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Literacy Capital – Intention to Float

Literacy Capital announced its intention to seek admission of its ordinary shares to trading on the specialist fund segment of the main market of the London Stock Exchange. The company’s investment policy is to invest in a diversified portfolio consisting primarily of equity and equity-related securities issued by unquoted companies. The company expects to publish a prospectus later today and the shares are expected to start trading on 25 June 2021.

The company isn’t raising any new money at this stage. N+1 Singer is conducting a limited placing on behalf of a small number of existing shareholders who will sell some or all of their shares. The sale and purchase price is 160p per share (excluding commission).

The proposition

James Carthew wrote an article on Literacy Capital for Citywire back in March. The distinguishing features of this trust are its strong connections to the Pindar family and its charitable aim to improve standards of Literacy in the UK.

The company was created in September 2017 and, as at the end of 2018, the company had raised capital of approximately £54m, which by 31 March 2021 had grown in value to about £96.4m. The manager, which is sector agnostic in its approach, looks to identify compelling opportunities for investment in under-served parts of the market. It has a core focus on companies that generate EBITDA between £1m and £5m, and will typically invest in family-owned and founder-led businesses. Being a permanent capital vehicle allows for longer-term decision making.

On what it describes as a differentiated approach to private equity investing, the company made a note of the following:

  • seeks fair and aligned outcomes for management teams and shareholders of its investee companies;
  • works with management of investee companies to build great businesses with larger, long-term ambitions;
  • has a high degree of alignment with the company’s shareholders and management of portfolio companies to maximise value in a responsible way;
  • employs conservative capital structures with modest bank debt (1x-1.5x EBITDA on average);
  • assists in the provision of active engagement from experienced entrepreneurs with a focus on backing and building complete management teams;
  • may in the right circumstances introduce new hires into portfolio companies with track record of running larger businesses to help them scale; and
  • plans to grow the company through organic growth rather than by raising new capital.

Richard Pindar, CEO of the investment manager, notes that “we invest in founder-led and owned businesses that we can work closely with as engaged and active shareholders to offer guidance and encourage innovation in this under-served part of the market. We can help to attract high calibre individuals to create complete teams, which can assist these companies thrive long term.”

Alignment of management team to shareholders

On alignment with shareholders, it is noted that “the investment manager’s team and the directors have significant ‘skin-in-the-game’ by virtue of their shareholdings in the company. In aggregate, 55.2% of the ordinary shares are owned by them and their connected parties. Further, no performance fee is payable by the company to the investment manager and the members of the investment manager’s team are incentivised by the warrant arrangements described below, further aligning them with the performance of the company.”

Unique charitable mission – annual donation equating to 0.9% of NAV

The announcement notes that “the UK now has the lowest rates of literacy of any developed nation, which results in adverse, long term consequences for the child and society. The company aims to assist in the education of children in the UK, in particular by promoting and supporting the development of literacy.

Teenagers without basic literacy skills are significantly more likely to be excluded from school, commit crime and spend time in prison. Approximately 50 per cent of the UK prison population have literacy skills no higher than those expected from an 11 year old. Annually, it costs £40,000 to keep one individual in prison, while teaching a child to read can be done relatively inexpensively and is one of the most cost-effective ways to reduce crime.

One charity that benefits from the company’s support is Bookmark Reading. Bookmark Reading has developed a scalable technology solution to match schools with much-needed reading helpers who will support children struggling with literacy. The charity provides a support network for volunteers who want to foster a love of reading and really make a difference in their local communities.”

The company makes and will continue to make an annual donation equating to 0.9% of NAV to charities. By the end of 2020, the company had donated or reserved for donation more than £1.9m.

Literacy Capital – Intention to Float

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