Downing-One-VCT
Downing

Sponsor Service – Prospectus and Circular for up to £40 million secondary fundraise for Downing ONE VCT.

Client

Downing ONE VCT plc

Downing ONE VCT is a long established venture capital trust (VCT) which was formed from a merger of six VCTs managed by Downing LLP in November 2013. At the time of the September 2019 Offer, Downing ONE had net assets in excess of £104 million, making it one of the top 20 VCTs by size.

The Transaction

In September 2019, Downing ONE issued a prospectus relating to an offer for subscription for new ordinary in readiness for the peak VCT season, ahead of the 5 April 2020 tax year end. The aim was to raise approximately £15 million in total (with an over-allotment facility of up to a further £25 million).

Additionally, Downing ONE published circular convening a shareholders’ meeting to consider resolutions to approve the Offer, as well as seeking shareholders’ approval of a number of related party transactions (“RPTs”) with Downing ONE’s Investment Manager, Downing LLP. These RPTs – which included implementation of a performance incentive agreement, and changes to the governing investment management agreement, required the appointment of a Sponsor under the FCA’s Listing Rules to provide financial advice to the Downing ONE Board. SPARK was appointed to fulfil this role of Sponsor.

Recent changes to VCT legislation have narrowed the range of investments which VCTs could invest in, providing opportunities for well-established VCT managers with strong track records to successfully source funding.

The Offer

The Board considered that the Offer would provide the following benefits to investors:

  • Generous tax reliefs for qualifying investors – including 30% income tax relief, tax free dividends and any capital gains being free of capital gains tax.
  • Strong investment adviser in Downing LLP – Downing is an experienced VCT manager, and its business dates back to 1986. It is responsible for the management of four VCTs with net assets exceeding £200 million.
  • Lower running costs – annual running costs would be spread over a larger asset base, and with a capped investment management fee (at 2.6% of net assets); and
  • Greater diversification – Downing ONE held investments in approximately 89 businesses which are at various stages of maturity. By making an Offer new investors would acquire immediate exposure to these holdings, which should diversify risk and provide the potential for earlier realisations than some newly launched VCTs or share pools.
  • Portfolio diversification – new investors will benefit from a mixture of yield focussed and growth orientated investments in the existing portfolio

The Company sought to raise up to £40m in order to invest predominantly in unquoted VCT Qualifying Companies, in line with the Company’s investment policy.

Why SPARK?

SPARK and partners Neil Baldwin and Mark Brady have strong track records in acting as Sponsor to VCTs, having brought numerous VCTs to market since VCTs were first enabled by the Finance Act in 1995. SPARK has acted for a number of different VCT managers on IPOs and top up offers, as well as VCT mergers since 2012. SPARK has successfully worked with Downing VCTs before, notably Downing ONE VCT plc on its merger with 5 other VCTs in 2013, and subsequent fundraises; tender offers for Downing Planned Exit VCT 6 plc and Downing Planned Exit VCT 7 plc, as well as a top up offer for Downing FOUR VCT plc in 2018.