Chrysalis targets £125m in placing and PrimaryBid offer – Chrysalis (CHRY) has announced plans to raise £125m under its placing programme, through a placing of ordinary shares at a price of 238 pence. The issue price represents a 1.7 per cent. premium to the pro forma NAV per ordinary share* as at 30 November 2021 of 234 pence.
In conjunction with the placing, there will be an offer made by the company on the PrimaryBid platform of additional ordinary shares at the same issue price to provide retail investors with an opportunity to participate in the equity fundraising alongside institutional investors.
Background and rationale for the placing
Since raising £300m in March 2021, the late-stage private market has exhibited strong growth and Chrysalis has continued to experience significant interest in its crossover proposition. At the time of the fundraise, a strong pipeline of new investment and follow-on opportunities was outlined and an expectation of adding one to three new units per annum was set.
Over the summer, origination into the new investment pipeline was considerably stronger than predicted, such that it has added five new investments to the portfolio since March 2021, significantly outperforming its earlier expectations.
Pipeline and capital raise
CHRY believes a capital raise of £125m would give the funding required to execute the majority of the likely follow-on opportunities available to the company into early-2022. Considering the total pipeline, including some of the larger new investment opportunities, CHRY could readily invest up to £175m of fresh capital, with the aim of both accelerating growth in the portfolio, and to selectively add new investments.
PrimaryBid Offer
Investors can participate in the PrimaryBid Offer by applying exclusively through the PrimaryBid mobile app. PrimaryBid does not charge investors any commission for this service.
The offer will be open to individual and institutional investors from 1 December to 11am on 10 December 2021. The PrimaryBid offer may close early if it is oversubscribed.
The PrimaryBid offer and the placing are conditional on the new shares to be issued pursuant to the PrimaryBid offer and the placing being admitted to trading on 15 December 2021. Admission is expected to be take place at 8am on 15 December 2021. The PrimaryBid offer will not be completed without the placing also being completed.
Use of proceeds
The expected use of new funds is primarily to drive the performance of existing assets in current portfolio companies via certain follow-on investments. In addition, the current effective number of investments is at the bottom end of the target range of 15 to 20, offering the opportunity to selectively add new holdings.
Follow-on opportunities: the “Power of Primary Capital”
The investment adviser typically sees a strong correlation between its supply of follow-on capital and the subsequent performance of the investee asset. This ability and willingness of Chrysalis to back its assets is one of its attractions to potential investee companies and demonstrates the adviser’s belief in the “Power of Primary Capital”. For example, considerable amounts of follow-on capital have been devoted to developing both Starling and wefox over the last two years (approximately £69m and €60m respectively). The revenue performance of both these businesses have been impressive, demonstrating high CAGRs (c.180% and c.160% respectively since initial investment) as fresh capital has allowed them to materially expand and develop their offerings. For Starling, this involved capital to back an entry into the UK lending market in early 2020, and for wefox this capital has allowed it to undertake accretive M&A and continue to fund high growth over the course of 2020.
Selective new investments
While undertaking follow-ons is likely to be the key focus, there is room to selectively add to the number of portfolio holdings. Currently the company has 17 assets, but this includes Embark – where a sale has been agreed to Lloyds Bank, subject to regulatory clearance – and Growth Street – where the company is in the final stages of liquidation.
Expanding the portfolio brings diversification benefits to shareholders, not only just in terms of number of units, but also because it allows investment in a wide spectrum of assets at slightly different stages of maturity. This latter point is important as it builds diversity into the likely exit dates of the portfolio to give the best possible chance of smoothing likely capital returns for reinvestment.
The track record of investing in new assets has been strong. “Cohort 2” assets – those funded by raises undertaken post investment of the Company’s IPO proceeds, but prior to those made following the March 2021 raise – show very strong performance. This group of assets, which consists of Klarna, wefox, Embark, You & Mr Jones, Featurespace and Sorted, has generated a gross IRR of well over 100%. The Investment Adviser believes this clearly shows that diversifying the portfolio via new capital has been value accretive to existing and new shareholders.
Market outlook
Growth in the late-stage, private market has been substantial in the year to date. As of September 2021, the total capital committed in this sector of the market in Northern and Western Europe – the Company’s current focus – was over double that invested over 2020 at c.£38bn. Within the market, a major crossover player was present in c.15% of deals by number, versus just c.7% in 2019, demonstrating the attractiveness of this type of capital to investee companies. The bulk of these investors are of US origin, showing the gap in Europe that Chrysalis is aiming to fill.
*The proforma NAV per ordinary share: (1) has been calculated using valuations of unlisted investments as at 30 September 2021 (as adjusted for foreign exchange movements to 30 November 2021), (2) has been calculated using the mid-market closing prices of listed investments as at 30 November 2021, and (3) includes transactions concluded in the portfolio between 30 September 2021 and 30 November 2021 at cost and therefore uses the Company’s cash balance as at 30 November 2021.
CHRY : Chrysalis targets £125m in placing and PrimaryBid offer