Northern VCTs

2019/20 fundraising offers announced – register your interest

The three Northern VCTs – Northern Venture Trust, Northern 2 VCT and Northern 3 VCT – have announced their intention to launch linked offers for subscription in the 2019/20 tax year, raising up to £40 million in total.

The offers are expected to open in January 2020.

Register to receive an alert as soon as the offers open

The Northern VCTs – Northern Venture Trust plc (NVT), Northern 2 VCT plc (NV2) and Northern 3 VCT plc (NV3) – have one of the most loyal followings among VCTs. As a result, previous share offers have filled up fast. The most recent share offer, in January 2019, raised £19.8 million in 11 days.

In December 2019 it was announced that the management of the VCTs will be acquired by Mercia – read more here.  

Highlights

  • Longstanding and highly respected VCT manager
  • Targets annual dividends of 4% to 5% of NAV, not guaranteed
  • Good track record of dividends to date – past performance is not a guide to the future. As with all growth capital investments dividends are likely to be less predictable in future and are not guaranteed
  • Combined net assets of £264 million and a diverse portfolio of 60 unquoted and quoted companies
  • Around 60% of the portfolio is in mature investments, predominantly from management buy-outs, which could support dividend payments, with the remaining 40% in newer capital growth deals
  • The management is required to invest personally in each VCT‐qualifying investment
  • Acquisition by Mercia could improve deal flow and benefit existing portfolio  

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


The manager

The three Northern VCTs have to date been managed by NVM Private Equity, established in 1988 and based in Newcastle-upon-Tyne. 

Since 2006 NVM executives are required to invest personally alongside the Northern VCTs in each VCT‐qualifying investment on a predetermined basis.

Acquisition by Mercia

In December 2019 Mercia Asset Management plc announced the acquisition of NVM’s VCT business. As a result the management of the Northern VCTs – as well as the management team, headed up by NVM partners Tim Levett and Charlie Winward — will transfer to Mercia Asset Management and will form a new VCT division within the Mercia group. Please note, the management team will continue to manage the three trusts under the same investment strategy.

Mercia Asset Management is an AIM-listed regionally focused venture capital business that has been growing rapidly in recent years by consolidating other smaller regionally focused venture capital firms. This is a significant and strategically important acquisition for Mercia, and will increase Mercia’s assets under management by £270m to £770m.

Wealth Club met with Mr Levett and Mr Winward following the acquisition announcement. In our view, there are a number of benefits to the VCT shareholders under this deal. 

Firstly, the NVM team will gain access to a wider regional presence. Mercia has eight regional offices and 85 employees, managing a portfolio of over 300 companies. NVM will benefit from tapping into this larger team and deal flow. Mercia also manages non-VCT funds, and this could provide additional liquidity to portfolio companies where VCT rules prevent further investment into those companies. The deal allows the NVM team to transfer across to Mercia and form a new division within the wider Mercia group and continue to manage the trusts under the same investment strategy. This provides important continuity for both the investment team and the investors in the trusts.  


Investment strategy

All three are generalist VCTs and have shared the same investment strategy since inception (1995 for NVT, 1999 for NV2 and 2001 for NV3). The vast majority of the investments is in common over all three portfolios, but NV3 has a marginally greater proportion in AIM-listed companies.

Over the last 23 years the Northern VCTs have invested over £425 million in more than 240 companies (unquoted and AIM listed), providing total returns since inception of between 180p and 235p per share in the three Northern VCTs (as at 30 September 2018). Please note past performance is not a guide to the future – see annual performance below.

Watch a video interview with Tim Levett, recorded in November 2018

Prior to the 2015 VCT rule changes, NVM largely focused on management buyouts and has since had to adapt its investment strategy to focus on newer growth capital investing. Mr Levett is confident of the VCTs’ ability to do so given the significant recruitment efforts to broaden the team’s experience and the deals subsequently completed. Since the changes, NVM has invested £68.8 million in 24 qualifying companies. 

Over the next few years Mr Levett expects the overall make-up of the VCTs portfolio to change as the older investments mature and the newer investments increase in number. This may lead to a less predictable pattern of growth and possibly more fluctuation in the VCTs’ dividend payments.

Exit track record

In the last four years the Northern VCTs have achieved 23 exits, five of which were in 2018 alone (an example is CloserStill Media).

The 23 exits generated total proceeds of £163.8 million over the investment lifetime – an average return multiple of 2.9x.

CloserStill – Northern VCTsCloserStill Media

CloserStill Media runs business events and exhibitions in the healthcare and technology sectors.

NVM has been backing the management team behind CloserStill Media since 2005 when it supported the management buyout of its predecessor, Ithaca Business Media. That investment was profitably exited in 2007. In 2008 the Ithaca management team approached NVM again to help fund the launch of London-based CloserStill. NVM originally invested £4 million, of which £2.7 million through its VCTs and has participated in two subsequent management buyouts of the business, each time reinvesting a portion of the sales proceeds.

NVM’s continuing support helped CloserStill grow both organically and through a number of acquisitions at attractive EBITDA multiples. It now has events in London, Birmingham, Paris, Berlin, Frankfurt, Koln, New York, Hong Kong and Singapore – from Cloud Expo Asia (Singapore) to Wild West Vet (Nevada), Dentiste Expo (Paris) and The London Vet Show.

NVM fully exited the investment in December 2018. The final remaining holding was sold in a buy-out transaction to Providence Equity, delivering a return of 7.8x cost in aggregate over the entire lifetime of the investment. Past performance is not a guide to the future.

Britspace Group

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 buildings 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.

Mr 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. Again, past performance is not a guide to the future.

Portfolio

The current portfolio is split between new qualifying investments and legacy investments made prior to 2015. The 36 legacy investments are valued at £98.8 million (60% of the combined portfolio) and are predominantly management buyouts. The manager expects them to generate income yield and steady capital growth to fund future dividend payments, although there are no guarantees. The 24 venture investments are valued at £68.8 million.

The VCTs are broadly split across six sectors but are 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 eploit the potential of social media as a way of communicating and sharing information, and as a marketing channel.

The existing sector breakdowns for the legacy and venture portfolios across the three VCTs are shown below.

Source: NVM. As at 30 September 2018.

Example companies

The Climbing Hangar – Northern VCTsThe Climbing Hangar (new investment)

A leading indoor climbing business, The Climbing Hangar was founded in 2010 by Ged MacDomhnaill. While climbing has historically been an outdoor activity, indoor centres are becoming increasingly popular. Today, nearly 25 million people climb regularly and this is expected to soar with indoor climbing featuring for the first time at the Tokyo 2020 Olympics.

The Climbing Hangar has already managed to set itself apart by offering quality facilities in a social environment. Its strong community of climbing enthusiasts and novices alike has allowed it to expand out of Liverpool. A new centre in Plymouth opened in 2018 with a focus on World Cup style climbing and according to Red Bull “it might just be the country’s best yet”.

NVM invested £3 million in August 2018 to support the rollout of sites across the UK. 

No1 Lounge – Northern VCTsNo1 Lounges (largest holding)

Founded in 2006, No1 Lounges is an independent airport lounge provider. The company’s founder, Phil Cameron, decided to use his experience as a frequent traveller to create a comfortable and convenient service.

The company has developed four brands: My Lounge (premium economy and leisure markets), No1 Lounges (business class), Clubrooms (first-class) and The House (first-class). It has also expanded its service offering to include spa treatments, airside bedrooms and chauffeur services.

No1 Lounges currently operates 11 lounges across Gatwick, Heathrow, Birmingham and Edinburgh airports. The company benefits from limited market competition which could encourage growth. Already the company has grown year-on-year and expects to serve 1.5 million customers in its lounges this year.

NVM invested £7 million in 2014. The capital will chiefly be used to drive the expansion of lounges across the UK with the aim to increase the available passenger market to over 50 million a year.

Medovate – Northern VCTsMedovate Ltd (healthcare investment)

Medovate Ltd is the first company dedicated to developing new medical technologies from within the NHS.

Launched by NHS Innovation Hub Health Enterprise East (HEE), Medovate will support innovative technology through clinical trials and approval processes with the goal of getting products available as quickly as possible.

As the company is integrated into the NHS, it could provide reinvestment and commercial returns directly to the investors, but also to NHS organisations.

NVM partnered with a private US investor to provide £9 million of investment capital in December 2017. Funds will be used to identify new opportunities and expand the existing portfolio. 

Dividends and performance

NVT has paid an average annual dividend of 9.6p over the last five years to December 2018 while NV2 and NV3 have both paid an average of 9.5p to July 2018.

The target annual dividend for NVT and NV2 is 5% of NAV and for NV3 is 4% of NAV, not guaranteed.

Please remember, past performance is not a guide to future returns. 

Source: NVM. As at 30 September 2018. Past performance is not a guide to the future. Dividends are not guaranteed. Chart shows Net Asset Value and cumulative dividend paid to 30 Sep (excluding 2018, NVT) and 31 Mar (excluding 2018, NV2 and NV3) each year, pence per share.

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.

How to invest

The Northern VCTs are not currently open to new subscriptions but have announced the intention to launch a new share offer in January 2020. 

Please register your interest here to receive alerts when this and other VCT offers are available.

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.

The details

Type
Generalist
Target dividend
-
Initial charge
-
Initial saving via Wealth Club
-
Net initial charge
-
Annual rebate
-
Funds raised / sought
£40.0 million sought
Deadline
Coming soon
Last updated: 10 October 2019

Register your interest

Be notified when VCT offers are available

Read more about Register your interest

News about Venture Capital Trusts. Read all