Qannas is a small fund investing in private equity situations in the Gulf countries of the Middle East (pictured). It has agreed to a deal, technically a reverse takeover, whereby it will combine with two similar but unlisted limited partnership funds domiciled in Cayman and move its domicile from Jersey to Cayman. There is a considerable overlap between the shareholder register of Qannas and the owners of the limited partnerships. The deal has been structured so that the LPs are acquired at a discount using new Qannas shares issued at a premium so it is accretive for existing Qannas shareholders.
As part of the transaction the management fee arrangements are being updated so that instead of deriving their fee via founder shares, as has been the case since Qannas was listed, the manager will now get a cash fee of 0.4375% per quarter on NAV. The manager is giving up all the founder shares they own apart from those with a value equivalent to the fees they would have earned since listing had the new fee arrangements been in place since the fund was launched. The performance fee, which at the moment is only payable if investors have received distributions in excess of a return of their capital plus a 7% per annum return, will now become payable on each deal – 15% of the excess return over cost plus 7% per annum. This makes it much easier for the manager to earn a fee. It will also be backdated so that the manager gets fees of c$550,000 on two disposals announced to date.
The investment mandate is being widened so that Qannas will be able to invest in attractive opportunities outside the Gulf countries – namely Europe and North America. The statement says that around 50% of assets will stay in the Gulf countries.
After the deal Qannas’s assets will increase from $33m to $88m. One investor, Global Ideas LLP, will end up with a significant minority stake – between 30% and 50% in the company. Qannas is seeking a whitewash under the Takeover Code to permit this stake.