BIA City and Finance Update May 2018
Last month saw two deals and continued strong financing in the sector with over £200m raised for UK-based businesses. Also, in this edition, we explain the UK’s tax efficient investing schemes, look at the first ICO in Europe, and meet Maven, an investor in high growth businesses.
A Tale of Two Deals
The first deal was the successful Shire/Takeda merger and the quickly aborted bid for Horizon Discovery by Abcam.
The Shire/Takeda merger finished with the successful conclusion: a recommended offer on 8th May. It concluded with US$30.33 in cash, and either 0.839 New Takeda Shares or 1.678 Takeda ADS per share deal. The final valuation amounts to c£46bn and 50% of the combined business, up from the original £44bn. Takeda estimates that the merged business will deliver c.US$1.4bn of cost synergies, increase its geographic and R&D footprint. Takeda, meanwhile, is restructuring and releasing cash in order to complete the Shire M&A. For instance, Takeda is selling its Chinese JV for US$280m but still needs to take on significant debt to fund the deal.
The second proposed deal, by contrast, was hostile and failed. The unsolicited all-share bid by Abcam for Horizon Discovery announced on 2nd May valued Horizon at £270m. It was roundly rejected by the Horizon Discovery board who defended its independence, focusing on the valuation, at its results meeting on 8th May. So, on 9th May, Abcam announced that it was withdrawing its offer. The story ended with the resignation of Jonathan Milner from the Horizon Discovery Board. He had sat on the boards of both Horizon Discovery and Abcam(he founded Abcam 20 years) and has now decided to step down from Horizon Discovery to concentrate on his other interests.
What does this mean for bioscience companies?
Hostile takeovers rarely work well in this sector, especially in small and medium-sized businesses. Intellectual capital from the staff and senior management is often integral to successful growth in these businesses, and it can be too easy to destroy that without an agreed deal. The quick resolution of the Horizon Discovery/Abcam non-deal, and the more equitable agreement between Takeda and Shire, show that in most cases investor, company and management interests can be aligned.
First life sciences ICO in Europe?
Capital Cell, a crowdfunding platform, announced in May that it was raising money for an Initial Coin Offering (ICO) and creating its own cryptocurrency, CELL. ICOs raise money for a business using mechanisms such as Bitcoin. But, it is still too early to tell if ICOs can be useful for the Life Sciences sector.
What does this mean for bioscience companies?
Raising money Using ICOs bypasses the rigorous process venture capitalists, and banks go through before investing or listing businesses on a stock exchange. While the prospect of easy ways to raise money is attractive for many, the issues with ICOs for investors are similar to many other forms of investing – how do you exit your investment? Is it more difficult with ICOs? For companies, at the moment ICOs would be unlikely to allow access to long-term capital which is a critical component for many life science businesses as there may not be a mechanism for experienced investors to invest or to realise their returns.
Jargon of the Month: VCT, Eis and SEIS
VCT, EIS and SEIS schemes are tax-efficient ways for investors to put money into high risk, high reward sectors while limiting downside risk. Recent work by the BIA and the FTAC (Finance and Tax Advisory Committee) has responded to the government on these schemes for the biotechnology industry. Email Martin Turner to find out more, and about his work on a new EIS fund consultation.
A Venture Capital Trust (VCT), is an investment company listed on the London Stock Exchange set up to invest in small UK businesses. There are the strict criteria about which business can be funded. The businesses can be listed on AIM or private, the money can only be used to develop the business. Knowledge Intensive business, such as Biotechs, get certain preferential criteria for instance being able to access £20m of tax efficient money in total as opposed to £12m for other companies. Critically, all VCT investee companies must be approved by HMRC to qualify, so most VCT funds will look for pre-approval before investing. This can add a couple of months to the process of receiving the money for investee companies. Meanwhile, investors in VCTs get a 30% Income Tax credit on investments of up to £200,000 each year (but the shares need to be held of 5 years), tax-free dividends and pay no Capital Gains Tax.
Enterprise Investment Schemes (EIS), focus on much the same sort of investee companies as VCTs. But there are differences – investors don’t buy shares in an investment company but invest in individual businesses. For companies, the money must be used to grow and develop business, and the business must be UK-based, not controlled by another company. The company cannot be trading on a recognized stock exchange.
Again, knowledge-intensive businesses have particular advantages for EIS schemes: if the company is raising money for research, it can raise £20m instead of the usual £12m. Investors get tax relief, capital gains exemptions, loss relief and inheritance tax exemptions.
Finally, the SEIS, Seed Enterprise Investment Scheme, is the same but with more generous tax relief, however the company needs to be smaller and taking on less money than from EIS.
If you are looking to raise money in the UK, it can be worth looking into specialist investors who have raised funds through these schemes. Ensure that you qualify and take expert advice to improve your HMRC approval. HMRC are hosting a webinar on 15 June, providing an introduction to EIS for both companies and investors; sign up here.
Introducing the Investor: Maven Capital
Maven Capital Partners is a leading private equity and alternative asset managers in the UK. It provides a range of funding options to Small and Medium sized businesses, and attractive investment opportunities in VCTs, private equity and property.
Maven Capital was formed from a buyout of Aberdeen Asset Management’s private equity business in 2009. It has over £415m in assets under management and over £340m invested in UK companies since 2009. It has 6 VCTs, and some regional UK funds too. It has invested in a number of UK Life Science businesses including ADC Biotechnology. Maven was recently appointed to manage the £27m North East Development Capital Fund which will provide equity, debt and mezzanine funding of between £400,000 and £2m to established businesses in the North East. This development capital fund formed part of the £120m North East Fund.
This communication should not be regarded as investment research or marketing materials and does not constitute any recommendations to buy or sell shares.