THE REVIEWQ1 2021 Welcome - Connection Capital
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THE REVIEW
Q1 2021
Welcome
Our first newsletter of the year
offers some reflection from our
team on 2020. Amidst the turbulence
and unpredictability there were
many positives to be had and the
Connection Capital portfolio has
been, on the whole, resilient, with
a few notable beneficiaries across
our direct investments and third-
party managed funds, but more
importantly, ongoing improvements
in trading and shareholder value
from the ongoing good work by the
management teams and strategies we
have supported.
Of course, the world has changed.
We have adapted our criteria for
investment across private companies
and alternative fund strategies where
necessary, but it is worth stating
that many fundamentals still remain
the same and a large amount of
these changes were the hastening
of established trends. Both Bernard
Dale, Managing Partner, and Lorna
Robertson, Head of Funds explain their
thinking on what could be attractive
this year. If you attended our recent
Alternative Insights webinar, you will
have an idea of what this looks like.
The sale of Carter Accommodation Group generated
a gross ROI of 4x the original investment.
Speaking of which, we believe
these online sessions offer an
excellent opportunity for clients to
Exit News
understand more about our model,
the investments available to our
clients and to engage with our team
(150 clients registered for our most
recent session!). Please look out for
invitations and if you would like us Private Equity pace of Carter’s growth was so rapid that
the initial investment was supported
to focus on a particular topic in the
future, let us know. Carter Accommodation by two further funding rounds from
Connection Capital clients. The scale of
As ever, if you have any questions, growth has seen trading transformed from
please do get in touch. £7m turnover at the time of the MBO, to
EBITDA in excess of £7m on the sale.
Best regards
Darren Arnold, CEO of Carter, commented,
The Connection Capital team “Connection Capital’s support has been
In January 2021, our clients exited from invaluable, enabling us to accelerate
Carter Accommodation Group, a leading our achievements and capitalise on
UK temporary portable accommodation opportunities much faster than we
hire company, with the sale to trade buyer thought we could. They’ve given us a
Modulaire Group. The sale generated strong foundation to further the growth of
Connection Capital a gross return on investment of 4x the our business – not just in the structure of
original investment. our funding but in the ideas and advisory
3rd Floor, Woolverstone House, support they have contributed too.”.
61-62 Berners Street, Connection Capital clients invested £5.3m
in the company’s £12m MBO in 2015. As We are sad to see this company leave the
London W1T 3NJ well as enabling the transfer of ownership, fold, but we’re very pleased to have made
the investment provided significant strong returns for our clients and to see
020 3696 4010 growth capital to fund expansion. The Carter going to such a fitting home.
enquiries@connectioncapital.co.uk | 020 3696 4010
THE REVIEW
Deal Completions
Private Debt Alternative Funds
Gorgeous Retail Group Invesco Credit Partners Fund II
Connection Capital clients provided a In November 2020, our clients completed a
£3.5m loan plus equity participation, $4.0m investment in this distressed debt
to support Gorgeous Retail Group’s and special situations credit fund which
acquisition of Beauty Flash and growth focuses on small and mid-cap corporates
plans back in September 2020. This in the US, UK and Europe. Online retailer, Gorgeous Retail Group, was
created a £20m+ revenue, premium added to our portfolio in September 2020.
beauty, haircare and skincare online Declining revenues across nearly all sectors
product retailer. last year meant that the addressable market
for small cap distressed debt tripled in size.
This e-commerce company has been And, as multiple global lockdowns impacted a company they can still execute quicker
boosted by an accelerated consumer a wide range of businesses, the Invesco than most mangers. They have vast
shift to online purchasing as a result team are seeing some of the highest quality, experience in both stressed investing and
of the global pandemic and this has blue-chip companies, which are likely to ‘distressed for control’ where companies
continued since investment. As part of emerge unscathed from the crisis due to require restructuring or operational
the transaction, and to assist with future their business models or market position, support in undertaking a turnaround.
growth, we introduced a non-exec Chair, available to invest in. Pricing suggests the
Jeremy Seigal, to the business. Jeremy is debt of these companies can be purchased The hard to access Fund has a minimum
a former CEO of Superdrug and founded at severe discounts and low cashflow investment level of $5m but Connection
The Perfume Shop. multiples. Capital clients could invest from £25,000.
Target net returns to clients have the
The investment is structured with Invesco have one of the largest credit potential to be in excess of 15% internal rate
10% p.a. interest to clients and also platforms in the market with over $32bn of return (‘IRR’)/1.6x capital invested, with
includes a 10% equity stake in the group under management. They see almost every scope for upside. Given the current market
(via a warrant) to capture potential equity deal that comes to the market and the opportunity set continuing to develop for
upside. Target total net returns to clients size of their platform means that if they distressed credit, we expect to re-open
after five years are c2.0x initial investment. haven’t previously undertaken diligence on access to the Fund in the first half of 2021.
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Barwood Capital Regional Capital Dynamics Clean Energy
Property Growth Fund IV and Infrastructure Fund VIII
Connection Capital clients committed to
this real asset renewable energy (UK and
European wind and solar) fund in
In December 2020, we closed our second July 2020. Recent announcements from
round of fundraising into this investment the UK government regarding targets
strategy which targets off-market and support for the renewables sector,
priced commercial real estate sites and coupled with the manager’s progress,
development projects in the regions. are positive and strengthen the
investment case. Accordingly, we have
This includes ‘out-of-town’ logistics hubs
opened the opportunity for investors
and warehouses, that stand to benefit
one last time, with a closing date of
from the accelerated trends in online
12 February 2021.
shopping and on-shoring of supply chain.
The Manager, Capital Dynamics, has
Although the strategy is well placed to
already completed six projects for the
perform in normal market conditions, due
fund and operational assets are already
to the pandemic, the manager was able to
generating a yield. Investors can benefit
take advantage of pricing dislocations in
from visibility over these plus a strong
commercial property to re-negotiate the
pipeline of projects.
purchase price of some assets.
The Fund offers a differentiated
Connection Capital clients have now
investment strategy, giving access to
committed almost £5m to the strategy.
stable infrastructure cashflows and
Barwood completed the final close of
capital growth. Full exit is anticipated
the fund in January 2021, raising a total
within five years, which is a shorter time
of £110m.
frame than is typical in the infrastructure
sector. Target net returns are c13.5+%
IRR and c1.5x-1.7x capital invested, with
a distributing yield of c4.5% anticipated
Barwood Capital completed Fund IV’s final
once the fund is fully invested.
close, in excess of target, at £110m.
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THE REVIEW
Private Equity and Debt
Commentary
Bernard Dale, Managing Partner and Head of SME Investment Team, reflects on
2020 and the SME landscape unfolding right now.
As we move into 2021, we face a companies (in the retail sector) where This can be
situation none of us have seen before. it is still in use. evidenced by
Past experience does not offer 16 of the SME
much insight into what we should be The cost to taxpayers of furlough and live portfolio
doing to protect or enhance existing CBILS is to be confirmed, but these have receiving
investments, or characteristics for new been extraordinarily useful support for an uplift in
ones; hindsight will tell us that. What UK SMEs and I am sure have directly valuation in
we can do instead is gather together been responsible for saving many jobs the November
the collective experience, knowledge, and ensuring the survival of many 2020
insight and common sense we, our companies across the country. Investment
management teams and our NXDs Reviews,
have and apply it with purpose to the In addition, our portfolio has made with three
circumstances of each investment. use of HMRC deferrals and has unchanged and only three having a
Below, I describe i) the actions we found the administration of these reduced value compared to those in the
have taken, ii) how investments are straightforward, with positive reports May 2020 Investment Reviews.
performing, iii) our ongoing plans for on the supportiveness of the civil
managing them and iv) our approach service. Again, its use has been
to new investment. generally short term and I do not Ongoing Plans
anticipate many companies to require
We expect to continue to make use
this extended credit for much longer.
of third-party liquidity wherever it is
Actions Taken necessary for headroom and where it is
Generally, we have found the banks
There’s still plenty of uncertainty to be flexible in their approach, with appropriately priced. A few companies
out there, but fewer unknowns than capital deferrals, covenant waivers have had their exit plans knocked
at the beginning of the epidemic and the occasional interest waiver too back by a year or so and some have
and the prospect of the vaccine roll alongside managing the tremendous extra debt in the form of CBILS or
out hopefully permitting an end to workload attached to administering HMRC credit, which will impact the
lockdown. We know which sectors and processing CBIL facilities. potential money multiple that can be
have been hit hardest, those which are delivered on exit. These are more than
relatively unscathed or benefiting from balanced out by a number of portfolio
conditions and we are managing the Investment Performance companies where we have been
portfolio accordingly. working on potential exits in 2021 and
I am pleased to report here that through
others where the ground work is being
I covered our approach to portfolio a combination of the underlying quality
set for a 2022 realisation. The first of
management in the last edition of The of the portfolio and the management
these is the successful exit of Carter
Review which centred on maximising teams we have backed, the sensible
at 4x investment cost (see front page)
cash headroom. Here I want to give a bit funding structures we endeavour to use,
and our mission is to complete other
more detail on the three prime schemes and occasional calls on Government
successful realisations within the next
offered by government, which many support, our SME portfolio, on the
12 months.
portfolio companies have made use of. whole, retains the ability to deliver
positive returns for clients.
We found CBILS, though hard to New Investments
navigate through eligibility criteria, a At the time of writing we have not
called on clients to support any Not surprisingly the spring and summer
good source of liquidity and headroom
investee company with further finance. of 2020 was a quiet period for new
with CBILS loans drawn by five of our
Clearly I can’t guarantee this will be investments, partly as we took the
SME portfolio companies and two
the case going forward, but we believe decision to focus on our portfolio and
where CBILS facilities are available, but
that, as a result of much hard work partly due to a reduced number of
are undrawn.
by portfolio company management potential investment. We completed
Like the rest of UK businesses, the and the Connection Capital team to the £3.5m growth capital investment
Furlough Scheme had widespread take navigate this uncertain trading period, in Gorgeous Retail Group (see ‘Deal
up amongst our portfolio and after the portfolio is generally in good Completions’ section) and have one
initial set-up was easy to administer. health with cash headroom and with new £6.5m investment (oversubscribed
For most investees its use is limited their plans for shareholder value by our clients) expected to complete in
and short term and there are only a few growth intact. spring 2021.
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Deal flow picked up significantly in the Replacement Capital deals and are ‘expensive’ debt preferred to that
autumn and there are two noticeable pushing hard to bring the best ones to which may have been accessible in the
characteristics of the proposals we are our clients this year. market due to our ability to assist with
seeing currently. Firstly, a good proportion value growth, for example bringing on
show reduced profit vs prior year due to Another trend is the growing funding board a NXC, Jeremy Seigal to support
Covid, but these and the others which gap for SMEs arising from a long-term its management.
have continued to grow through Covid, reduction in lending by UK banks to
exhibit good growth prospects. this sector. UK SMEs are increasingly We are a generalist investor and sector
turning to private capital for support agnostic, utilising the bonafide sector
The second is owners wanting to and we find these companies are often experts within our client base to assist
realise a portion of their wealth, looking for the insight, discipline and with specialist investment appraisal
which in most cases is tied up in focus on equity value growth that and to act as non-exec directors. That
one asset – their business. Fears of experienced private equity investors said, we are currently paying particular
a CGT increase and a reduction in can bring to improve their companies. attention to investment characteristics
Entrepreneurs’ Relief tax, as well as which indicate potential upside, and
the potential negative trading impacts We believe that Connection Capital which happen to be more common, in
of global events such as Brexit and is unique in the UK with its ability to certain sectors, such as e-commerce
the pandemic has led many owners provide very flexible capital structures, (provided attached to a product
to evaluate the sale of a portion of be it debt, equity or a hybrid. We have range and brand with longevity),
their company to realise some ‘paper’ put this to good effect, with a number pharmaceutical services, and
capital value. These are often called of our investments having debt like consultancy businesses operating in
a ‘Cash-out’ or ‘Replacement Capital’ characteristics, but the potential to robust sectors, such as fintech and
deals. They can be very attractive offer an equity like return – as in the infrastructure.
investments, whether we assess them ‘Cash-out’ deals referred to above.
as debt or equity risk transactions We are also on the lookout for those
(or in many cases a blend of both), In addition, our heritage as an equity businesses with good recurring income,
as they give access to good quality investor means that we have the skill differentiated products, services and,
companies and management without set and contact base to apply the as always, the best management we
the high gearing of a ‘full stack’ MBO. private equity disciplines to all our can find.
This is because only a portion of equity investments be they debt or equity.
value needs finance – rather than the GRG is an example of this, with the Bernard Dale | Partner and
100% change of ownership arising on debt like deal having a potentially Head of SME Investment Team
an MBO transaction. We like these valuable equity kicker, but our more
enquiries@connectioncapital.co.uk | 020 3696 4010 www.connectioncapital.co.uk | 5
THE REVIEW
Private Equity Portfolio
Highlights
Private Equity A strategic focus on adding drive-thru
stores has proved beneficial, especially
significant step forward in their share of
market during the pandemic restrictions.
with social restrictions. 13 further sites,
all but one a drive-thru, are planned Alongside these, the Company has also
Virgin Wines for 2021. We are very positive about won commercial deals with Confused
future prospects. and Compare the Market, increasing its
Online drinks retailer Virgin
presence with aggregators. In staffing
Wines is performing very
well. The company gathered news, a new Chief Data Officer was
excellent momentum in
Tempcover hired to the board, to further expand the
2020 and continues to Tempcover, Company’s capabilities to maximise the
capitalise on positive the monetisation and internal uses of its
e-commerce tailwinds. The Christmas disruptive wealth of data.
period outperformed expectation and the insurtech company, has undertaken a
company was able to pay a significant significant overhaul of its products, user
dividend to investors in January. experience (‘UX’), and partnerships in Phoenix
the period since MBO, which is delivering Phoenix is an operator
New customer acquisition and significant growth. In particular, UX of specialist schools
recruitment has been strong: over improvements have significantly increased and related care homes
100,000 new customers were recruited in conversion of visits to its website and this for children and young
FY2020 vs 69,000 in FY2019. The directors has been supported by the launch of a adults in the West
expect growth to continue and the highly effective app, which the company Country. It continues
company appointed advisers in November believes has the shortest number of to go from strength to
to explore liquidity options. steps required to policy purchase of any strength. Trading performance is good
insurance product in the UK. and management continue to open
new homes and new schools to provide
23.5 Degrees These improvements at the front end sustained opportunities for growth.
The have been supported by back end
23.5 Degrees company,
the UK’s
improvements across its CRM, core
PPC and SEO channels, better terms
In FY2021 the company is forecasting
the opening of six children’s homes and
first from underwriters and new commercial two schools. It has also identified further
Starbuck’s franchise, has grown from partnerships. These have been delivered pipeline opportunities. The new sites will
just 13 sites, when our clients invested in with both traditional dealerships such see the company expand geographically
2013, to 77 by the end of 2020. It opened as Car Giant and Arnold Clark, to provide into new territories (including Wales and
seven new sites last year despite the short term driveaway cover, and the Gloucestershire). We are very positive
lockdowns, which is a real testament to emergent digital car dealerships, such about the future prospects of the company
the resilience of the team. as Cazoo and Cinch, which have taken a and in turn our clients’ investment.
Cargostore has expanded into new strategically attractive regions.
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H.E.L Group
This global developer and manufacturer of
laboratory tools was backed with a £5.9m
investment by Connection Capital clients in
2018. Covid-19 put some customers’ decisions
to purchase capital equipment on hold in the first half of 2020, despite
this, EBITDA for the first six months of the financial year has exceeded
budget by 50% and the company is on track to deliver its full year target.
Operationally the focus has been on strengthening the teams in the USA
and China, with a WFOE (wholly foreign-owned enterprise) being set up in
China in March 2020. Both regions are performing beyond expectations.
Product development and innovation is key to the future success of the
business. A pipeline of new product introductions has resulted in a new
control software platform, labCONSOL, being launched in October 2020,
which has already been nominated for an innovation award.
Cargostore
Connection Capital clients invested in the £24m
MBO of this global specialist container provider
in February 2020. Since then, the company
has expanded geographically into three new
strategically attractive regions (Mexico,
Mozambique and Taiwan) to serve oil and gas and the burgeoning offshore
wind markets. The management team has been supplemented with two
new senior hires in sales and operations.
ESG
Essex Safety Glass is the UK’s leading
independent glass processor, toughener and
laminator for the professional trade. In 2020
it went through transformational change with
the undertaking of a three site consolidation
into a new site in Witham. The new site provides an excellent platform for
growth and enables the company to target new customers and new product
markets. The management team continue to navigate the Covid crisis well
and are well placed to capitalise on the market recovery in due course.
We are proud of what the team has achieved in 2020 having juggled the
execution of the site consolidation and navigating the impact of the pandemic.
Clamason
Clamason is a manufacturer of precision
pressed products and assemblies. It makes a
diverse range of high spec parts and bespoke
components for the medical, power, consumer goods and automotive sectors
from sites in the UK and Slovakia. Our clients backed a management buyout
at the company, with a £5.4m investment, in 2016.
Despite Covid having a significant impact on trading in 2020, there
were a number of positives in the year that put the company in a strong
position going into 2021 and beyond. In particular, the development and
implementation of market-leading technical cleaning capabilities targeted
at serving the growing electric vehicle market.
This process provides a genuine differentiator in the market and has
proven popular with new and existing customers. The company enjoyed
significant levels of new business wins in 2020 despite the difficult trading
environment, these should underpin future growth prospects.
enquiries@connectioncapital.co.uk | 020 3696 4010 www.connectioncapital.co.uk | 7
THE REVIEW
Funds Commentary
Lorna Robertson, Head of Funds at Connection Capital, finds positives despite
the disruption of 2020 and looks ahead at investment strategies in our focus.
With 2020 now behind us, I’ve been able to reflect on some The pandemic has clearly been
of the positives that emerged during a strange and volatile a catalyst for change, and that
year. Many of these came through adaptation and some of it in turn has impacted our view
flows counter to received wisdom. For example, the inability on future investment strategies.
to meet in person, rather than reducing our access to fund The investment world has been
managers, meant more introductory meetings (via Zoom) ripped in two with some companies
with new fund managers than is usual. I have also had the seeing exploding cash flows and
opportunity to strengthen relationships with the existing soaring valuations, others have
fund managers in our portfolio as frequent updates have been suffering and some entire
become the norm and the move to virtual AGMs has kept a industries may become extinct. I
high level of quality direct interaction. believe this is just the beginning
of what will likely be a once in a
Then there’s been the spirit of industry solidarity, which lifetime systemic change with an accelerated shift away
has seen us working closer with the likes of the British from certain traditional investment sectors such as high
Venture Capital and Private Equity Association (BVCA). This street retail, transport, changes in working practices and
has helped us continue to build a network of relationships the impact on the supply/demand for large scale office
with fledgling managers and raise awareness of our ability space, not to mention the growing importance of the
to raise significant tranches of capital to funds, which “green recovery”.
could offer diversified returns to our clients. Given time,
we expect many of these relationships to convert into The continuation of the low interest rate environment and
investment opportunities for our syndicate. It is this continued money printing in the US and Europe is leading to
unrivalled access, and the due diligence we undertake on inflated asset prices across the board, further widening the
these managers, which we believe demonstrates our value gap between the levels of returns offered on investments
to clients. in the quoted public markets and the private alternatives
space. This is a time where we are seeing attractive risk
Connection Capital’s growing profile in diversified alternative adjusted returns for all our product offerings and this is
fund strategies has not gone un-noticed either, I and likely to continue for the foreseeable future.
other members of the senior team have attended various
conferences, albeit virtually, as panellists. And, our I have continued to focus my attention on where I see the
increasing AUM means others are more willing to take note opportunity to capitalise on these trends. Last year we
of us as a Limited Partner in the institutional fund space, recognised that there was a growing appetite for a special
further offering our clients the option to invest in funds situations and distressed investment strategy to capture
that ordinarily have very high, multi-million £ initial the increasing number of companies which will likely require
investment levels. restructuring in the short to medium term. We did this with
the highly experienced institutional fund manager Invesco
Credit Partners.
Barwood Capital, the regional commercial property investor,
“ We are seeing attractive
with its focus on logistics hubs benefiting from the shift to
online retail and the Capital Dynamics Clean Energy Team,
with their target on stable, contracted infrastructure
risk adjusted returns returns have both come into sharp focus. After a period
out in the cold, hedge funds are now starting to look
across the board for all attractive too. There are likely to be rich pickings in 2021
and overleaf I highlight some strategies which we aim to
our product offerings
offer to Connection Capital clients soon.
and this is likely
to continue for the
foreseeable future.”
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Fund strategies in focus for Q1
Short dated opportunistic credit – filling Structured Credit
the funding gap I have continued to be impressed with the resilience
The European private credit market is currently growing. and performance of the structured credit funds we have
As the traditional banks become restricted by tighter in our portfolio. For those of you that have invested in
regulations with shrinking balance sheets and a focus Permira Debt Manager’s Sigma strategies you will know
on their existing (covid affected) loan books, resource is that cash distributions have continued to flow and
pulled from dealing with new lending, especially those valuations have largely returned to pre-Covid-19 levels.
smaller, bespoke deals. This creates an opportunity for There is no doubt that market volatility is likely to
other lenders to step into this space and provide debt continue, but I would expect to share with you the next
with a high level of security – through asset-backed or Sigma strategy investment opportunity in due course.
cashflow-backed short-term loans.
There have also been other structured credit funds
This can provide sensible, risk-adjusted returns of where the cash flows have been generated by more
10-12%. esoteric asset classes, such as music royalties, a
growing global asset class which has benefited hugely
during these ongoing periods of lockdown. Like all
our investments, the structure has to be right for
our investors. As yet, there have been opportunities
Listed small companies with strong here but they have not quite aligned with our strict
cash-flows and embedded deep value requirements, I remain hopeful that the right fund(s) will
Another area where we expect attractive opportunities emerge in coming months.
is undervalued small and micro-cap companies,
specifically those specialising in technology services
with recurring revenues, strong balance sheets and with
good levels of cash. Secondaries
Due to the relatively small size of these companies There is continued growth in the secondaries fund
analysts tend not to cover them and, as a result, the space, whether this is through GP restructuring or the
market valuations given often underestimate the true provision of LP liquidity. Our investors in secondaries
worth of the stock. fund Headway and the preferred equity strategy run by
17Capital, will be familiar with the continued and
Add to this that many of the companies in this sector growing demand for additional capital. I have been
have been under-invested in during the past 12 months, assessing a few strategies here and will look to capture
we expect strong growth and a closing of the gap that sweet spot between manager and fund size versus
between current price and value. the opportunity, to return the maximum possible to our
clients – watch this space.
There is never a shortage of opportunity. Capturing
the “zeitgeist” will certainly be top of my agenda, but
Private Equity Funds – Turnaround, Growth our core investment principles remain unchanged,
and Venture Capital top quality, specialist managers, experts in their
As most of you will know, we have never been a generic field, with the goal of delivering superior risk adjusted
PE fund investor. In the PE fund space we look returns to our investors. I expect this to be a period of
for specialists, we believe that this focus and continued performance and growth from our existing
differentiation will potentially lead to superior returns fund portfolio investments, especially those which were
for our investors. At this point in the market cycle, constrained by the macro headwinds of Brexit and US
this is even more important now than before. I would uncertainty, as well as an opportune time to add new
anticipate that in Q1/2 we will be bringing some exciting managers and strategies to our platform.
new managers who are experts in the turnaround,
growth and venture capital space, some of the I very much look forward to sharing with these
managers will be well known names to many of you. opportunities with our clients in the first half of 2021.
Lorna Robertson | Head of Funds
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THE REVIEW
Fund portfolio highlights
Here we look at some of the most interesting updates from the Funds’ portfolio
over the period.
Life Sciences Partners 6 Kestrel Opportunities Fund
Europe’s largest investor in late stage medical technology, This UK small cap fund’s primary strategy is to acquire
Life Sciences Partners (LSP), announced the sale of LSP significant equity and quasi-equity stakes in smaller quoted
Fund 6 portfolio company Arvelle Therapeutics for $1bn in companies on the Official List or AIM and proactively work
January 2021. LSP led the $180m series-A financing round of with management to improve their value.
the company, which specialises in epilepsy treatments, less
than two years ago in February 2019. It has a relatively concentrated portfolio of c20 assets
and focuses on companies with IP rich business-critical
In other news, another Fund 6 portfolio company, Artios software, high levels of recurring revenue and sustainable
Pharma Limited, developer of a broad pipeline of precision gross margins, substantial and growing international
medicines for the treatment of cancer, agreed a global revenues, embedded customer bases, and low financial
three-year strategic research collaboration with Merck gearing. As such it has remained resilient during 2020, with
KGaA, a leading science and technology company, in performance over the year up 10% to the end of November.
December 2020. Artios is to receive $30 million in up-front
and near-term payments, plus double-digit option fees Looking ahead, we expect the Fund to benefit from a
and up to $860 million per target in addition to royalty reallocation of capital to the types of business it invests in,
payments on net sales of each product commercialised over the coming months. We therefore believe there is a real
by Merck. opportunity now for investors and plan to open access to this
fund for our clients during Q1 2021.
Stable Seed Fund
Stable Seed fund provides hedge funds with start-up capital
DN Capital Global Venture Capital Funds
in exchange for preferential returns and a profit share. DN Capital is a global early-stage venture firm, founded
Connection Capital clients invested in 2018 and 2019. in 2000 and based in London, Berlin and San Francisco. It
focuses on Seed, Series A and select Series B opportunities
The fund has invested over $450m of strategic capital into in Europe and North America.
seven partnerships and, although it is still early days, the
portfolio reached an aggregate AUM of over $1bn at the end In February 2021, one of the manager’s portfolio companies,
of 2020, having attracted $600m of follow-on capital. This German online car trading platform Auto1, listed on the
represents a multiple of total AUM to initial strategic capital Frankfurt Stock Exchange. Its shares priced at a €7.9 billion
of 2.5x and is testament to the quality of the Partnerships, valuation and closed the first day at a valuation of approximately
all of which were generating strong returns at year end. We €11 billion, making it the largest IPO of a venture backed
expect this trend to continue. company in Germany since at least 2001. The company is
held by DN Capital Fund III which Connection Capital clients
invested in back in 2014.
10 | www.connectioncapital.co.uk enquiries@connectioncapital.co.uk | 020 3696 4010Commercial property
commentary
Dominic Wright from our property partner, Riverside Capital, offers his thoughts on the
likely winners and losers in the commercial property sector in 2021.
The Covid-19 pandemic has sped up some trends that were We can see this evidenced in our own activity. We are
emerging before the virus was daily news. The growth pleased to report that we have recently agreed tenant terms
in online shopping at the expense of physical ‘in-store’ agreed at our Old Street Works property, in the centre of
shopping has hastened the decline of the retail sector London’s ‘silicon roundabout’ in Shoreditch. The price is
while turbo charging the logistics sector. Those out of town £65 psf (a slight discount to pre-Covid expectation of £70 psf
locations and fulfilment units are in high demand from but a demonstration that despite the perceived doom and
companies keen to shorten the journey between product and gloom, prime properties in the right location will win out.
customers and take advantage of well-connected sites.
Overall, we believe commercial property still offers a good
With regards to living spaces, we see opportunities in high area to invest and 5% yields still look attractive next to
quality student accommodation. We think it’s the end of negative interest rates.
the era for the university cliche of living in a barely safe,
dilapidated Victorian terrace. Tenants are demanding much Dominic Wright | Riverside Capital
higher quality than ever before. On a similar note, and at the
other end of the generational spectrum, opportunities exist
in assisted living accommodation, specifically purpose-built,
high-spec ones to live out one’s days.
Unsurprisingly, given the pandemic, the market for
laboratory space is set to grow. Investors have signalled
their appetite and this type of property could well become
the next ‘logistics’ growth story. Geographies and sites in the
vicinity of world class research universities e.g. Oxford and
Cambridge, could perform strongly over the next few years.
The London Property Market
London is a ghost town at the moment but when social
distancing restrictions begin to lift we expect a return to
office life and a gradual ramp up as people get back in
the routine.
Medium-sized businesses make up 50% of the office take
up in London and while some big beasts have made noises
about their comfort with staff working from home most of
the time, we believe that smaller ones feel a need to have
staff working face to face to encourage collaboration and
keep the companies competitive. Remember too, that the
average City worker is in their mid-30s and the city provides
amenities and post-work socialisation that cannot be
replicated from home.
Supply of grade A space is low and although there is lots
of grade B, it is basically unlettable, which we predict
will create a two-tier market. This is due to a longer list of
demands from tenants which are non-negotiable, including
more square foot space per person, a requirement to cater
to health and wellness e.g. showers/bicycle storage etc and
units that are positioned in the best locations with regard to
access and amenities. Top properties will see rental growth
and non-prime will suffer.
enquiries@connectioncapital.co.uk | 020 3696 4010 www.connectioncapital.co.uk | 11THE REVIEW
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