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Cash of the Titans

With the launch of twin Venture Capital Trusts, Titan 1 & 2, Octopus Investments is doubling its investment proposition. M&A’s Morag Dickson caught up with chief executive officer Simon Rogerson to talk dual strategies

Octopus Investments, the fund management group, has launched a new Venture Capital Trust (VCT). The fund is structured as a twin VCT and follows the success of Octopus’ other funds in this space.

The benefits of a twin structure are threefold, explains Rogerson. “Firstly, a twin investment vehicle enables Octopus to commit up to £2 million per company – double the amount for a single VCT. Investors’ money is then split equally between the two funds, allowing the investor to potentially reap double the rewards.

“Another key advantage is the attractive tax benefits for investors. These include upfront income tax relief of 30 per cent on amounts invested between £3,000 and £200,000 if the shares are held for five years. Dividends paid and disposal of shares from the fund are free of income tax and capital gains tax respectively.

“Lastly – and this is an important point – the biggest differentiator between Titan VCT 1 & 2 and all the other VCTs launched this tax year lies in the Octopus investor network. This is made up of 90 individuals, all of whom are very successful business people (typically FTSE 100 board directors or entrepreneurs) who can add value to the portfolio. They pay £2,000 a year to get sight of the deals we are doing.

“In terms of how it works, imagine we are investing £2 million into company A in the food sector. The VCT would invest £1.5 million and the remaining £500,000 would come from the network. This £500,000 would come from 10-20 individuals, the vast majority of whom would have significant expertise within the food industry. This knowledge really helps with developing the portfolio company and has been the main driver behind the out performance of the Octopus team. In addition, around a quarter of all the deals we complete are introduced through the network.”

The offer, which opened in early November hopes to raise £40 million. Octopus is said to be targeting investments into companies with turnover of between £2 million and £6 million. “We expect to raise more than £10 million by the end of January and have a number of deals in the pipeline,” says Rogerson.

Fundraising capital idea

Plastics Capital, a consolidator of plastic products manufacturers, was admitted to AIM at the beginning of December, issuing 26.9 million shares at 100p each. The company raised £14.7 million after expenses to fund future acquisitions.

Plastics chairman Faisal Rahmatallah said: “Not only will the flotation raise our profile in the marketplace, but it will enable the company to continue its highly focused acquisition strategy.”

Rahmatallah was unavailable to comment on the specifics but, according to the company’s placing and admissions document, there is scope to exploit opportunities for consolidation with a number of private companies seeking succession planning or a potential exit. The company is said to be eyeing smaller businesses with EBITDA of less than £1 million per annum and larger targets with the potential to deliver more than £2 million EBITDA annually. The company states it is looking to undertake two to three acquisitions a year.

The shape of things to come

UK-based insurance broker consolidator Oval group has secured increased funding to fuel its on-going acquisition strategy.

Barclays Leveraged Finance and Lloyds TSB Acquisition Finance, providers of Oval’s initial £53 million fund in March 2006, have stepped up to back Oval’s expansion plans for a second time with a £15 million boost to its coffers.

Allianz Insurance’s recent purchase of a minority 10 per cent stake in Oval, has also enhanced the company’s acquisition finance capability.

“We were able to secure the equity injection from our banking partners on the back of a strong year,” explained Oval group managing director, Jeff Herdman, in an interview with M&A.

The group has made 25 acquisitions in its four-year history, 11 of which completed during this calendar year. With a war chest of £68 million, more are likely to follow.

“Our pipeline for next year is very strong,” he continued. “We’ve got heads of terms with six companies – a combination of insurance broker and financial services businesses – and are in the process of discussing an extension of our funding arrangements.”

Riding the property storm

UK property tycoon Vincent Tchenguiz has raised £750 million through his Consensus Group in a bid to expand his portfolio. The Iraqi-born billionaire plans to capitalise on the recent downturn in the property markets by investing between £10 million and £20 million a month.

Bank of Scotland is putting up £200 million in debt, secured against a portion of Tchenguiz’s residential property land rents. A further £450 million facility provided by investment banker and financial adviser Merrill Lynch has been earmarked to aid the growth of the group’s residential services firm, Peverel. Merrill Lynch also arranged to settle debt of £100 million that Consensus took on when it purchased Peverel for £500 million in March.

The investment has given Consensus the capability to augment the existing 600,000 residential properties and 300,000 ground rents under its management by around 50,000 units apiece next year.

Along with his younger brother Robert, Tchenguiz has spent 25 years building Rotch Property Group, owner and manager of a property portfolio valued at more than £1 billion. Investments have included the Shell-Mex house in London, the City offices of West LB and the Odeon cinema chain. With a recent shift in focus, the Rotch brand has divided its commercial activities into two new companies; Consensus Business Group with property assets of £4 billion, and investment vehicle R20.

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