2020)
This offer is now closed. All applications submitted (with cleared funds) before the deadline of 11.59pm on 1 April 2020 will be processed on a first-come, first-served basis, subject to capacity.
The Northern VCTs – Northern Venture Trust (NVT), Northern 2 VCT (NV2) and Northern 3 VCT (NV3) – are raising £40 million in a joint offer.
They are among the longest-standing VCTs – Northern Venture Trust was one of the first to launch in 1995. Each of the three VCTs has more than doubled investor money in the last 10 years, assuming dividends were reinvested. Past performance is not a guide to the future.
This has helped build a loyal following amongst VCT investors. The previous share offer, in January 2019, filled its £20 million capacity in 11 days and many investors missed out as a result. The current offer is also expected to be popular.
Unlike before, there is no exclusivity period for existing shareholders. All applications, both from new and existing investors, will be processed on a first come, first served basis.
- 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 management is required to invest personally
- 0.10% annual rebate for three years when you invest through Wealth Club
- Invest across the three VCTs or pick and choose
- Minimum investment £6,000 in the offer (at least £2,000 per VCT) – you can apply online
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 our latest 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.
Current portfolio overview
The three Northern VCTs currently hold 61 investments valued at £189 million.
The aggregate portfolio is split between new venture investments and more mature investments made prior to 2015. The mature portfolio contains 31 companies valued at £85 million, down from 36 companies valued at £98.8 million in the previous year. The new venture portfolio has increased in size to 30 companies valued at £104 million, up from 24 companies valued at £68.8m in the previous year.
The table below gives a more detailed view for each of the three VCTs.
|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.
The current sector breakdown across the three VCTs is shown below.
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.
Performance and dividends
Over the last five financial years, the Northern VCTs have sold more than £235 million of assets and generated £38 million in capital gains from sales at a premium to the last recorded valuation. The VCTs have also benefitted from £38 million in investment income and unrealised gains of £29 million.
As a result, the VCTs have performed well in comparison to their peers and paid out healthy dividends to shareholders. Indeed, each of the three VCTs has more than doubled investor money in 10 years, delivering total returns of between 107.5% to 137.5%. To put that into context, the average VCT has delivered 87.0% over the same period (source: Morningstar, 20 Jan 2020. Performance figures calculated net of fees on a NAV to NAV basis for the 10 years to 31 Dec 2019). Past performance is not a guide to the future; dividends are variable and not guaranteed.
The target annual dividend for NVT and NV2 is 5% of NAV and for NV3 is 4% of NAV, not guaranteed. Since the end of 2014, NV2 and NVT have paid out more than half their net asset value in dividends, whilst NV3 has paid out more than 40%. Dividend yields as a percentage of net asset value have ranged between 4.3%–16%. Please remember, past performance is not a guide to future returns.
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.
Charges and savings
A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details.
|Full initial charge||4.5%|
|Early bird discount||—|
|Wealth Club initial saving||2.25%|
|Existing shareholder discount||0.5%|
|Net initial charge through Wealth Club (new investors)||2.25%|
|Net initial charge through Wealth Club (existing shareholders)||1.75%|
|Annual management charge||2.06%|
|Annual administration charge||See offer documents|
|Performance fee||12% to 15%|
|Annual rebate from Wealth Club (for three years)||0.10%|
More detail on the charges
This offer is now closed.
Dividend Investment Scheme
A dividend investment scheme is available if shareholders wish to reinvest dividend payments by way of subscription for new shares. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit.
The VCTs offer a share buy-back policy. Each company aims to buy back shares at a discount of 5% to the latest published NAV. Please note, any purchase is at the discretion of the board and the relevant company having both cash resources and distributable reserves available for the purpose.
Annual rebate when you invest through Wealth Club
The Northern VCTs include 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. You will find the terms and conditions for annual rebates within our Terms of Business.
The Northern VCTs have served investors well over the years and they are some of the most popular VCTs.
In our view, they are – and will continue to be – an attractive option for experienced investors. They offer a blend of mature and venture investments, well diversified over a variety of sectors. The mature investments are expected to generate a level of investment income that should help to cover the dividend target each year, whilst the new venture portfolio should provide the potential for capital growth over the longer term – returns are, of course, not guaranteed.
Mercia’s recent acquisition of the Northern VCTs is likely to have a positive impact, in our view. It should result in enhanced deal flow, greater potential liquidity for portfolio companies and the ability to draw on the resources of 60 investment professionals within the wider Mercia group.
NVM’s VCT investment team has joined Mercia; the Northern VCTs will form a specific VCT division within the group and will be encouraged to maintain independence. The management buyout exposure will continue to be managed by NVM Private Equity until those assets mature. In many respects, it is business as usual.
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
- £38.2 million / £40.0 million
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