Odyssean (OIT ) fund manager Stuart Widdowson has welcomed this month’s £242m recommended bid for its third largest holding, Sipp provider Curtis Banks, saying its takeover by financial planner platform Nucleus removed a big risk for the business. 

Curtis Banks was due to ‘replatform’ its business using technology provided by its subsidiary Dunstan Thomas. This agreement has been put under review by Nucleus, which instead will look to outsource the work to its platform provider FNZ of New Zealand. 

Moving to new software has previously caused headaches for financial services platforms as costs often mount and clients experience difficulties in accessing their money. 

Widdowson, who runs the £196m UK smaller companies trust with Ed Wielechowski, told Citywire’s New Model Adviser that the need to replatform meant the offer from Nucleus was a good price. 

‘It was quite well known that Curtis Banks was going through a restructuring and replatforming, and while the shareholders could have got a higher price, maybe in three years’ time, there’s quite a lot of risk involved in that,’ he said.

‘We felt it was a reasonable balance of tomorrow’s value today, without the risk of doing that replatforming.’ 

Not all Curtis Banks investors were impressed by the offer, however. Artemis fund manager Mark Niznik said the £242m figure was ‘not generous’. 

But Widdowson said the economic environment, alongside the change in technology, added pressure on the company. ‘Interest rates turned more quickly than we had anticipated and what hasn’t really happened is that step-up in margins from the replatforming,’ he said.  

Quick deal

Widdowson and Wielechowski have a second reason to back the deal: the offer of 350p a share is nearly 50% higher than the value of the shares in October 2021, when the trust bought four million shares to make it a major Curtis Banks shareholder. 

At the time, Odyssean’s stake was valued at about £12.2m, with shares valued at 238p. Nucleus purchased Curtis Banks at 350p per share, which values Odyssean’s stake at just under £18m, meaning the trust will receive a significant premium on the price it paid when the deal completes later this year.

Widdowson said the team had a ‘strong inkling’ that Curtis Banks could be acquired by Nucleus but denied this was the basis on which they first bought into the Sipp provider.  ‘We’d always planned on it being a long-term investment,’ he said.

He added: ‘It was clear that under the new ownership of [private equity firm] HPS Investment Partners that James Hay/Nucleus were looking to bulk up their assets.’

‘We always felt that Curtis Banks and James Hay would be a very good fit, and with the replatforming that James Hay have largely completed, it’s a very interesting time for them to buy Curtis Banks.’

The fund managers’ private equity style approach of identifying lowly-valued companies outside the FTSE 250 with cash generative, non-cyclical businesses means it often invests in stocks that become bid targets.

Takeover talks for Curtis Banks emerged in December, capping off a good year for mergers and acquisitions for Odyssean, which had also benefited from an agreed bid for Devro, the sausage skin maker, and Euromoney, the publisher. In a tough environment, M&A generated the bulk of its 5.5% investment return which, while modest, was far better than the 21.9% decline in its Numis smaller companies index benchmark.

The trust also won the Citywire award for best performing UK Smaller Companies turst over three years to August 2022. Its three-year return currently stands at 56.1% with the shares trading on a small premium above net asset value, in contrast to rivals which typically trail on discounts to their NAV.