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BGF explains: our approach to quoted investments
BGF, which has invested in public markets since 2014, has seen a significant step up in activity since 2016. With a consistent focus on the smaller end of the market, quoted companies, alongside privately held ones, are an essential part of the small and mid-sized business ecosystem that we exist to support. We think our approach to quoted investment is differentiated, and here’s why.
BGF now has more than £500 million under management in smaller listed businesses. Within the small-cap ecosystem, that makes us an investor of meaningful scale – larger than the majority of AIM venture capital trusts by assets under management, for example. For context, BGF as a whole has invested more than £3 billion in small and medium-sized companies and quoted investments are a big part of what we do.
2. Follow-on and cornerstone ability
Our size, scale and unique funding structure, provided by our shareholder banks, gives us the ability to provide follow-on funding to the quoted companies we invest in, supporting them over the long term. Our scale also allows us to act as a cornerstone investor when businesses are fundraising. Providing the first material investment commitment as part of an initial public offering (IPO), for example, can be crucial in building the confidence in the market needed to complete a deal.
3. Bringing new businesses to the public markets
As the UK’s most active growth investor, BGF has a large portfolio of investments in privately held companies. For a proportion of these companies, a public listing may represent an attractive next step on their growth journey. BGF, which invests in both public and private companies, is differentiated in its ability to support these businesses as they transition to becoming listed entities. To date, two BGF portfolio businesses – Arecor Therapeutics plc and Dianomi plc – have completed successful UK IPOs. We fully expect others to follow. We do not see an IPO as the end of the journey with us. In both cases, BGF remained a significant shareholder after the IPO.
4. No tax restrictions
Venture capital trusts (VCTs), which provide tax reliefs to their underlying investors, are important investors in the small-cap space, but not every type of company fundraising qualifies for VCT investment. BGF is not limited by the rules around VCTs, which means we are an important co-investor in the non-qualifying, but often necessary parts of a fundraise. This is important because smaller companies that do not qualify for VCT investment can often find it more difficult to raise capital.
5. Engaged, not activist
Activist investors build up large stakes in quoted businesses in order to gain control of the board, or take the company private, to give a few examples. BGF is not an activist investor, but neither are we completely passive. Instead, we take an engaged approach with portfolio companies on a range of issues, including environmental, social and governance (ESG) matters. We believe this engaged approach is constructive to the interests of all quoted smaller company stakeholders.
One of the ways we can support quoted companies is by introducing them to the expertise of the BGF Talent Network, one of the largest groups of board-level non-executives in the UK and Ireland. If a quoted company wants to make an appointment to its board, we can introduce them to independent candidates to consider as part of a formal independent process. We can also introduce businesses to experienced individuals on an interim or consultancy basis as part of our Expertise on Demand service.
As an investor, we want to make a return, and our quoted investment team have done just this. The combination of exits and the uplift on the remaining portfolio, now valued at £500 million, represents significant outperformance of relevant stock market indices (Numis Smaller Companies Index plus AIM ex-Investment Trusts, AIM All Share, FTSE Small Cap ex-Investment Trusts).
Examples of BGF quoted investments
Inspiration Healthcare was established by CEO Neil Campbell in 2003, who has led the transformation of the group into what is now a £95 million business. Neil remains a significant investor. The company produces equipment for premature babies in intensive care and helped the UK government source ventilators during the coronavirus pandemic. Last year, Inspiration Healthcare won AIM Transaction of the Year for its acquisition of SLE, which provides neonatal ventilation products. BGF is Inspiration Healthcare’s largest shareholder.
London-headquartered Accsys Technologies uses chemistry and technology to create high performance and sustainable wood products, which are sold to customers around the world. BGF has been an investor in the company since 2017, when we provided a £12 million investment to support the company’s growth strategy, which involved developing a manufacturing plant in Hull and expanding its existing facility in the Netherlands.
In 2020, BGF was the cornerstone investor in the IPO of Calnex Solutions, based in Linlithgow – the first Scottish IPO in two years. The share price has since nearly trebled, following strong financial performance by the business. Founder-CEO Tommy Cook remains the biggest shareholder in the business, which develops market leading test and measurement solutions for the global telecommunications sector. The business exports the vast majority of what it makes. Its customers include Facebook, AT&T and Verizon. Calnex was recently awarded Best Newcomer at the 2021 AIM Awards.
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