InvestmentsDec 16 2015

PE firm to ‘change emphasis’ following new MBO rules

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PE firm to ‘change emphasis’ following new MBO rules

Maven Capital Partners admitted the business will have to “change emphasis” following new rules for venture capital trusts announced in the summer Budget.

Speaking to FTAdviser, the private equity firm’s managing partner Bill Nixon said that the business would now be focused on younger companies, development capital and cash-in deals, and that the new rules tack VCT investing “slightly higher up the risk curve”.

In the summer Budget, various rule changes were introduced to VCTs and enterprise investment schemes.

In a subsidiary paper issued at that time, HM Treasury confirmed that existing VCTs would no longer be able to reinvest monies raised from exits in businesses that were previously eligible at the time of funding - such as management buy-out backed deals - into similar transactions.

Alongside this, there was a new proposal introducing greater restrictions on how monies are invested within a VCT’s non-qualifying portfolio, preventing for example support for MBOs.

Mr Nixon said that in essence, it was possible to break VCT capital into old money and new money, as capital under new money has never been able to invest in management buyouts.

“In terms of old money, venture capital trusts can no longer complete management buyouts with any part of capital,” he said.

“Although we invest in MBOs, we’ve completed 40 development capital deals from non-VCT funds across our six offices.

“While the changes were restrictive, we see around 500 companies a year, so it’s just one category that we can no longer invest in.”

He added that there would still be many companies suitable for VCT investment, so the firm would have to “change the emphasis” rather than necessitating a new business model.

Steven Harris, chief executive of Committed Capital, said that MBO investing and growth capital investing share quite a few disciplines, for example due diligence valuation, negotiation, legal documents and exit; but that the emphasis differs.

“In general, MBO work is quite focused on financial structuring and is less hands-on with the underlying companies, while growth capital is not so sophisticated a financial engineering exercise, but is (or can be) very time consuming in terms of support for invested businesses.”

He added that MBO candidates are more developed than many of the companies that Committed Capital invests in.

“So the issue is - how quickly can an MBO investor become an effective growth capital investor?

“It is very good for the sector that Maven and others are redirecting their efforts to the growth investment space.”