BMO Private Equity Trust (BPET) has announced its annual results for the year ended 31 December 2020, which show that its performance came good in the fourth quarter of the year. During 2020, BPET provided an NAV total return of 22.7% for the Ordinary Shares, which was way ahead of its share price total return of -14.2 per cent for the Ordinary Shares. Total quarterly dividends equated to 16.13p per share, a dividend yield of 5.2 per cent based on the year-end share price. BPET’s co-investment in Dotmatics saw a sale agreed at a £37.7m value – an 8.7x money multiple and an IRR of 83%. However, the NAV total return for the fourth quarter was 26.1%, more than offsetting the losses of the first three quarters combined.
Investment manager’s comments on new Investments
There were only two new investments made during the year both of them pre-pandemic. €6 million was committed to Avallon Buy-out Fund III, the second fund we have backed from this leading Polish mid-market investor. €5 million was committed to Montefiore V, a France based mid-market firm specialising in companies in the services sector whom we have also backed before. Given the considerable uncertainty which pertained throughout most of the year we have deliberately held back from making new commitments to funds or co-investments until very recently.
After the year end a fresh commitment of €5 million has been made to Agilitas 2020 Fund. This is the second time we have backed this dynamic European mid-market specialist in a buyout fund. We have also successfully co-invested with them twice, most recently through Recover Nordic. Our connection with the principals goes back two decades through Stirling Square Capital Partners and Candover. The fund has closed at its hard cap of €565 million. From here we are expecting to resume a series of modest new commitments to funds and to make a number of co-investments this year.
The funds in our portfolio have been active throughout the year with a further £6.7 million called for new investment in the final quarter. This brings the total for new investment in 2020 to £36.1 million. The new investments in the first three quarters have been reported in the quarterly and interim reports. During the final quarter the notable new investments and follow-on investments were diverse in sector and geography.
The largest individual new investment was £0.8 million called by Finnish fund Vaaka III for AINS Group, one of the largest construction and engineering consultants in Finland. UK growth equity specialist FPE called £0.7 million for two new investments; MaxContact (call centre software) and Togetherall (online mental health services). Lower mid-market fund Apiary called £0.5 million for additional investment in two of its holdings which have faced challenges. Roar B2B organises trade exhibitions and TAG (The Appointments Group) organises travel for the global live music and entertainment touring industry. Bencis V called £0.4 million, the majority of which was for Pe-Pe Parts (scooter and moped parts in the Netherlands). Life sciences specialist Archimed called a combined £0.6 million for Zytomax (cancer diagnostics) and Polyplus (transfective reagents for the gene therapy). Inflexion Buyout Fund V was active with £0.5 million invested in Aspen (pumps for air conditioning) and Orcorian (trust administration). Inflexion Partnership Capital II called £0.3 million of additional capital for Marston (judicial services). August Equity was also active with August Equity IV calling £0.6 million for follow-ons for Fosters (funeral directors), CODE (compliance software for dentists), Esland (high acuity residential care) and Amtivo (ISO compliance services). In August Equity V £0.3 million was invested in Air IT (cloud-based IT managed services for UK SMEs). MVM V invested £0.3 million in Paragon 28 (products for foot and ankle surgery). There were a few other smaller investments. The theme is clear. Follow-ons for companies deeply impacted by the pandemic and new investments in companies with business models which are either unaffected or boosted by the pandemic.
Investment manager’s comments on realisations
The final quarter saw an uptick in realisations with distributions and associated income coming in at £16.8 million compared with just £6.1 million in Q3. The total of realisations for the year was £37.6 million which compares with £46.3 million in 2019. It is notable that even during the very quiet period in the middle of the year realisations did not dry up completely. The final quarter’s total is broadly ‘normal’ implying an annual rate of over £60 million.
The main realisations earlier in the year have been covered in previous reports. In the final quarter the largest individual realisation of £5.8 million was of our co-investment in Schaetti, the Swiss based specialist chemicals company where Zurmont Madison are the deal leader. Schaetti is a global niche player in customised thermoplastic and thermo-fusible powders. This investment has had an, at times, bumpy ride but the exit to strategic buyer Arkema achieved 3.7x and an IRR of 20%, which is quite respectable, and an excellent outcome given some earlier challenges.
Procuritas VI, the Nordic fund exited Temporary Space Nordics (TSN) in a sale to Algeco Scotsman. TSN provides temporary accommodation for schools, offices and health centres. The distribution of £1.7 million represented 2.3x cost and an IRR of 73% for this 23 month hold. Also, in the Nordics Finnish fund Vaaka II distributed £1.5 million following the sale of Kokitaku, a provider of facilities maintenance services for residential housing companies. The company was sold to PHM Group, who are backed by Nordic private equity house Norvestor, achieving an excellent return of 7.3x cost and an IRR of 46%. Agilitas 2015 Fund distributed £1.1 million from the sale of Exemplar Healthcare, a provider of acute care for patients with complex physical and mental health needs within private nursing homes in the UK, to Ares Management. Over four years the company’s profitability almost doubled and the return of 6.0x cost and an IRR of 50%+ is excellent.
In France Astorg VI exited Surfaces Group, a manufacturer of abrasive tools, through a sale to US PE house TA Associates, returning £0.8 million (2.7x cost and an IRR of 40%). Horizon Capital 2013 Fund sold field services software company Totalmobile to Bowmark returning £0.7 million, 4.6x cost, and an IRR of 38%. Argan Capital made a distribution of £0.7 million following the sale of the last of its shares in listed healthcare company Humana AB. In the US Bluepoint III sold AWP Group, the largest traffic control service provider in the US, returning £0.6 million, 2.7x cost and an IRR of 20%. This was the second time BluePoint had sold the company with the first time being an 11.2x exit in 2015. There were several smaller distributions including one of £0.4 million from Piper VI following the sale of healthy recipe box provider Mindful Chef to Nestle. This represented 1.8x cost and an IRR of 37%.
Investment manager’s comments on Valuation Changes
For the year ended 31 December 2020 the uplift to valuation gave a NAV total return of 22.7%. This is comparison to 10.6% for the year ended 31 December 2019. The first nine months of the year saw an overall decline in NAV, giving a total return of -2.7%. The recovery had started in Q3 and it has accelerated in the final quarter of the year with NAV total return rebounding by 26.1%.
There were many uplifts during the quarter which were offset only partially by a handful of downgrades. The uplifts in many cases reflected a more positive view on portfolio companies’ prospects and hence value in the light of a marked ‘bounce back’ in economic activity from the middle of the year onwards. As can be seen below, whilst there were casualties of the pandemic, there are other companies which have demonstrated resilience and a limited number where it has been beneficial. Subject to the current lockdown unwinding gradually over the spring and summer there are many companies which are back on track to resume the progress which was interrupted a year ago.
The largest individual uplift was for our holding in the SEP led software company Dotmatics which is up by £28.2 million, reflecting the agreed sale price. This company which provides software to the scientific research and pharmaceutical sector has come through the pandemic successfully and it is involved in a sector where there is strong investor appetite. Accordingly, the lead manager SEP initiated a sales process towards the end of the year and this resulted in an agreed sale to US company Insightful Science. The exit which is expected to complete within the next few weeks will achieve a money multiple of 8.7x cost and an IRR of 83%. This is an exceptional exit by SEP whom we have backed continuously since inception.
Our co-investment in casual clothing company Weird Fish is up by £5.6 million reflecting a revaluation to just above cost. Having been hit badly initially the company has re-oriented its business very substantially towards its e-commerce offering and this has boosted profitability in 2020 substantially. Aberdeen based energy services company Coretrax has been uplifted by £4.6 million due to an increase in multiple and a positive run rate and outlook. Aliante III is up by £3.5 million reflecting the performance of its holdings which are consumer staple oriented. Our investment in Inflexion Strategic Partners is up by £3.4 million reflecting good progress since our investment at the end of 2019. Agilitas 2015 is up by £2.1 million due to robust trading of its portfolio companies. Our co-investment in Italian funeral homes company San Siro is up by £1.9 million as a result of strong trading and successful accretive acquisitions. South Eastern Europe large format pet retailer Pet Network is up by £1.7 million having traded well throughout the pandemic. Lastly our Silverfleet led co-investment in STAXS, the Belgium based cleanroom consumables company is up by £1.6 million reflecting exceptional trading during the pandemic when its cleaning and PPE products have been in high demand.
There have been a smaller number of downgrades. The largest downgrade was £1.3 million for drilling waste management solutions company TWMA which has seen a dip in profitability as a result of the timing of major contracts being delayed. Our co-investment in print managed services company DMC Canotec is down by £0.7 million having experienced a difficult period with most offices being empty for much of the year. Ambio, the active pharmaceutical ingredient company, is down by £0.6 million with the valuation at the latest funding round. Vaaka III is down by £0.5 million largely due to Framery the office pods company facing huge challenges. DBAG VII is down by £0.4 million due to pressure on its holdings.
Investment manager’s comments on outlook
The Company has entered 2021 with a portfolio that has proved highly resilient during the pandemic even though nearly all of its companies have been challenged acutely. There remains a high level of investor appetite for private equity although the preferences for individual sectors has rotated considerably. The advantages derived from alignment of interest and the ability for investors to intervene constructively have been clearly demonstrated and this underpins support for the asset class. Our investment partners cover a wide range of companies and this ensures a naturally diverse portfolio. This unique period has illustrated the benefits of diversification and this combined with the calibre of our investment partners should sustain the growth of shareholder value into the future.