VCF/Advent deal hints at VCT consolidation

Kent-based VCF Partners has kick-started consolidation in the UK venture capital trust (VCT) industry with the agreed acquisition of Advent Fund Managers, the VCT arm of Advent Venture Partners.

VCF Partners, which manages the Foresight Technology venture capital trust as well as having a one-third share in TriVest VCT, will acquire Advent VCT and Advent VCT 2 subject to shareholder approval. The deal will see Advent Venture Partners withdraw from the VCT space to focus on its institutional fund business, which specialises in European early- and later-stage venture investing. Financial terms of the deal were not disclosed.

Advent VCT was launched in 1996 and Advent VCT 2 the following year with a remit to invest in UK technology companies. Between them, the two trusts have invested in a total of 28 firms. However, the technology downturn took its toll, with Advent VCT named third-worst performing VCT by net asset value over the preceding three years in a table compiled by Hemscott ISA World in January 2004.

VCF Partners’ managing partner Bernard Fairman told PrivateEquityOnline acquiring the Advent VCT business was “a perfect opportunity to rapidly increase the size of the Foresight brand”. VCF claims the Foresight Technology trust has returned £2.47 for every £1 invested (based on NAV of £1.35 and £1.12 paid out in dividends). In September, VCF is planning to launch Foresight Technology VCT 2. If the deal with Advent goes through as planned, Advent VCT and VCT 2 will become Foresight VCT 3 and 4 respectively.

The deal sees the Advent VCT team of David Hughes and Andrew Page join VCF Partners as a partner and investment manager respectively. 

The deal may kick-start consolidation in a UK VCT industry that has experienced some turbulent times of late. Said Fairman: “There will undoubtedly be other deals of this nature. As markets develop, the money always moves to the bigger and more successful managers. VCTs are expensive to run because of listing costs and maintaining boards of directors, and you need at least £12 million in capital for it to make sense. I am sure there are other VCT businesses looking for a home.”

His view is supported by an announcement on April 30 from Downing VCT plc that it had severed all contact with its fund manager Classic Fund Management Limited after disappointing performance at all three of its VCTs: Downing Classic VCTs 1, 2 and 3. Downing is currently in the process of selecting new fund managers for the trusts.

In an effort to reinvigorate a UK VCT industry that has delivered generally disappointing returns and found fundraising tough in recent years, the Government introduced tax breaks in April 2004. For investments made on or after that date, the annual investment limit qualifying for income tax relief was raised from £100,000 to £200,000 and the rate of income tax relief increased from 20 percent to 40 percent.