06/10/2011

Two Awards - One Well Deserving Winner

By Modwenna Rees-Mogg, AngelNews

In this age of manifold Awards, there are probably two that count in the world of Venture Capital. The first is the annual Investor All Stars Awards and the second is the British Private Equity Awards.

The reason that both count for so much is that the voting and judging of each are seen as independent, comprehensive and unbiased. It is generally acknowledged that the best man in each category does win in both, even when pitted against a shortlist containing the best of the rest. In a somewhat unusual twist of fate, this year both Awards ceremonies fell on the same night, in London, last Thursday 22nd September.
Given the integrity of both sets of Awards, it should come as no surprise therefore that the winning VCT in both Awards ceremonies this year was the same fund manager, YFM Equity Partners and largely because of its superlative partial exit from GO Outdoors earlier in the year.

British Smaller Companies VCT, managed by YFM Equity Partners, has long been a top performing VCT, as well as a long term investor in GO Outdoors. It is not reported often enough that it has outperformed many VCTs managed by better known fund managers. In fact, over the last 10 years, according to the AIC, which reports independent statistics on the VCT sector, it has returned just over £1.80 for every £1 investment.

Its recent share price has not been bad either. The filip of its extraordinary dividend (see graph) that temporarily pushed the price up, and then down again after the dividend payout still does not hide the fact that the share price is still up by almost 20% over the last 12 months.

And whilst much of the time the relatively illiquidity of VCTs is something of which people complain, I don’t doubt that there will be many other smaller quoted companies that would like to be able to display a share price chart which looks like the one below!

One of the things that has struck me most about the British Smaller Companies VCT is that it has achieved this performance by doing exactly what VCTs are meant to do – investing in best of class British companies with fast growth potential. It has also been an exemplar of driving forward long term superior returns rather than quick fix smaller ones. In fact it could be the showcase of why the VCT vehicle, as designed by the Conservative Government way back in 1995, works.

2011 has been a good year for this VCT and for its fund manager. It has been the year when patience and hard effort have really paid off. This is epitomised by its successful partial exit of GO Outdoors, one of the fastest growing brands on Britain’s high street. YFM first invested in GO Outdoors when it had one store in 1998 and have stuck with the management ever since, providing funding when needed and board support continuously.

Today GO Outdoors sells clothing and equipment for everything from walking to horse riding, camping and cycling, both online and at 30 sites across the UK. And it is continuing to grow fast with three more stores opening shortly. The company can certainly claim that for most of the mainland UK population, there is now a GO Outdoors store within spitting distance of where you live.

Earlier this year, a partial exit to 3i left YFM Equity Partners realising sufficient cash to enable it to pay out a £7.5m dividend to its VCT shareholders; but still leaving a net asset value above £1. This was one of the largest single dividend payments ever recorded by the VCT sector – whilst leaving the fund with a significant minority stake in the business so that it can benefit financially from the further growth expected in GO Outdoors in years to come. We wrote about the deal in our July magazine - But if anything, now its new shareholder is safely ensconced, this growth will be quicker thanks to the additional investment 3i is providing. That will only benefit the British Smaller Companies VCT shareholders further.

The GO Outdoors deal was a major contributory factor to YFM’s two award wins in September. It won YFM Equity Partners the VCT Deal of the Year in the British Private Equity Awards and VCT of the Year at the Investor Allstars Awards. Go Outdoors, however, is just one of over 200 investments YFM Equity Partners has in its portfolio. From what I understand there are many others tucked away which may well turn out to deliver as strong if not stronger results as this particular retailer. I am keeping a special eye on digital healthcare following its recent acquisition of a competitor, and Deep Secure which operates in the world of cyber-security. And a great exit, of course, comes as no surprise to those who know YFM Equity Partners well. The fund manager has exited from over 100 investments in the last 20 years.

It knows what it is doing in term of getting realisations for its shareholders and limited partners across all its funds.

I hear that YFM sent two different teams out last Thursday night to cover the different Awards ceremonies, and that there was a moment during the evening when one team was crowing that they had won, whilst the other sat assuming that the Fates would never allow them to win too.

But by the end of the evening, there were celebrations all round which, I also hear, lasted long into the night. They deserve their celebrations, though as neither Award could be said to have been a walk over. They were up against fine fund managers such as Albion Ventures, Beringea, Foresight, Maven and Octopus, all of which will have put up a good fight.

For outsiders, these two wins have highlighted that the real winners in life are those that don’t just do the best investments; it’s those who get the best exits. The VCT crown for 2011 definitely goes to British Smaller Companies VCT and it is well deserved.

Find out more about our upcoming VCT and EIS Investor Forum. A stellar range of fund managers will be there on the day to debate amongst themselves and with you about the key issues facing entrepreneurial finance today.

And don’t forget to book your Pitching for Management ticket, with events coming to Manchester, London and Cambridge this October! See www.pitching4management.com for more details.

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