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Better Capital trusts delist as Covid-19 presents private equity funds with a new crisis

26 March 2020

The coronavirus crisis claims its first private equity casualties with Jon Moulton’s two Better Capital funds planning to leave the stock market after investee companies, such as double glazing firm Everest, suffered huge disruption.

The coronavirus crisis has claimed its first private equity casualty with Jon Moulton’s two Better Capital funds set to delist from the stock market after their small number of investee companies, such as double glazing firm Everest, suffered huge disruption to their businesses.

Guernsey-based Better Capital 2009 (BCAP ) and Better Capital 2012 (BC12 ), which were already winding down due to previous poor performance, slid 5% and 13% respectively, further reducing their already diminished market values of just £13m and £16m.

‘We expect that there may be a some shareholders who not want to hold an unlisted position, which may lead to some selling in advance of a delisting. In addition, the outlook for the portfolio and further realisation appears highly uncertain in current market conditions,’ commented analysts at Numis Securities.

Better Capital’s retreat from public stock markets comes after a punishing month for private equity investment trusts. Their shares have plunged and discounts to net asset value widened as investors worry about the impact of a recession on the prospects and valuations of their investments in private companies.

Princess Private Equity (PEY ), an £870m trust run by Partners Group in Switzerland, this morning reported a 1% decrease in NAV for February but warned it expected this month’s stock market crash to depress the valuation multiples used to value its portfolio. After a 12% rally yesterday, the shares were virtually unchanged at €8.94 today but are 16.5% down over one month. They stand on a 29% discount to NAV and offer a dividend yield of 6.5%, which Numis believed ‘significant value’.

The sell-off in private equity trusts indicates that investors fear a repeat of the 2008 financial crisis when several of the funds nearly collapsed after over exending themselves. 

More than a decade on and analysts say the sector is generally  in better shape, with less borrowing and fewer investment commitments to meet.

ICG Enterprise (ICGT ), a £777m fund of funds, demonstrated this point, rallying 9.7% to 658p after disclosing it had 20% or £163m of its portfolio in cash to see it through the downturn, and was ready to pounce on opportunities as they occurred.

It said the third party private equity managers through which it largely invests were experienced in managing investments through periods of economic stress, and added that the portfolio was weighted to more resilient sectors such as healthcare, consumer staples, business services and technology. The reassurance and the share price leap will have helped narrow its extremely wide discount of 47% before today.  

Better turns worse 

The same cannot be said for what remains of the Better Capital portfolios.

In a joint statement BC12 said after a strong start to the year Hertfordshire-based Everest had suspended its operations, in line with government guidelines and its rivals, after sales and installations became impossible.

‘Given the uncertainty of the length of the period of closure, together with the fact that the extent of the availability of public financial support is not known, the future is unclear. However, particularly without adequate support, the value of the company will be diminished,’ Better Capital said.

Meanwhile, SPOT, the office supplies business formerly known as Spicers, BC12’s other main investment, was experiencing ‘a difficult period’, the company said. After overcoming supply problems from China earlier in the year, it faced operational challenges during the UK’s lockdown as well as rising customer debts and uncertain demand for its products. Although the firm was cutting costs and had a strong balance sheet, its future was ‘uncertain’.

BCAP said the health emergency was having a ‘material effect’ on its portfolio, particularly its investments in theme park operator Omnico and m-Hance, a software solutions provider.

With the pandemic set to be widespread and lengthy, both companies have decided that exiting their investments profitably is unlikely in the foreseeable future and that the costs of maintaining a stock market listing are ‘increasingly disproportionate’. 

‘Accordingly, the directors intend to bring forward to shareholders, proposals to delist from the public markets in the coming weeks. The objective would remain the orderly disposal of the portfolios as soon as sensible and the distribution of exit proceeds from those disposals,’ they said.

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