HarbourVest has made a second offer for private equity investment trust SVG Capital (SVI), but to purchase its portfolio rather than its shares. It is offering at least £783.1m which, after wind down costs, cash balances and break fees, would be worth more than 700p a share. SVG Capital's underlying assets comprise 23 funds run by eight managers, and it also has six co-investments. These provide exposure to about 116 companies. About 29 per cent of these are in North America, with 16 per cent in continental Europe and 5 per cent in the UK, and the remaining half in the rest of the world.
This follows the private equity firm's initial takeover offer of 650p a share which SVG Capital's board opposed. Since HarbourVest's first offer on 12 September, SVG Capital has held talks with several other potential bidders, proposed and abandoned an agreement to sell half its portfolio to Pomona Capital and Pantheon Ventures, and entered into a deal to sell its portfolio to Goldman Sachs Asset Management and funds run by Canada Pension Plan Investment Board for approximately £748m.
HarbourVest says its latest proposal has similar terms to the proposed deal with Goldman and Canada Pension Plan, and would not be subject to due diligence so would take no longer than the Goldman/Canada Pension deal. But under HarbourVest's second offer SVG Capital would retain the costs and risks of a wind-down, whereas if the initial 650p a share offer was accepted HarbourVest would absorb such costs.
HarbourVest's new offer could only go ahead if its original 650p a share takeover offer lapses on 13 October because it has not got the backing of 50 per cent of shareholders. SVG Capital's largest shareholder, Coller International Partners, which holds 26.6 per cent of its shares, has accepted HarbourVest's initial offer via an irrevocable undertaking and letter of intent, while HarbourVest holds a further 8.5 per cent of SVG Capital's shares.
HarbourVest is understood to have run its second offer past the Takeover Panel and gained approval for it.
"HarbourVest is now apparently aiming to find a back door way of buying the assets at presumably a significantly higher price than the 650p offered to date," says Iain Scouller, managing director of investment funds research at Stifel. "Shareholders should await developments before accepting any proposals and hope the break-costs don't go too high."
SVG Capital said it met with HarbourVest to discuss the proposal on Monday 10 October.
SVG Capital is already paying a £2.5m (or 1.6p a share) break fee and cost reimbursement plus VAT to Pomona Capital and Pantheon Ventures. If it breaks off the deal with Goldman and Canada Pension it will have to pay them a break fee of £3.7m or 2.4p a share. "So in total £6.2m or 4p per SVG share would have been spent on break-fees," adds Mr Scouller. "In addition, there is an estimated fee of £33m or 21p per share associated with the defence, tenders and wind-up of SVG Capital."
The deal with Goldman and Canada Pension represents a value of about 680p a share after associated costs. SVG Capital's board said last week "the sale of the entire investment portfolio and wind down will generate superior value when compared with the final 650p a share cash offer from HarbourVest and deliver greater certainty for shareholders when compared with the previously proposed sale of 50 per cent of the portfolio to Pomona Capital and Pantheon Ventures."
The sale to Goldman Sachs and Canada Pension represents a 6.8 per cent discount to the value of SVG Capital's investment portfolio, which was £802m as at 31 July.
Under the proposal to sell the portfolio to Goldman and Canada Pension £1.064bn would be returned to shareholders within the next nine months via tender offers and a wind-up as follows:
•£450m before year end at 680p per share;
•£300m in January/February 2017 at 680p per share;
•£270m in March 2017 at 680p per share; and
•a final capital distribution expected to be in the second quarter of 2017.
SVG Capital would put the proposal to sell its portfolio to Goldman and Canada Pension to shareholders in early December.
Mr Scouller says "it remains disappointing that the three tenders at 680p are not closer to NAV of 735p at 31 July, especially given the likely positive impact of currency appreciation on the portfolio since then. The 680p tender price is a 7.5 per cent discount to the July NAV."
SVG Capital continues to be cash generative and expects gross proceeds of approximately £105m from its mature Permira and structured products portfolios over the coming months. Its portfolio and cash balances are predominantly held in US dollars and euros, and since its last valuation on 31 July 2016 sterling has depreciated and had a positive impact on the valuation of the investment portfolio and cash balances.
Following HarbourVest's new offer last weekend SVG Capital's share price shot up from about 668p to 689p on Monday, and increased further reaching 693p by Wednesday 12 October.
SVG Capital was trading at around 566p on 9 September, the last day before HarbourVest's first offer.
The trust traded at a discount to NAV of around 22 per cent before the offer, but earlier this week had come in to less than 10 per cent.
