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Merian Chrysalis reports inaugural annual results

Merian Chrysalis (MERI) has published its annual results covering the period from its incorporation date on 3 September 2018 to 30 September 2019. Since dealing in MERI’s shares began on 4 November 2019, it has delivered a total NAV return of 14.6% and a share return of 24%.

Extract from the manager’s report

“The last 11 months have been a busy but highly productive period for MERI. The company was established to provide investors with access to some of Europe’s fastest growing, most innovative and disruptive private companies, opportunities that, hitherto, have only been available to a minority of private investors.

Over a number of years, the Merian Global Investors team had been observing a trend of companies staying private for longer. Combined with often significantly faster growth rates pre-IPO, versus those in public markets, the inference was many of the most exciting IPO candidates were deferring their listing until their period of super-normal growth had passed. This meant that much of the valuation uplift generated by this growth was captured by private investors. As the largest public equities desk operating in the UK Small and Mid-Cap market, we recognised there was an opportunity to capture these potential returns for investors, hence MERI was established.

The ambition of the majority of late-stage, growth businesses is eventually an IPO, which provides liquidity to investors as well as successfully validating their business model. One of the obvious limitations in this regard of private equity and venture capital funds, which have been the typical backers of these firms, is that they are natural sellers of public equity, as capital is recycled into new private opportunities. This means companies looking to list often need to find buyers of secondary sell downs, as well as raise new capital.

Our response was to present a differentiated offering by adopting a “crossover” strategy between public and private markets. The Company is uniquely positioned to benefit from the Investment Advisor’s ability to invest through its other funds in listed equities at, and post, IPO. This means that a key attraction to investee companies of taking investment from the Company is that it can offer a stepping stone into public ownership. We decided that a combination of a permanent capital vehicle and a strong crossover offering would prove to be attractive to entrepreneurs thinking about their future desired shareholder structure, and this has been instrumental in attracting a strong pipeline of investment opportunities.

From launch in November 2018, the Company has successfully raised a cumulative £375m of gross proceeds, and built a portfolio of nine investment companies. As we discuss below, we believe the private market continues to evolve in our favour, and the company is well positioned to help support exciting companies to achieve their ambitions by investing growth capital. So, while we have had a good start, we hold greater ambitions for the company, and believe the coming year will be instrumental in achieving them.”

Outlook

MERI made the following points in its outlook statement:

  • Private markets continue to develop favourably and showed good growth over the year
  • Continued strong trading momentum from the portfolio’s major assets
  • Encouraging pipeline of attractive investment opportunities and potential for follow-on investments in existing portfolio companies
  • Opportunity for recent additions to the portfolio to contribute to NAV progression over the coming period
  • Refinement of the company’s ESG framework, in order to add long-term value for clients

The portfolio

MERI’s portfolio at 30 September 2019 looked like this:

Company

Date of acquisition

Cost (£’000)

Value (£’000)

% of net assets

Klarna Holding AB

09/08/2019

41,236

39,574

10

TransferWise Limited

07/11/2018

17,085

27,934

7

Starling Bank Limited

10/04/2019

19,529

27,124

7

Graphcore Limited

17/12/2018

19,729

20,190

5

Embark Group Limited

14/08/2019

14,900

14,900

4

Secret Escapes Limited

07/11/2018

13,065

13,796

4

The Hut Group Limited

20/12/2018

9,547

10,478

3

Sorted Holdings Limited

15/08/2019

10,000

10,000

3

Growth Street Holdings Limited Convertible Loan Note

07/06/2019

7,500

3,284

1

Growth Street Holdings Limited

22/01/2019

5,000

2,760

1

MERI: Merian Chrysalis reports inaugural annual results

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