Regional investor delivers record results

Mercia chief executive Dr Mark Payton
X The Business Desk

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Regional investor Mercia Asset Management has recorded record results after accelerating its progress last year.

The asset manager has completed two of the three pillars of its three-year plan with a year to spare and has set out its next three-year plan.

It has achieved operating profitability, generating £3.3m in the year to March, compared with £0.5m in the previous year.

It also has an “evergreen” balance sheet, with the group’s direct investment activities fully funded by periodic cash realisations from the existing portfolio. The sale of Oxford Genetics crystallised a gain of £18m and delivered a 5x return on its original direct investment.

The third pillar, to expand the group’s assets under management to at least £1.0bn, is “within touching distance”, and stood at £940m at the year end.

Mercia chief executive Mark Payton told “It’s pleasing when the model does start to deliver and you have optimism that not only can it continue to deliver but you also expect more.”

The new three-year plan is designed to “deliver substantial total shareholder returns” by growing assets under management by an average of 20% per year and to deliver average annual pre-tax profits of £20.0m over the next three years.

He said “What we know is that we have an ability to grow assets under management and we will focus resources to do that. What we also know is we are good at finding value and adding value and extracting value.

“With our focus on that, and if everything else remains static, then we’ll achieve our three-year plan. But our expectation is that there’s going to be a global economic recovery and we’re sitting in a good place to benefit from that.”

Mercia has performed strongly during the pandemic both with its existing portfolio, which is focused on life sciences, software and gaming, and in making new investments.

“Because of the liquidity that we have and the cash on hand, we were able to invest in these businesses and not rescue them, but actually build several,” said Payton.

“Over this period we’ve invested in over 70 new companies. The strength and depth in the portfolio has grown over this period as well which is why weare so optimistic going forward – assets under management have grown, obviously cash generation across the group has grown, but so has the portfolio.”

Life sciences accounts for about one-third of Mercia’s portfolio, and software for just over one-quarter, with both sectors performing well through the pandemic.

Some companies in the portfolio have had challenges but Mercia remains confident that they will bounce back.

He added: “Diversification [of the portfolio] is important both in terms of sector and stage of development. During Covid, although life sciences and software sectors picked up well, areas such as automotive and electronics took a beating and actually took a step backwards.

“What these results aren’t are us writing down assets and then writing the same ones up again. Those ones are still provisioned and written down, but those ones are where we also put money and people into and we’re now seeing those come through.”

Payton and his team remain very confident about the future prospects for the business, which has established a niche in providing connected capital in the regions.

Its confidence has been shown by the introduction of a 0.1p dividend last December when it announced its interim results, which it has backed up with a final dividend of 0.3p.

Payton said: “We are a UK investor only so our sole focus is what’s going on within the UK, we’re aligned to the strengths of the UK in terms of the various sectors that they are building through and we’re aligned to the universities, when they come back.

“Because of the strength and breadth of our funds, where we can do start-up businesses through to scale-up businesses, we’re able to provide that connected capital.

“It is how we win deals and it is how we scale our portfolio, where we can connect debt with private equity or private equity with venture – and there are very few managers that can do that and there are almost no managers that can do that on a regional basis.”