TIDMHONY
RNS Number : 7054B
Honeycomb Investment Trust PLC
15 February 2022
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH
JURISDICTION
THIS ANNOUNCEMENT CONSTITUTES INSIDE INFORMATION AS STIPULATED
UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION (EU)
NO.596/2014
FOR IMMEDIATE RELEASE
15 February 2022
Honeycomb Investment Trust plc
Combination with Pollen Street to accelerate growth and unlock
value for Honeycomb shareholders
-- Combination delivers recurring income and attractive growth opportunities
-- Accelerates seeding of new strategies and continued growth of existing strategies
-- Expected to create significant value for Honeycomb shareholders
-- Shareholders representing c.56.4% of Honeycomb's issued share
capital have given their support for the transaction
The Board of Honeycomb Investment Trust plc (the "Board")
("Honeycomb"), and the shareholders of Pollen Street Capital
Holdings Limited ("Pollen Street"), are pleased to announce that
they have reached agreement on the terms of a recommended all-share
combination. Honeycomb's external investment manager is a member of
the Pollen Street group.
Under the terms of the agreement, Honeycomb will acquire the
entire issued share capital of Pollen Street in exchange for shares
in the Company (defined below), such that the Honeycomb and Pollen
Street businesses will be combined into a premium listed commercial
company (the "Combined Group") owned by the shareholders of
Honeycomb and Pollen Street (the "Combination"). Pollen Street
shareholders will be entitled to receive new Company shares
equivalent to 45.53 per cent of the enlarged share capital of the
Company. The Combination will be conditional on certain shareholder
approvals, including approval of a waiver of Rule 9 of the City
Code on Takeovers and Mergers (the "Code").
-- The Combined Group will benefit from a complementary set of
investment management and balance sheet activities, with strong
earnings growth. The Combination is expected to deliver:
o a compelling revenue profile, with an attractive balance of
interest income from Honeycomb and recurring fees and fast growth
from Pollen Street;
o a multiplier effect on third party Assets Under Management,
through funding commitment in new vintages of existing strategies,
as well as providing funding to accelerate the launching and
seeding of new strategies;
o EPS accretion in the second full year post closing for
Honeycomb's shareholders[1];
o the potential for significant re-rating and valuation
upside;
o possibility for increased liquidity on account of broader
expected interest, larger market cap and potential future FTSE 250
inclusion; and
o a differentiated purpose-led asset manager.
-- The Combined Group's investment portfolio will continue to
invest predominantly in high quality, diversified and low risk
asset based direct lending investments, generating stable returns.
The investment portfolio profile of the Combined Group is expected
to remain in line with the investment profile of Honeycomb on a
stand-alone basis.
-- It is proposed that the Combined Group will move from being
an investment trust to become a commercial company, which the Board
believes to be a more appropriate category to support the Combined
Group's growth strategy. Accordingly, it is proposed that Honeycomb
will transfer its listing category, such that the holding company
of the Combined Group will be a premium listed commercial company
owned by the shareholders of Honeycomb and Pollen Street, which may
be a new holding company or the existing Honeycomb company (the
"Company"). Further details regarding the proposed structure of the
Combined Group will be set out in the prospectus and circular to be
published by the Company in due course.
-- The Combined Group will be entitled to 25 per cent of the
total carried interest entitlement in the most recent flagship
private equity and credit funds of Pollen Street, as well as 25 per
cent of the total carried interest entitlement in all future funds
established by Pollen Street.
-- Under the terms of the Combination, holders of Pollen Street
shares will be entitled to receive 29,472,663 new Company shares
for Pollen Street's entire issued share capital, equivalent to
45.53 per cent[2] of the enlarged share capital of the Company.
Based on the closing price of 967.5 pence per Honeycomb share on 14
February 2022 (being the last business day prior to the date of
this announcement), the Combination values Pollen Street's entire
share capital at approximately GBP285m.
-- Honeycomb has obtained irrevocable undertakings from Quilter
Investors Limited ("Quilter"), CC Beekeeper Ltd (an investment
entity affiliated with Capital Constellation LP and managed by
Wafra Inc. ("CC Beekeeper")), Phoenix Insurance Limited and a
related party (together, "Phoenix") and Caledonian Consumer Finance
Limited ("Caledonian") to vote in favour of the resolutions
required to approve and implement the Combination. These
irrevocable undertakings represent approximately 47.4 per cent of
Honeycomb's issued share capital as at 14 February 2022.
Irrevocable undertakings have also been obtained from various
Pollen Street Partners (defined below), and certain persons closely
associated with the Pollen Street Partners, in respect of the
Honeycomb shares that each of them currently own, and each director
of Honeycomb who holds Honeycomb shares, to vote in favour of the
resolutions required to approve and implement the Combination.
Together with the irrevocable undertakings given by Quilter, CC
Beekeeper, Phoenix and Caledonian, these irrevocable undertakings
represent approximately 50.4 per cent of Honeycomb's issued share
capital as at 14 February 2022 (being the last business day prior
to this announcement).
-- M&G Investment Management Ltd ("M&G") has provided a
letter of intent to vote in favour of the resolutions required to
approve and implement the Combination in respect of its 2,121,577
Honeycomb shares, for which it is able to exercise all rights,
representing, in aggregate, approximately 6.0 per cent of
Honeycomb's issued share capital on 14 February 2022 (being the
last business day prior to this announcement). Honeycomb has
therefore received irrevocable undertakings and a letter of intent
in respect of a total of 19,894,575 Honeycomb shares, representing
approximately 56.4 per cent of Honeycomb's issued share capital on
14 February 2022 (being the last business day prior to this
announcement).
-- Subject to the receipt of regulatory clearances and approval
by Honeycomb shareholders, the Combination is expected to close in
Q2 2022.
Commenting on the Combination, Robert Sharpe, the Chairman of
Honeycomb, said:
"I am delighted that we have reached an agreement to combine
Honeycomb and Pollen Street. The combination has a compelling
strategic rationale, which will deliver strong operational and
financial benefits, and generate future growth opportunities. This,
alongside an attractive entry valuation, create potential for
significant re-rating and valuation upside. The shares will also
become more appealing and accessible for a wider range of
investors. The clear strategic and financial logic of the
transaction is evidenced by the significant shareholder support we
have already received."
Commenting on the Combination, Lindsey McMurray, the Managing
Partner of Pollen Street, said:
"Since inception in 2013, Pollen Street has built deep
capability across the financial and business services sector
aligned with the mega-trends that are shaping the future of the
industry as well as building a high-quality institutional
infrastructure and an eco-system of expertise and knowledge through
its Hub. The transaction represents an exciting opportunity to
build upon our strong foundations and further develop the
institutional platform of Pollen Street as well as provide capital
to support the development of our strategy to build a purpose-led
asset management firm. The Combined Group is well placed to
capitalise on the structural changes in the financial services
industry and projected growth in alternative asset management to
deliver value for all stakeholders."
Compelling strategic rationale
The Board of Honeycomb believes that the Combination offers
Honeycomb shareholders the opportunity to benefit from a compelling
combination with a fast growing and high performing private capital
investment manager. The Pollen Street group has acted as
Honeycomb's investment manager for over six years, and has
delivered consistently strong total returns for Honeycomb's
shareholders during this period. The Combination will further align
the interests of Honeycomb and the Pollen Street group, with Pollen
Street's current management team and investors becoming supportive
shareholders in the combined business.
Pollen Street is well positioned to benefit from structural
growth and industry tailwinds
Global alternative asset management AUM have grown at
approximately 11 per cent CAGR from 2011 to 2021[3], and are
expected to grow at approximately 12 per cent CAGR from 2021 to
2026 (according to Preqin Ltd). Private equity and private debt are
expected to outperform the average market growth, with 16 per cent
and 17 per cent AUM CAGRs anticipated from 2021 to 2026
respectively (according to Preqin Ltd).
Pollen Street is a multi-asset and multi-strategy asset manager
with flagship private equity and credit strategies (and
approximately GBP3.0bn AUM as of 31 December 2021). The founding
partners have been working together for over 16 years, and the team
consists of more than 70 employees (including over 30 investment
professionals). The business has been growing rapidly, with AUM
increasing by approximately 50 per cent in 2021.
Pollen Street is dedicated to making investments aligned with
financial and business services mega trends globally, with a focus
on investing in sectors that are enjoying strong growth and
structural change. Pollen Street's industry expertise and extensive
network drive proprietary deal sourcing and bespoke structuring,
which have resulted in attractive returns.
Against this backdrop, Pollen Street established a strong and
growing investor base of leading institutional investors across its
funds. Pollen Street's fundraising for both its private equity
strategies and credit strategies has been driven by both attracting
new investors and high investor retention from previous fund
vintages.
Pollen Street has a proven track record of strong returns at low
risk
Pollen Street's private equity strategy focuses on buy-outs of
middle-market companies headquartered in Europe, driving
revenue-led growth through a combination of structural market
growth drivers and active management. Pollen Street has delivered
strong returns with an average 28 per cent gross internal rate of
return ("IRR") and 2.8x gross multiple on invested capital ("MOIC")
in Fund I/II and 26 per cent gross IRR and 2.2x gross MOIC in Fund
III. The IRR and MOIC figures are based on financial and business
services only, up to Q3 2021.
Pollen Street's credit strategy focuses on providing asset based
direct lending to middle market businesses in Europe and the US
secured on diverse portfolios of financial and real assets. The
strategy is supported by the large and fragmented market which is
currently underserved by the banking industry, capital markets and
more generalist credit funds creating a favourable investing
environment. Pollen Street has invested approximately GBP2.8bn
across 90 deals since 2016, and delivered in excess of 10 per cent
gross IRRs from typically senior secured exposures.
Values-based organization with a strong sense of purpose
Pollen Street is a values-based organization, with a strong
sense of purpose, aiming to deliver sustainably strong returns for
investors in a fast changing environment. It is focused on
attracting and retaining top talent, fully aware that the financial
services industry has a critical role to play in accelerating the
Environmental, Social and Governance ("ESG") agenda. Pollen Street
was awarded the "Best Responsible Alternative Investment Team UK
2021" by Capital Finance International magazine, in recognition of
its strong track record in ESG activities.
High growth and operating leverage
Pollen Street has delivered strong AUM growth historically,
reaching approximately GBP3.0bn AUM as of 31 December 2021. Pollen
Street's core strategies provide a clear route for increasing its
AUM, and it expects to reach approximately GBP4bn-GBP5bn AUM over
the next 2-3 years based on existing products, new vintages of
existing funds and new funds for which it is already fundraising or
in discussion with investors. This growth is expected to be further
accelerated by the strategic use of Honeycomb's balance sheet.
Pollen Street is also well positioned for expansion into other
adjacent strategies that would further accelerate its growth,
having already established a strong team, track record and sourcing
capability through its flagship funds.
The combination of significant AUM expansion, high visibility on
income streams, and a strong operating platform, is expected to
result in attractive operating leverage and significant growth in
profitability for Pollen Street's investment management
business.
Acceleration in growth
The Combined Group will benefit from a complementary set of
investment management and balance sheet activities, with strong
earnings growth. A combination of Honeycomb and Pollen Street is
expected to have a multiplier effect on Pollen Street's third party
AUM, through funding Pollen Street's commitment in larger vintages
of existing strategies, as well as providing funding to accelerate
the launching and seeding of new strategies.
The Combined Group's investment portfolio will continue to
invest predominantly in high quality, diversified and low risk
asset based direct lending investments, generating stable returns.
It is expected that non-credit investments will be a maximum of 10
per cent of the investment portfolio AUM and will increase steadily
towards this percentage over the next 3 to 5 years. The investment
profile of the Combined Group is expected to remain in line with
the investment profile of Honeycomb on a stand-alone basis.
Financial Impact of the Combination
Pollen Street FY21 Financials and Carry Arrangements
The Board conducted extensive due diligence, and believes that
the Combination will generate substantial value for Honeycomb
shareholders, both because of the attractive valuation of the
Pollen Street business, and because of the profile of the Combined
Group going forward. In particular the Combined Group will
have:
-- A balance of recurring fee income and interest income that
delivers an attractive and growing revenue profile; and
-- Exciting potential to accelerate high quality growth as
Honeycomb's capital can be deployed to unlock a multiplier effect
on capital raising and, in doing so, accelerate the growth of new
strategies, while continuing to invest the balance sheet
predominantly in high quality, diversified and low risk asset-based
direct lending investments with a similar returns profile to what
Honeycomb currently invests in today
Pursuant to the Combination, the Combined Group will receive 25
per cent of the total carried interest from the most recent
flagship PE and credit fund vintage, as well as 25 per cent of the
total carried interest entitlement in all future funds established
by members of the Pollen Street group.
During the year ended 31 December 2021, carried interest from
funds established by the Pollen Street group primarily arose in a
prior vintage private equity fund, PSC Private Equity III ("PSC
III"). Although carried interest from the PSC III fund is not
included in the transaction perimeter, it is considered
illustrative of the financial impact of the carried interest
entitlement being acquired as part of the transaction, and 25 per
cent of this carried interest in FY21 was approximately
GBP6.5m[4].
If the Pollen Street group had been entitled to this share of
carried interest in FY21 in respect of PSC III, and if it had been
added to Pollen Street's total revenue and Adjusted EBITDA in FY21,
Pollen Street's illustrative total revenue and illustrative
Adjusted EBITDA in FY21 would have increased by GBP6.5m, such they
would have been approximately GBP40.4m and GBP13.5m
respectively.[5]
Guidance for the Combined Group
The Combined Group is expected to deliver:
-- GBP4-5bn medium term AUM (c.2-3 years)[6]
-- Between c.1.25 per cent and c.1.50 per cent stable average
management fee on average AUM over the long term
-- Carry and performance fees representing c.15 per cent to c.25
per cent of total fund management revenue[7] on average over the
long term
-- Long term fund management Adjusted EBITDA margin in excess of 50 per cent
-- Investment returns of c.8 per cent long term target return on net investment assets[8]
-- Dividend for Combined Group expected to be GBP30m for 2022
(assuming transaction completing in Q2 2022) and GBP32m for 2023,
with the aim of growing the dividend progressively over time (no
lower than GBP33m in 2024); 50% of Consideration Shares payable to
Pollen Street shareholders not eligible for dividends until
2024[9]
-- The Combined Group may borrow (either directly or
indirectly), up to a maximum of 100% of tangible net asset value in
aggregate and targets net borrowings in the range of 50 per cent to
75 per cent of tangible net asset value
Key terms of the Combination
The Company will issue 29,472,663 new shares (the "Consideration
Shares") for the entire issued share capital of Pollen Street. The
Consideration Shares value the entire issued share capital of
Pollen Street at c. GBP285m based on the closing price of 967.5
pence per Honeycomb share on 14 February 2022 (being the last
business day prior to the date of this announcement) and are
expected to result in Pollen Street shareholders receiving new
shares that are equivalent to approximately 45.53 per cent of
enlarged share capital in the Combined Group.
The Combination with Pollen Street is a Class 1 transaction and
a related party transaction for Honeycomb under the Listing Rules
of the Financial Conduct Authority ("FCA"), and requires the
approval of Honeycomb's shareholders.
Honeycomb may decide to insert a new holding company
incorporated in Guernsey on top of the existing Honeycomb company
by means of a court-sanctioned scheme of arrangement under Part 26
of the Companies Act prior to the implementation of the
Combination, in which case the Consideration Shares will comprise
shares of the new holding company (as the Company). Further details
regarding the proposed structure of the Combined Group will be set
out in the prospectus and circular to be published by the Company
in due course.
The Combination is conditional on customary closing conditions.
Although the Combination is not a Code transaction, it will (as
described below) require approval of a Rule 9 Waiver for Code
purposes by the independent shareholders of Honeycomb. The Panel on
Takeovers and Mergers (the "Panel") has agreed that certain
commitments can be given by Honeycomb under the share purchase
agreement (the "SPA") that would constitute offer-related
undertakings under the Code, provided that those undertakings will
be suspended during an offer period triggered by a third party
making a takeover offer for Honeycomb.
Recommendation
The Board intends to recommend unanimously that Honeycomb
shareholders vote in favour of all shareholder resolutions required
to implement the Combination as the Honeycomb directors intend to
do in respect of their own beneficial holdings of Honeycomb
shares.
The Board has received financial advice from BofA Securities and
advice from Cenkos in its capacity as Sponsor in relation to the
Combination. In providing their advice to the Board, each of BofA
Securities and Cenkos have relied upon the commercial assessment of
the Board. Slaughter and May is acting as legal adviser to the
Company in connection with the Combination.
Governance
Following completion, it is expected that the Combined Group
will be chaired by Robert Sharpe and will be led by Lindsey
McMurray as Chief Executive Officer. It is expected that the
Combined Group's board will be comprised of the four current
Honeycomb board members, Lindsey McMurray, Julian Dale and one
further independent non-executive director. The final composition
of the Combined Group board (and the Combined Group board committee
structure) will be determined in line with the UK Corporate
Governance Code.
Waiver of mandatory offer requirement
As a result of the Combination, it is expected that Lindsey
McMurray, James Scott, Michael England, Matthew Potter, Howard
Garland and Ian Gascoigne (the "Pollen Street Partners") and
certain senior managers of Pollen Street (together with persons
presumed to be acting in concert with them) will acquire, in
aggregate, more than 30 per cent of the shares and voting rights in
the Company. Under Rule 9 of the Code, a person who (together with
persons acting in concert with that person) acquires an interest in
shares that, taken together with shares in which they are already
interested, carry 30 per cent or more of the voting rights of a
company, must normally make an offer under Rule 9 of the Code for
all the remaining shares in the company. Accordingly, the
Combination will be conditional on the Panel waiving the
requirement for Pollen Street and certain senior managers of Pollen
Street (together with persons acting in concert with them) to make
an offer for the Company under Rule 9 of the Code. It is expected
that the Panel would waive the requirement only if, among other
things, independent Honeycomb shareholders pass a customary
resolution to that effect (the "Rule 9 Waiver" and the "Rule 9
Waiver Resolution").
Related party transaction
Under LR 11.1.5(3)R, a related party transaction is a
transaction or arrangement (other than a transaction in the
ordinary course of business) between a listed company and any other
person that may benefit a related party. Under LR 15.5.4 the
investment manager and any member of the investment manager's group
are considered related parties. The Combination is expected to
constitute a related party transaction under the Listing Rules.
As a consequence of the Combination constituting a related party
transaction, Honeycomb is required to send a circular to
shareholders and obtain the approval of its shareholders for the
transaction before it is completed. Further details regarding the
related party transactions will be included in the circular.
Irrevocable undertakings and letter of intent
Honeycomb has obtained irrevocable undertakings from Quilter, CC
Beekeeper, Phoenix and Caledonian to vote in favour of the
resolutions required to approve and implement the Combination.
These irrevocable undertakings represent approximately 47.4 per
cent of Honeycomb's issued share capital as at 14 February 2022
(being the last business day prior to the date of this
announcement). The Honeycomb shares represented by these
irrevocable undertakings are as follows:
Shareholder Shares
Quilter 9,988,000
CC Beekeeper 4,012,006
Phoenix 2,498,722
Caledonian 215,000
Total 16,713,728
The Quilter, CC Beekeeper, Phoenix and Caledonian irrevocable
undertakings will remain binding if a competing proposal is made to
Honeycomb, but will cease to be binding if Honeycomb announces that
it does not intend to proceed with the Combination and on
completion of the Combination. The Quilter, CC Beekeeper and
Caledonian irrevocable undertakings will also cease to be binding
if the Combination has not been completed by close of business on
31 July 2022. CC Beekeeper will not vote on: (i) any resolution
relating to its status as a related party of Honeycomb by virtue of
its being a substantial shareholder of Honeycomb and the fact that
it is affiliated with CC Hive LP (an investment entity affiliated
with Constellation Generation III LP and Capital Constellation LP
and managed by Wafra Inc. ("CC Hive")) which will receive
Consideration Shares on completion; or (ii) resolutions relating to
the Rule 9 Waiver Resolution at the general meeting. The
irrevocable undertakings include flexibility for Honeycomb to
pursue an equity raise of up to GBP100m as part of, or in
connection with, the Combination. As at the date of this
announcement, Honeycomb has no intention of pursuing such an equity
raise. Honeycomb will, however, continue to monitor market
conditions and its funding requirements to determine whether the
pursuit of such an equity raise may, in future, be desirable
(whether in the context of the Combination or in the pursuit of its
investment policy more generally).
Irrevocable undertakings have also been obtained from various
Pollen Street Partners, and certain persons closely associated with
the Pollen Street Partners, in respect of their Honeycomb shares
and each director of Honeycomb who holds Honeycomb shares, to vote
in favour of each resolution required to approve and implement the
Combination. Together with the irrevocable undertakings given by
Quilter, CC Beekeeper, Phoenix and Caledonian, these irrevocable
undertakings represent approximately 50.4 per cent of Honeycomb's
issued share capital as at 14 February 2022 (being the last
business day prior to this announcement).
Shareholder Shares
Lindsey McMurray 612,294
Matthew Potter 139,558
James Scott 113,235
Michael England 72,941
Ian Gascoigne 68,529
Howard Garland 50,000
Joanne Lake 2,713
Total 1,059,270
These irrevocable undertakings will also remain binding if a
competing proposal is made to Honeycomb, but will cease to be
binding if Honeycomb announces that it does not intend to proceed
with the Combination, on completion of the Combination, or if the
Combination has not completed by close of business on 31 October
2022.
M&G has provided a letter of intent to vote in favour of the
resolutions required to approve and implement the Combination in
respect of its 2,121,577 Honeycomb shares, for which it is able to
exercise all rights, representing, in aggregate, approximately 6.0
per cent of Honeycomb's issued share capital on 14 February 2022
(being the last business day prior to this announcement).
Honeycomb has therefore received irrevocable undertakings and a
letter of intent in respect of a total of 19,894,575 Honeycomb
shares, representing approximately 56.4 per cent of Honeycomb's
issued share capital on 14 February 2022 (being the last business
day prior to this announcement).
Change of listing category
Honeycomb is currently listed as a premium listed closed-ended
investment fund under Chapter 15 of the Listing Rules. If a new
holding company is not inserted above Honeycomb as part of the
Combination, Honeycomb proposes to transfer its listing category to
-a -premium -listed commercial -company under Chapter 6 of the
Listing Rules -(the -"Transfer"). If a new holding company is
inserted above Honeycomb as part of the Combination, the Board
proposes that this new holding company will be admitted as a
premium listed commercial company under Chapter 6 of the Listing
Rules (the "New Listing") (the "Transfer" and the "New Listing"
together being the "Change of Listing Category"). In either case,
it is anticipated that the Company will cease to qualify as an
investment trust for tax purposes, as a result of which the Company
will lose its ability to designate dividend distributions as
interest distributions which are deductible for the Company for tax
purposes and taxed as interest in the hands of recipients.
The Board expects the classification of Honeycomb as a general
commercial company to be more appropriate than classification as a
closed-ended investment fund following the Combination. In
addition, the Board believes that the Change of Listing Category
will further enhance the Combined Group's profile, extend the
Combined Group's shareholder base to a wider group of institutional
investors, assist in the recruitment, retention and incentivisation
of all employees and support the Combined Group's growth
strategy.
Relationship agreement
The Company will enter into customary relationship agreements to
the extent necessary to ensure that it will operate as an
independent business in accordance with the Listing Rules.
Lock-up agreements
The Pollen Street Partners, certain senior managers of Pollen
Street, and CC Hive LP will enter into lock-up agreements at
completion of the Combination in respect of the shares that they
will receive in the Company at the completion of the Combination
(the "Pollen Street Partners Lock-Up Agreement", the "Management
Lock-up Agreement" and the "CC Hive Lock-Up Agreement", together
the "Lock-Up Agreements").
The Pollen Street Partners Lock-Up Agreement and the Management
Lock-Up Agreement will be conditional upon completion of the
Combination, and will restrict the Pollen Street Partners and
certain senior managers of Pollen Street from disposing of any
Consideration Shares for a period of 60 months following
completion, subject to the following exceptions (in addition to
other customary exceptions, as outlined below): (i) with effect
from completion, 25% of the Consideration Shares (excluding those
Consideration Shares to which the dividend waiver will apply) will
be available to be sold; (ii) with effect from 24 months following
completion, a cumulative 43.75% of the Consideration Shares will be
available to be sold; (iii) with effect from 36 months following
completion, a cumulative 62.5% of the Consideration Shares will be
available to be sold; and (iv) with effect from 48 months following
completion, a cumulative 81.25% of the Consideration Shares will be
available to be sold.
Pursuant to the Pollen Street Partners Lock-Up Agreement and the
Management Lock-Up Agreement, the Pollen Street Partners and
certain senior managers of Pollen Street will undertake (for a
period of 12 months following the end of the lock-up period) to
consult with, and take into account the reasonable views of, the
board of the Combined Group (excluding Lindsey McMurray and Julian
Dale) before disposing of any Consideration Shares in order to
maintain an orderly market for the shares in the Combined Group.
Furthermore, the Pollen Street Partners and certain senior managers
of Pollen Street will undertake (for a period of 12 months
following the end of the lock-up period) not to dispose of any
Consideration Shares carrying more than 5 per cent of the voting
rights conferred by the shares in any consecutive period of six
months on the day following the end of the lock-up period, without
the consent of the board of the Combined Group (excluding Lindsey
McMurray and Julian Dale).
The CC Hive Lock-Up Agreement will be conditional upon
completion of the Combination, and it will restrict CC Hive from
disposing of Consideration Shares for a period of 6 months
following completion.
Pursuant to the Lock-Up Agreements, the Pollen Street Partners,
certain senior managers of Pollen Street, and CC Hive, will be
permitted to dispose of their shares in the Company with the
consent of the board of the Combined Group (excluding, in the case
of the Pollen Street Partners and senior managers of Pollen Street,
Lindsey McMurray and Julian Dale), or in accordance with certain
customary exceptions, including, but not limited to, disposals
required by law, court order or regulation. Disposals by the Pollen
Street Partners and senior managers of Pollen Street are also
permitted to fund amounts payable to the Company under the SPA or
in respect of tax arising from the Combination, which amounts are
not expected to be material in the context of their respective
Consideration Shares.
Dividend and dividend policy[10]
The Combined Group is expected to enjoy a complementary set of
investment management and balance sheet activities that will
generate a strong earnings profile and the ability to support an
attractive and growing dividend. The dividend payable to
shareholders of the Combined Group is expected to be GBP30m in
respect of 2022 (assuming transaction completing in Q2 2022) and
GBP32m in respect of 2023. The Combined Group aims to grow its
dividend progressively after 2023, reflecting the strong earnings
trajectory of the combined business, with a dividend no lower than
GBP33m in 2024.
Pursuant to the SPA, the Pollen Street Partners, certain senior
managers of Pollen Street and CC Hive have agreed to waive ordinary
dividends payable to them in both 2022 and 2023 on 50.0% of the
shares that will be issued to them in the Combined Group as a
result of the Combination. As a result of this dividend waiver by
the Pollen Street Partners, certain senior managers of Pollen
Street and CC Hive, it is anticipated that the dividend per share
paid on all shares in the Combined Group that are not subject to
this dividend waiver be 63 pence and 64 pence in 2022 and 2023
respectively, with a 6.5% and 6.6% dividend yield on such shares in
2022 and 2023 respectively, based on the Honeycomb share price of
967.5 pence on 14 February 2022 (being the last business day prior
to the date of this announcement).
Expected timetable
Honeycomb intends to publish its full year results and host a
capital markets day on 1 March 2022.
It is expected that the circular, containing details of the
Combination and notices of the shareholder meetings convened to
consider the resolutions required to implement the Combination,
will be posted to Honeycomb shareholders (together with forms of
proxy) at or around the same time as the prospectus for the
Company.
The circular and the prospectus for the Company will each be
made available by Honeycomb on its website at
www.honeycombplc.com.
Subject to the satisfaction of the conditions to the
Combination, completion is expected to occur in Q2 2022.
Conference call
A conference call for investors and analysts will begin at 8:30
am UK time today, please join 10-15 minutes prior to the scheduled
start time:
Registration link:
https://finsbury.zoom.us/webinar/register/WN_WX-gcDHsSE-BsFACWfPXPw
The person responsible for arranging for the release of this
announcement on behalf of Honeycomb is Robert Sharpe, Chairman.
Enquiries:
Honeycomb
Robert Sharpe
+44 20 3728 6750
Pollen Street
Lindsey McMurray (Managing Partner)
Matthew Potter (Partner)
Chris Palmer (General Counsel)
+44 20 3728 6750
Wafra Inc.
Katrina Allen
+1 917 640-2753
BofA Securities - Financial Adviser to Honeycomb
Arif Vohra
Geoff Iles
Oliver Elias
+44 20 7628 1000
Cenkos - Sponsor and Joint Broker
Tunga Chigovanyika
Justin Zawoda Martin
+44 20 7397 8900
Liberum - Joint Broker
Chris Clarke
+44 20 3100 2000
Finsbury Glover Hering - Communications Adviser
Faeth Birch
Chris Sibbald
Samuel Brustad
+44 20 7251 3801
About Honeycomb
Honeycomb is a UK-listed closed ended investment trust dedicated
to providing investors with access to asset backed lending
opportunities, with potential to generate high income returns,
together with strong capital preservation.
Honeycomb's investment objective is to provide shareholders with
an attractive level of dividend income and capital growth through
the acquisition of credit assets, together with selected equity
investments that are aligned with Honeycomb's strategy.
About Pollen Street
Pollen Street was founded in 2013 and is an independent,
alternative investment management company dedicated to investing in
the financial and business services sectors. Pollen Street has
extensive experience investing in both credit and private equity
strategies and has a strong and consistent track record of
delivering top tier returns. A wholly owned subsidiary of Pollen
Street serves as Honeycomb's investment manager.
For the year ended 31 December 2021, Pollen Street generated
total revenue of approximately GBP33.9m and Adjusted EBITDA of
approximately GBP7.0m. As of 31 December 2021, Pollen Street had
gross assets of approximately GBP30.0m. These preliminary results
are unaudited. It is anticipated that audited financials for the
year ended 31 December 2021 will be included in the circular.
As set out above, as part of the Combination, the Combined Group
will receive 25 per cent of the carried interest from the most
recent flagship PE and credit fund vintage, as well as 25 per cent
of the total carried interest entitlement in all future funds
established by the Pollen Street group. During the year ended 31
December 2021, carried interest from funds established by the
Pollen Street group primarily arose in a prior vintage private
equity fund, PSC III. Although carried interest from the PSC III
fund is not included in the transaction perimeter, it is considered
illustrative of the financial impact of the carried interest
entitlement being acquired as part of the transaction, and 25 per
cent of this carried interest in FY21 was approximately
GBP6.5m[11].
By way of illustrative example, if the Pollen Street group had
been entitled to this share of carried interest in FY21 in respect
of PSC III, and if it had been added to Pollen Street's total
revenue and Adjusted EBITDA in FY21, Pollen Street's illustrative
total revenue and illustrative Adjusted EBITDA in FY21 would have
increased by GBP6.5m, such that they would have been approximately
GBP40.4m and 13.5m respectively.[12]
About Wafra Inc.
Wafra Inc. is a global alternative investment manager. Wafra
Inc. manages assets and commitments of approximately $28 billion
(estimated as of September 30, 2021). Funds advised by Wafra Inc.
have made 23 minority partnerships with both growth stage and
mature alternative investment management firms. By providing
flexible and accretive capital solutions and focusing on long-term
partnerships, Wafra Inc. aligns and partners with high quality
management teams. Headquartered in New York, Wafra Inc. and its
affiliated and associated firms have additional offices in London,
Kuwait and Bermuda. For more information, please visit
www.wafra.com. Wilkie Farr & Gallagher LLP is acting as legal
adviser to Wafra Inc. in connection with the Combination.
Additional information
Merrill Lynch International ("BofA Securities"), which is
authorised by the Prudential Regulation Authority ("PRA") and
regulated by the FCA and the PRA in the United Kingdom, is acting
as financial adviser exclusively for Honeycomb and for no one else
and will not be responsible to anyone other than Honeycomb for
providing the protections afforded to its clients or for providing
advice in relation to the matters referred to in this announcement.
Neither BofA Securities, nor any of its affiliates, owes or accepts
any duty, liability or responsibility whatsoever (whether direct or
indirect, whether in contract, in tort, under statute or otherwise)
to any person who is not a client of BofA Securities in connection
with this announcement, any statement contained herein or
otherwise.
Cenkos Securities plc, which is authorised and regulated by the
FCA in the United Kingdom, is acting exclusively as sponsor for
Honeycomb and for no one else and will not be responsible to anyone
other than Honeycomb for providing the protections afforded to its
clients or for providing advice in relation to the matters referred
to in this announcement. Neither Cenkos, nor any of its affiliates,
owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, in tort, under
statute or otherwise) to any person who is not a client of Cenkos
in connection with this announcement, any statement contained
herein or otherwise.
Liberum Capital Limited ("Liberum") is authorised and regulated
in the United Kingdom by the FCA and is acting exclusively for
Honeycomb and no-one else in connection with the proposed
Combination and will not be responsible to anyone other than the
Honeycomb for providing the protections afforded to the clients of
Liberum, as applicable, or for affording advice in relation to the
contents of the announcement or any matters referred to therein.
Nothing in this paragraph shall serve to exclude or limit any
responsibilities Liberum may have under the Financial Services and
Markets Act 2000 or the regulatory regime established
thereunder.
A copy of this announcement is and will be available, subject to
certain restrictions relating to persons resident in restricted
jurisdictions, for inspection on Honeycomb's website
www.honeycombplc.com by no later than 12 noon (London time) on the
business day following this announcement. For the avoidance of
doubt, the contents of the website is not incorporated into and do
not form part of this announcement.
This announcement is not intended to, and does not, constitute
or form part of any offer, invitation or the solicitation of an
offer to purchase, otherwise acquire, subscribe for, sell or
otherwise dispose of, any securities whether pursuant to this
announcement or otherwise. A copy of the circular and the
prospectus when published will be available on Honeycomb's website,
provided that such circular and prospectus will not, subject to
certain exceptions, be available to certain shareholders in certain
restricted or excluded territories. The circular and the prospectus
will give further details of the Combination and the scheme (if
any) and all shareholders are advised to read the circular and the
prospectus in full.
Nothing in this announcement should be construed as suggesting
that a formal offer (or a "possible offer" or a "firm intention to
make an offer", for the purposes of the Code) could be made for
Honeycomb.
The distribution of this announcement in jurisdictions outside
the United Kingdom may be restricted by law and therefore persons
into whose possession this announcement comes should inform
themselves about, and observe, such restrictions. Any failure to
comply with the restrictions may constitute a violation of the
securities law of any such jurisdiction.
This announcement contains "forward-looking" statements, beliefs
or opinions. These forward-looking statements involve known and
unknown risks and uncertainties, many of which are beyond the
control of Honeycomb and all of which are based on its directors'
current beliefs and expectations about future events.
Forward-looking statements are sometimes identified by the use of
forward-looking terminology such as "believes", "expects", "may",
"will", "could", "should", "shall", "risk", "intends", "estimates",
"aims", "plans", "predicts", "projects", "continues", "assumes",
"positioned" or "anticipates" or the negative thereof, other
variations thereon or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events, assumptions or
intentions. These forward-looking statements include all matters
that are not historical facts. Forward-looking statements may and
often do differ materially from actual results. They appear in a
number of places throughout this announcement and include
statements regarding the intentions, beliefs or current
expectations of Honeycomb with respect to future events and are
subject to risks relating to future events and other risks,
uncertainties and assumptions relating to Honeycomb's and Pollen
Street's respective businesses concerning, amongst other things,
the financial performance, liquidity, prospects, growth and
strategies of Honeycomb and Pollen Street. These forward-looking
statements and other statements contained in this announcement
regarding matters that are not historical facts involve
predictions. No assurance can be given that such future results
will be achieved; actual events or results may differ materially as
a result of risks and uncertainties facing Honeycomb and Pollen
Street. Such risks and uncertainties could cause actual results to
vary materially from the future results indicated, expressed or
implied in such forward-looking statements. The forward-looking
statements contained in this announcement speak only as of the date
of this announcement. Nothing in this announcement is, or should be
relied on as, a promise or representation as to the future.
Honeycomb disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained in this announcement to reflect any change in its
expectations or any change in events, conditions or circumstances
on which such statements are based unless required to do so by
applicable law, the Prospectus Regulation Rules, the Listing Rules
or the Disclosure Guidance and Transparency Rules of the FCA.
Nothing in this announcement is intended to be a profit forecast
or an estimate for any period, and no statement in this
announcement should be interpreted to mean that earnings, profit or
earnings or profit per share or dividend per share for the current
or future financial years would necessarily match or exceed the
historical published earnings, profit or earnings or profit per
share or dividend per share. No statement in this announcement is
intended to be an asset valuation for the purposes of Rule 29 of
the Code.
Appendix 1: Sources of Information and Bases of Calculation
As at the close of business on 14 February 2022, being the
latest practicable date prior to the publication of this
announcement, Honeycomb had 35,259,741 shares in issue.
The closing price of Honeycomb shares on 14 February 2022 was
967.5p.
The Consideration Shares that will be issued to the Pollen
Street shareholders pursuant to the Combination will amount to
45.53 percent of the enlarged share capital of the Company,
calculated by reference to:
-- the total number of Consideration Shares to be issued to Pollen Street; and
-- the total number of Honeycomb shares in issue on 14 February
2022, being the latest practicable date prior to the publication of
this announcement.
Anticipated AUM growth for global alternative asset management,
private equity and private debt over 2021-2026, and historical AUM
growth for global alternative asset management over 2011-2021, are
sourced from Preqin Ltd's "2022 Preqin Global Private Equity
Report" that was published in January 2022.
Gross IRR and gross MOIC for Pollen Street private equity Fund
I/II and Fund III are as at 30 September 2021. Gross performance
results are shown gross of investment management and performance
fees, as well as all administrative costs (including audit and
depository services).
Any references to Pollen Street's "Illustrative Total Revenue"
in FY21 are based on:
-- Pollen Street's Total Revenue in FY21: GBP33.9m
-- Revenue in FY21 from 25 per cent of PSC III's carried interest: GBP6.5m
-- Illustrative Total Revenue in FY21 (the sum of "Pollen
Street's Total Revenue in FY21" and "Revenue in FY21 from 25 per
cent of PSC III's carried interest"): GBP33.9m + GBP6.5m =
GBP40.4m
Any references to Pollen Street's "Illustrative Adjusted EBITDA"
in FY21 are based on:
-- Pollen Street's Adjusted EBITDA in FY21: GBP7.0m
-- EBITDA in FY21 from 25 per cent of PSC III's carried interest: GBP6.5m
-- Illustrative Adjusted EBITDA in FY21 (the sum of "Pollen
Street's Adjusted EBITDA in FY21" and "EBITDA in FY21 from 25 per
cent of PSC III's carried interest"): GBP7.0m + GBP6.5m =
GBP13.5m
Appendix 2: Glossary of Defined Terms
"Adjusted EBITDA" means the profit according to IFRS reporting standards
before interest, tax, depreciation and amortisation,
adjusted to exclude exceptional items and start-up
costs of the US business, and including the full
costs of the office leases despite these costs
being reported as depreciation of a right-of-use
asset and financing costs under IFRS 16;
"AUM" means assets under management;
"BofA Securities" means Merrill Lynch International;
"CAGR" means compounded annual growth rate;
"Caledonian" means Caledonian Consumer Finance Limited;
"CC Beekeeper" means CC Beekeeper Ltd (an investment entity affiliated
with Capital Constellation LP and managed by Wafra
Inc.);
"CC Hive" means CC Hive LP (an investment entity affiliated
with Constellation Generation III LP and Capital
Constellation LP and managed by Wafra Inc.);
"CC Hive Lock-Up means the lock-up agreement to be entered into
Agreement" by CC Hive at completion of the Combination;
"Cenkos" means Cenkos Securities plc;
"Change of Listing means the Transfer and the New Listing;
Category"
"Code" means the City Code on Takeovers and Mergers;
"Combination" means the combination of the Honeycomb and Pollen
Street businesses;
"Combined Group" means the premium listed commercial company comprising
the Honeycomb and Pollen Street businesses following
completion of the Combination;
"Companies Act" means the Companies Act 2006;
"Company" means the holding company of the Combined Group,
which will either be a new holding company or
the existing Honeycomb company;
"Consideration means the new shares in the capital of the Company
Shares" being issued by the Company for the acquisition
of the entire issued share capital of Pollen Street;
"EPS" means Earnings per Share;
"ESG" means environmental, social and governance;
"FCA" means the Financial Conduct Authority;
"Honeycomb" means Honeycomb Investment Trust plc;
"IRR" means the gross internal rate of return, based
on the net cash flow from the portfolio aggregated
on a monthly basis, calculated before fund expenses,
management fees, carried interest/performance
fees, and before the impact of any leverage or
taxation;
"Listing Rules" means the listing rules made by the FCA under
Part 6 of the Financial Services and Markets Act
2000 (and "LR" shall mean any specified rule of
the Listing Rules);
"Lock-Up Agreements" means the Pollen Street Partners Lock-Up Agreement,
the Management Lock-Up Agreement and the CC Hive
Lock-Up Agreement;
"Management Lock-up means the lock-up agreement to be entered into
Agreement" by certain senior managers of Pollen Street at
completion of the Combination;
"MOIC" means the gross multiple on invested capital,
calculated before fund expenses, management fees,
carried interest/performance fees, and before
the impact of any leverage or taxation;
"M&G" means M&G Investment Management Ltd;
"New Listing" means the proposed admission of the Company as
a premium listed commercial company under Chapter
6 of the Listing Rules;
"Panel" means the Panel on Takeovers and Mergers;
"PE" means private equity;
"Phoenix" means together, Phoenix Insurance Limited and
its related party who have each provided an irrevocable
undertaking as described in this announcement;
"Pollen Street" means Pollen Street Capital Holdings Limited;
"Pollen Street means each of Lindsey McMurray, James Scott, Michael
Partners" England, Matthew Potter, Howard Garland and Ian
Gascoigne;
"Pollen Street means the lock-up agreement to be entered into
Partners Lock-Up by the Pollen Street Partners at completion of
Agreement" the Combination;
"Rule 9 Waiver" means a waiver by the Panel of any obligation
which might fall on a seller or any person acting
in concert (as defined in the Code) with it under
Rule 9 of the Code to make a general offer for
the Company as a result of the issue of the Consideration
Shares;
"Rule 9 Waiver means a resolution passed by the Honeycomb shareholders
Resolution" to approve the Rule 9 Waiver;
"SPA" means the share purchase agreement in respect
of the Pollen Street shares entered into between
the Company, Honeycomb and the shareholders of
Pollen Street;
"Transfer" means the proposed transfer of Honeycomb's listing
category to -a -premium -listed commercial -company
under Chapter 6 of the Listing Rules;
"UK" means the United Kingdom;
"UK Corporate means the UK Corporate Governance Code in the
Governance Code" form published by the Financial Reporting Council
from time to time; and
"US" means the United States of America.
[1] The statement that the Combination is expected to be EPS
accretive should not be construed as a profit forecast and is
therefore not subject to Rule 28 of the Code. It should not be
interpreted to mean that the EPS in any future financial period
will necessarily match or be greater than those for any preceding
financial period.
[2] The relative ownership in the Company was calculated based
on a Honeycomb valuation in line with its Net Asset Value (ex
income) of GBP358.9m as of 31 November 2021.
[3] 2021 figure is annualised by Preqin Ltd. based on data to
March 2021.
[4] Carried interest would be recognised according to
International Financial Reporting Standard 15 (revenue from
Contracts with Customers, or "IFRS 15") and only to the extent it
is highly probable that there would not be a significant reversal
of accumulated revenue recognised on the completion of the fund.
This estimate is unaudited and based on the unrealised investment
valuations for the fund being treated with a substantial valuation
discount of between 30 and 50 per cent, depending on the expected
remaining holding period and other factors that might influence the
valuation.
[5] Illustrative Total Revenue and Illustrative Adjusted EBITDA
have been adjusted to include carried interest that would have been
recognised from PSC III in line with footnote 6. Adjusted EBITDA is
the profit according to IFRS reporting stands before interest, tax,
depreciation and amortisation, adjusted to exclude exceptional
items and start-up costs of the US business. Adjusted EBITDA
includes the full costs of the office leases despite these costs
being reported as depreciation of a right-of-use asset and
financing costs under IFRS 16.
[6] AUM calculated as investor commitments for active PE funds,
invested cost for other PE funds, total assets for Honeycomb and
deployed/committed capital on investments for private credit
funds.
[7] Fund Management Revenue calculated as the sum of management
fees and carry and performance fees.
[8] Investment assets on balance sheet, net of debt.
[9] Dividends may be paid from increased leverage and/or
distributable reserves, and not necessarily out of profits.
[10] Dividends may be paid from increased leverage and/or
distributable reserves, and not necessarily out of profits.
[11] Carried interest would be recognised according to
International Financial Reporting Standard 15 (revenue from
Contracts with Customers, or "IFRS 15") and only to the extent it
is highly probable that there would not be a significant reversal
of accumulated revenue recognised on the completion of the fund.
This estimate is unaudited and based on the unrealised investment
valuations for the fund being treated with a substantial valuation
discount of between 30 and 50 per cent, depending on the expected
remaining holding period and other factors that might influence the
valuation.
[12] Illustrative Total Revenue and Illustrative Adjusted EBITDA
include carried interest that would have been recognised from PSC
III in line with footnote 6. Adjusted EBITDA is the profit
according to IFRS reporting stands before interest, tax,
depreciation and amortisation, adjusted to exclude exceptional
items and start-up costs of the US business. Adjusted EBITDA
includes the full costs of the office leases despite these costs
being reported as depreciation of a right-of-use asset and
financing costs under IFRS 16.
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