Foresight 4 VCT

Now open: Foresight 4 VCT offer to raise £50 million, with an additional over-allotment of £30 million. The VCT has a weighting towards technology, media and telecoms.

Highlights

  • Established, mature VCT portfolio
  • Has a weighting towards technology, media and telecoms
  • Target dividend of 5% – not guaranteed 
  • Experienced, well-resourced team
  • Raising up to £50 million
  • Minimum investment £3,000
  • 0.10% annual rebate through Wealth Club

Read important documents and apply

The manager

Foresight Group was founded in 1984 as a specialist technology venture capital manager. In total, the group has £2.8 billion under management. Around £300 million is invested in its range of three VCTs. 

Foresight 4 is a VCT with a long history of takeovers, mergers and diverse investment mandates – the most recent of these being the merger with its smaller sibling, Foresight 3 VCT, in 2017. 

As background, Foresight 4 started life as the Advent 2 VCT in 1998, and after becoming Foresight 4 merged with Foresight 5 VCT, Foresight Clearwater VCT and Acuity VCT. Foresight 3 was originally the Advent VCT, and in 2008 was merged with Noble VCT. 

As at 31 December 2017, the Foresight 4 VCT had net assets of around £73 million, with 28 portfolio companies. 

Watch a video interview with Foresight partner James Livingston:

Strategy

Foresight 4 VCT seeks to invest in UK unquoted companies with high growth potential. The broad aim is to deliver attractive returns to shareholders from a combination of dividends and interest payments from investments, as well as distributions from capital gains from trade sales or flotations. Foresight will focus on making investments in the following sectors: 

  • Technology, media and telecommunications 
  • Business services
  • Industrials and manufacturing
  • Consumer and leisure
  • Healthcare 

Foresight 4 VCT was originally a technology-focused portfolio. In the late 1990s, Foresight changed the emphasis of the fund to a mix of environmental investments, MBOs (Management Buy outs), MBIs (Management Buy Ins) and replacement capital deals, before returning to its original technology focus.

Foresight sources deals from a network of 1,300 intermediaries: legal firms, accountancy firms and insurance brokers are prime examples. It hosts events for entrepreneurs and small businesses across the country and sees deals from numerous non-executive directors in Foresight's extensive personal and professional network. 

Example holdings in Foresight 4 VCT

Foresight 4 VCT – DatapathDatapath 

Datapath is by far the largest holding. 

It is a Derby-based manufacturer of PC-based multi-screen computer graphics cards and video capture hardware, specialising in video wall and data wall technology. 

Picture a traffic control room. Several people are sat behind desks in front of a large video wall. Datapath provides the hardware and control box which manages the whole video wall. 

A video wall can be anything from four TVs in a square to sixty-four. Video walls have multiple applications: they are used in advertising, universities, betting shops and retailers. Datapath has around half the total global market share of the controllers for video walls. 

Foresight 4 VCT – TFCTFC Europe 

TFC Europe is a well established and, according to Foresight, “very slightly boring” business. Based in East Sussex, TFC is one of Europe’s leading suppliers of fixing and fastening products. From eight sites in the UK, Germany and the Czech Republic, it supplies injection-moulded technical fasteners and ring and spring products to customers across a wide range of industries, including aerospace, automotive, hydraulics and petrochemicals.

Take a Bosch lawnmower, which has around 171 parts. 11 are large, 160 are small. The smaller components – washers, springs and clips – are provided by TFC on a just-in-time basis to Bosch’s production line. 

TFC Europe has a UK and German licence to distribute Smalley springs. These are made of flat wire and take up about a third of the space of traditional springs but perform the same role. 

Less successful investment example

As is to be expected, not all of Foresight’s investments have worked out as intended. One such investment is Trilogy Communications Holdings.

Trilogy enables communication devices to speak with one another. The formal term is interoperability. Trilogy’s black box could connect a mobile phone to an ambulance communication system or a police radio. 

An example of its potential use was demonstrated during Hurricane Katrina. When the storm hit New Orleans the various rescue services realised they were unable to communicate with one another. Four Landrovers equipped with Trilogy’s device (and other hardware) were parachuted in, to allow the emergency services and authorities to communicate. 

The company turned over £10 million per annum and was making £1 million EBITDA. Then unforeseen events took hold. In 2012 President Obama introduced military cutbacks. This was hugely detrimental. Military sales fell off a cliff and remained low for four years. 

Foresight stepped in, cutting costs and pushing sales towards civilian institutions such as oil rigs and hospitals. It managed to recoup 40% of its investment when the business was sold for approximately £4 million. Although the investment did not go as intended, it shows Foresight can salvage an ailing business. 

Target dividend

Foresight 4 VCT now targets an annual dividend of 5%. Please remember, returns are not guaranteed. 

Dividend performance

Source: Foresight. Past performance is not a guide to the future. Dividends are variable and not guaranteed.

Risks

This is a concentrated portfolio. Datapath represents a large chunk of the enlarged VCT and problems with that business will have a significant impact on performance. 

Foresight may raise up to £80 million in new money. A large portion of the portfolio will then be in cash awaiting investment. 

Please remember capital is at risk. VCTs are high-risk investments and are not suitable for everyone. Investors should not invest money they cannot afford to lose. Tax benefits depend on individual circumstances and tax rules can change.

Fees and charges

A summary of the fees and charges is shown below. The net initial charge shown includes the Wealth Club discount plus any early bird saving.

Full initial charge 5.5%
Wealth Club initial saving 4%
Net initial charge through Wealth Club 1.5%
Annual charge 2%
Performance fee 15%

More detail on the charges


Early bird savings and deadlines

Unless the offer is fully subscribed before these dates, the following deadlines apply:

  • Deadline for early bird saving of 1.0%: 31 August 2018 (12 noon)
  • Deadline for shares allotted in the 2018/19 tax year: 5 April 2019 (12 noon)

Annual rebate when you invest through Wealth Club

The Foresight 4 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.

Our view

To judge this VCT wholly on its past is perhaps unjust. The foray into environmental investments proved costly, but that according to Foresight is now water under the bridge. Realising these poor investments and integrating other VCTs has dampened down the long-term past performance of the VCT: note however past performance is not a guide to the future. 

Foresight benefits from good deal flow and the enlarged Foresight 4 VCT should now have a more settled investment mandate. In addition to new growth capital investments, this offer gives investors the chance to access a mature VCT portfolio with an experienced private equity manager.  In recent years, Foresight 4 has been cash-constrained. This new fund raise, if successful, should allow it to participate in new deals.  

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based 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. 15.6.2018


The details

Type
Generalist
Target dividend
5%
Initial charge
5.5%
Initial saving via Wealth Club
4%
Net initial charge
1.5%
Annual rebate
0.10%
Funds raised / sought
£50 million sought
Deadline
31 Aug 2018 for early bird saving

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