Matrix Group has acquired GLE Development Capital (GLEDC), the private equity arm of Greater London Enterprise. The transaction marks a long-anticipated consolidation of the VCT industry where many of the smaller VCTs have been suffering from dwindling share prices and whose only chance of survival now is to join forces with other players.
Matrix will merge GLEDC with its existing private equity business to form a new private equity fund management company, Matrix Private Equity Partners (MPEP). The new company will have a total of £65m assets under management.
GLEDC’s managing director Mark Wignall will lead the MPEP investment team of eight investment professionals and will join Matrix’s board. The MPEP team will relocate to Matrix’s West End offices later this year. The team aims to launch a new fund later this year and will be making equity investments of up to £5m in the SME sector, both in established businesses and in high growth technology companies in the UK. GLEDC’s recent investments include Hunter Boots, Image Source, Holloway White Allom and Ruskin Homes.
Founded in 2000, MPE has raised two funds, the Matrix Venture Fund VCT and the Matrix Enterprise Fund and has around £15m under management. GLEDC has around £50m venture capital funds under management from three principal clients, TriVen VCT, TriVest VCT and the Baring English Growth Fund.
David Royds, Matrix chairman, said: “We are delighted to be joining forces with GLEDC and to have assembled an experienced private equity investment team with a broad range of investment skills. We believe that our new company will be a potent force in the SME private equity market. Our expansion comes at a time when the Chancellor has announced plans to double the level of venture capital trust tax relief, giving a boost to the VCT and smaller companies markets.”
Wignall stresses consolidation of the VCT industry is vital if the smaller players are to survive. He said: “GLE and Matrix have merged to combine our critical mass and firepower. We will see more combinations of this type and this transaction is one of the early signs of more to follow.” He added fund raising for VCTs had shrunk to a poor level with a mere £45m predicted to be raised for the VCT market this year. The expectation however is that the market will pick up following the UK Chancellor of the Exchequer’s plans to double the level of VCT tax relief from 20% to 40%. Wignall predicts this could boost fund raising by as much as ten times this year’s amount.
The industry has been negotiating with the UK Inland Revenue for the last three years to allow VCTs to merge with one another. At the moment there is no such legislation and if VCTs did merge they would lose their tax relief. The merger legislation, when it comes into force, is most likely to help managers running a number of VCTs to consolidate them into a larger product that can offer investors a bigger spread and more critical mass. It would also cut administration costs.