Mercia’s search for its emerging stars will be helped by £11m deal

THE acquisition of a Manchester-based fund management group in an £11m deal by Mercia Technologies was the result of a targeted search to expand.

Mercia, which floated in 2014, wanted to grow its pipeline of early stage businesses, which it could then scale up and support.

It selected Enterprise Ventures as the right choice and is now integrating the fund manager, which has four offices across the north of England.

The expansion will create a smooth path for the successful businesses in Enterprise Ventures’ portfolio, which are typically start-ups and early phase businesses, to move through more stages of funding.

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Enterprise Ventures’ funds limit investments at £2m but Mercia, which calls this group of businesses its “emerging stars”, will then look to fund those with further high-growth potential to the next stage.

“Their model works very well – they have done eight IPOs – and we won’t look to change it, but we are looking to integrate it,” said Mark Payton, chief executive of Mercia.

“The pain in their model is looking for follow-on capital.

“With our approach, the management can keep growing their business and we scale with them.”

Mercia Technologies supports businesses with high growth potential through a mixture of third-party funds and money from its own balance sheet and had been looking for ways to grow its own pipeline. It selected Enterprise Ventures from a longlist of 40 as it planned its expansion.

Mr Payton added: “When we listed Mercia, in 2014, we had a number of discrete uses of capital. One was to build the funnel.

“We set out about a year ago to look at funds and fund managers and we whittled down 40 candidates to Enterprise Ventures. It fits very well.”

The deal sees £8.3m cash and £0.7m shares paid now with a further £2m conditional on future funds.

EV’s chief executive Jonathan Diggines will receive £3.3m from his stake, with finance director John Simpson and chairman Stephen Ross receiving £1.5m and £1.3m respectively.

With the deal now done, after a process that lasted more than a year, Mr Payton is issuing a “business as usual” message.

“It’s part of our growth plan and we are getting on with it,” he said.

“These things take time. We started this process in January 2015 and by summer we had identified our lead candidates. By October an offer had been issued and accepted.

“Most important is the people. We were looking to acquire a business with 32 people in it, the fit is really important.

“We have a 100-day plan, over time, elements of the Enterprise Ventures brand will fade away. The third-party funds have their own identities, which we will keep – they have good names, they do what they say on the tin.”