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Admission to AIM with £106m market capitalisation - £70m raised

Corporate 12 December 2014

Mercia Technologies PLC (“Mercia” or the “Company”), a Midlands based leader in the funding and commercialisation of technology businesses in the UK, has raised £70m before expenses from an institutional placing and will be admitted to AIM with a market capitalisation of £106m.

Mercia's business is the creation, funding and development of technology businesses nationally with an emphasis in the Midlands and the North of the UK. Mercia brings technology transfer, company formation, incubation, commercialisation and investment, to technology ventures.

Mercia has a well seeded portfolio and pipeline of investments. The Company has a direct investment in 11 operating companies and access to a portfolio of 38 businesses through its third party funds, managed by its wholly owned subsidiary Mercia Fund Management (“MFM”).

Trading in Mercia’s shares is expected to start at 8.00am on Thursday 18 December 2014. (Ticker symbol MERC)

Cenkos is acting as the Company’s Nominated Adviser and Broker.

Strategy

Mercia’s strategy is to provide capital, infrastructure, accommodation and management support to accelerate the development and enhance value in selected technology businesses with a focus on:

  • UK technology sectors which offer investment prospects with high growth potential including:
    • digital
    • electronics and hardware
    • advanced materials, engineering and specialised manufacturing
    • sub sectors within life sciences.
    • investing across the UK, with an emphasis on the Midlands and the North
    • businesses with modest capital needs
      • businesses which combine technology and service provision, are rich in intellectual property, are scalable and require relatively modest capital infusion
      • flexible funding providing early stage businesses with seed and early stage follow-on capital through MFM’s third party funds and as the businesses mature at a later stage, development capital from its own resources to scale the ‘emerging stars’
      • flexible deal sourcing including (but not exclusively) from its collaborative relationships with nine UK universities which provide access to broad range of opportunities.

Reasons for Admission and use of proceeds

The placing and Admission will assist Mercia in its development by:

  • giving it access to the capital required to scale its direct investments and other emerging stars from the MFM portfolio
  • supporting regional growth, both organic and through selective complementary acquisitions
  • enhancing its scalable platform
  • enabling the recruitment of experienced commercialisation professionals including a CIO
  • expanding its number of university partners.

Mercia’s net placing proceeds of £66m are to be used:

  • 70% to 80% for investment in ‘emerging stars’, being:
    • existing direct holdings
    • other investments emerging from MFM
    • investing behind portfolio companies which can become sector consolidators
    • 20% to 30% in opportunities to scale:
      • strategic acquisitions and pipeline development
      • organic expansion.

Mark Payton, Chief Executive of Mercia Technologies PLC, said:

“We are entering the next phase of our growth as a leading national player in the development of technology businesses in the UK, by taking advantage of the significant opportunity in the Midlands and the North to scale the provision of efficient and targeted capital and support.

We provide a platform to accelerate the development of high growth technology companies in selected sectors with the goal of exiting the investments over time, generating attractive returns and realising value.

“As well as providing us with substantial funds to invest in our established portfolio of emerging stars, this listing will raise our profile and enable us to expand geographically whilst further strengthening our team to support our ambitious but realistic growth plans.”

Enquiries:

Mercia Technologies PLC (www.merciatechnologies.co.uk)

+44 (0) 330 223 1430

Mark Payton, Chief Executive Officer

Martin Glanfield, Chief Financial Officer

Cenkos Securities

+44 (0) 20 7397 8900

Ivonne Cantu / Michael Johnson

Instinctif Partners

+44 (0) 20 7457 2020

Adrian Duffield / Kay Larsen

Background

Mercia Technologies’ vision is to become a leading national player in the creation, funding, incubation and development of high-growth technology businesses with an emphasis on the Midlands and the North of the UK.

Mercia has a flexible sourcing model which provides Mercia with access to a large number of investment opportunities in its areas of focus. Mercia has collaborative relationships with nine universities (including the Universities of Birmingham and Warwick) and research centres in the UK, allowing Mercia to access their flow of spinout and early stage investment opportunities as well as a broad professional network through its management and associates.

Mercia’s model is to provide early stage businesses with capital, infrastructure and management support to accelerate their development and enhance their value. Mercia’s strategy is to: (i) provide first pathfinder/seed capital from its third party funds under management; and (ii) at a later stage, provide development capital from its own resources to scale ‘emerging stars’ with the goal of realising value for Shareholders through an exit over time.

Mercia’s third party funds under management

MFM, a regulated fund management company, manages six funds (the “MFM Funds”) with a total of circa £22m under management (“FUM”). Mercia Technologies will acquire MFM shortly before Admission pursuant to the terms of the MFM Acquisition Agreement.

The MFM Funds invest in early stage companies ranging from university spinouts to more developed businesses, not exceeding £10m in annual revenue at the date of initial investment.

Following an initial investment the MFM Funds have the ability to make follow-on investments as the businesses develop. As at 4 December 2014, the MFM Funds had invested circa £16 million and had a combined portfolio of 38 businesses across a number of sectors at varying stages of business development (the “MFM Portfolio”).

Mercia’s direct investments

Mercia provides development capital from its own resources to scale up businesses in line with its investment policy. Mercia’s strategy is to make direct investments into companies within the MFM Portfolio which the Board considers to be ‘emerging stars’ and in other opportunities arising outside of the MFM Funds.

Strategy and business model

Headquartered in the West Midlands, Mercia’s vision is to become a leading national player in the creation, funding and development of technology businesses with an emphasis on the Midlands and the North of the UK, regions which the Directors believe have been historically underserved by investment capital and incubator services providers, compared to the South of the UK.

The Directors’ belief is supported by analysis which identifies a lack of capital for businesses outside the South East and London, where there are approximately 19,000 small and medium enterprises. Between 2011 and 2013 there was an 18% increase in high growth small businesses and Mercia hopes to take advantage of this rapid expansion.

Mercia’s business model is to invest in and provide a platform to accelerate the development of early stage companies in its chosen sectors with the goal of exiting the investments over time, generating attractive returns and realising value for Shareholders.

There are numerous companies and other organisations seeking to provide technology transfer, incubator services and funding to technology spinouts including incubators, venture capital funds, technology transfer offices, angel investors and other boutique investors. These entities operate a variety of business models and cover a broad range of sectors and geographies. Mercia seeks to differentiate itself from other market participants in a numbers of ways, including:

  • Sourcing flexibility – Mercia sources technology and investment opportunities from both its university relationships and from the broad professional network of its management and associates. This gives the Group access to a broader pool of opportunities particularly in the digital sector, including the gaming, gamification, e-commerce and fintech sectors. Circa 50% of the MFM Portfolio and of the Mercia direct investments have been sourced from non-university contacts.
  • Funding flexibility – Mercia has the ability to provide capital from new venture creation through to expansion and development capital. MFM, through the MFM Funds, provides seed, early stage and development capital while Mercia from its own resources, provides capital to scale ‘emerging stars’. The Directors believe that Mercia’s flexibility in funding, sourcing and support can have a material impact on accelerating a company’s development and in capturing the inherent value in the businesses it supports for the benefit of Shareholders.
  • Sector focus – Mercia focuses on some of the highest growth sectors of the UK including: (i) digital; (ii) electronics and hardware; (iii) advanced materials, engineering and specialised manufacturing; and (iv) life sciences. In addition to their growth potential these sectors have been chosen taking into consideration the sector expertise of the investment team and their relative low capital intensity. Within these sectors, Mercia aims to invest in businesses with a technology team recognised as leaders in their field and which have an underlying scalable technology, capable of addressing multiple applications and on occasions acting as consolidators in their market.
  • Flexible support – Mercia can provide a broad range of support to its investee companies throughout their development. These include accommodation, company secretarial and accounting support, management mentoring and recruitment, business planning and development, governance and corporate finance.
  • Regional focus – Mercia intends to take advantage of the general equity gap within the UK and lack of investment in regions outside London and the South East of England. It believes that it is well placed to do so given the geographic diversity of its portfolio, with investments in the Midlands, the North, the South East and Wales and its track record in the region.
  • “Fail fast” policy – investment into the MFM Portfolio companies and the direct investments are based on performance milestones. When an investment fails to meet those milestones, support is removed and the investment is exited to protect further loss of capital. This allows Mercia to focus capital and resources on “emerging stars”.
  • Leverage of third party specialist funds – MFM’s third party specialist funds invest in seed and early stage opportunities which represent a pipeline of investment opportunities for Mercia. Mercia seeks to include pre-emption rights and permitted transfer provisions when making investments through the MFM Funds to facilitate follow-on investments and/or transfer of holdings from the MFM Funds to Mercia, as the businesses develop.

Mercia’s strategy to achieve its goal of becoming a leading player of scale in the sector includes:

  • expanding the Mercia team through the selective recruitment of experienced professionals within its sector focus
  • continuing to develop relationships with universities, accelerators and incubators
  • seeking acquisition or investment opportunities of complementary businesses
  • increasing its geographic reach, including establishing a London office which will give Mercia better access to the gaming technology hub and to co-investors
  • continuing to use its MFM third party fund platform to raise further funds to invest seed, early stage and development capital into new ventures.

Investing strategy

In respect of direct investments made by Mercia, the Directors will apply some or all of the following investing strategy to achieve the investing policy:

  • a pre-identified strong market potential and high opportunity for growth
  • the identification of likely exit opportunities, such as trade sales, flotation or partnerships
  • the technology team should be recognised as leaders in their field
  • there should typically be an underlying enabling and scalable technology, capable of addressing multiple applications
  • there should be defensible intellectual property and ideally comprehensive patent protection, with the ability to enhance this position as the investee company develops
  • the technology is typically projected to be no more than two to three years away from demonstrating incremental value to third party investors or trade buyers or being capable of generating revenue streams for the business.

As at 4 December 2014, the MFM Funds had investments in 38 companies, a number of which are considered to be ‘emerging stars’ by Mercia. Through a combination of their progress and potential, of the 38 companies in the MFM portfolio, Mercia has direct investments in 10 of them, plus a direct investment in a Leeds University spin out.

Overview of Mercia direct investments

Science Warehouse

Science Warehouse was established in 2000 as a spinout from the University of Leeds. Science Warehouse has developed a cloud-based procurement, catalogue and spend analysis platform which gives the customer control of the purchasing cycle from requisition through to payment helping to deliver cost savings and to manage spend.

Allinea Software

Located in Warwickshire, Allinea Software is a University of Warwick spinout in which Mercia Fund Management was a founding investor. Allinea is a leading vendor of tools for parallel software development and high performance computing.

nDreams

nDreams was formed in 2006 by former Eidos Creative Director, Patrick O’Luanaigh. Mercia first invested in nDreams in March 2014 through the MFM Funds. nDreams is an innovative game developer and publisher specialising in virtual worlds and virtual reality (“VR”). The first VR headset was launched by Samsung in September 2014 and includes circa 20 demonstration games, two of which are developed by nDreams with one of the games, Gunner, featured by Samsung as one of the primary demonstrators of the head set’s capabilities.

Native Antigen (“NA”)

Originally a University of Birmingham spinout, NA is an Oxford-based contract service provider specialising in the R&D and scale up manufacturing of highly pure viral and bacterial native antigens. NA’s antigens are used primarily by pharmaceutical and IVD manufacturers in vaccine research and serology where high specificity and sensitivity are vital. As well as offering antigens from a rapidly expanding portfolio, NA undertakes bespoke product development and partnering.

Ventive

Ventive was formed in 2011 and manufactures energy efficient property ventilation devices which are installed into chimney cavities. Ventive has developed a range of award winning passive heat recovery ventilation products which improve air quality without the need for an additional power source. The first products are now selling in the UK market, in both the social and private housing, new build and retrofit sectors. In addition, the product is simple to install and has no moving parts requiring minimal maintenance.

Concurrent Thinking

Located in Birmingham, Concurrent Thinking is a Data Centre Infrastructure Management solution provider founded in 2010. The software platform is designed to drive operational and management efficiencies in data centres. It monitors servers, power supplies and air conditioning systems, resulting in significantly reduced energy costs within a data centre.

Nightingale-EOS

Nightingale-EOS was founded in 2005 to develop innovative laser based technology for measuring thin film coating thickness on curved surfaces. The company’s patented n-Gauge metrology product is expected to be a major step forward for in-line metrology of thin-film coatings on small engineered parts, such as cardiac stents, orthopaedic prosthetics and contact lenses.

Warwick Audio (“WA”)

WA is a University of Warwick spinout incorporated in 2002. WA specialises in the development of flat, flexible loudspeakers which when compared to conventional speakers have a reduced cost of manufacture, are extremely lightweight, thin and use circa 10 per cent of the power.

Kwanji

Kwanji is an early stage company developing an online platform to remove the complexities, inefficiencies, manual data entry and high fees which Small and Medium Enterprises (“SMEs”) suffer when making or receiving international business payments. Kwanji aims to provide SMEs with access to the same foreign exchange (forex) rates as those enjoyed by larger businesses as well as saving them time.

Smart Antenna (“SA”)

Based in Birmingham, SA is a spinout company from the University of Birmingham established in 2013 based on conceptual antenna technology developed by the chief technology officer, Sampson Hu. MFM invested in SA in the same year. SA has designed, developed and patented a pioneering smart antenna technology which provides an efficient and low cost antenna solution to the mobile PC, tablet and portable device market. The mobile market alone comprises approximately 2 billion handsets manufactured per year.

University relationships

Mercia has collaborative relationships, on a non-exclusive basis, with the following nine universities and research centres in the UK to access their flow of spinout opportunities.

  • Aston University
  • Birmingham City University
  • The University of Birmingham
  • Coventry University
  • Keele University
  • Leicester University
  • Staffordshire University
  • University of Warwick
  • Wolverhampton University.


IMPORTANT NOTICE

This announcement has been issued by, and is the sole responsibility of, the Company. This announcement is for information only and does not constitute an offer or invitation to subscribe for or otherwise acquire or dispose of any securities or investment advice in any jurisdiction in which such an offer or solicitation is unlawful, including without limitation, the United States, Australia, Canada, South Africa or Japan.

This announcement does not constitute or form part of, and should not be construed as, an offer to sell or issue, or a solicitation of any offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Investors should not subscribe for or purchase any shares referred to in this announcement except on the basis of information in the admission document (the "Admission Document") to be published on or around 15 December 2014 by the Company, in connection with the proposed placing and admission of the ordinary shares in the capital of the Company to trading on AIM, a market operated by London Stock Exchange plc. Copies of the Admission Document will be available following its publication during normal business hours on any day (except Saturdays, Sundays and public holidays) from the registered office of the Company.

FORWARD-LOOKING STATEMENTS

Certain statements included in this announcement may contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. Nothing in this announcement should be construed as a profit forecast and no part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company, and must not be relied upon in any way in connection with any investment decision. Any forward-looking statements made herein by or on behalf of the Company speak only as of the date they are made. Except as required by the FCA, the London Stock Exchange or by applicable law or the AIM Rules for Companies, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

© Mercia Technologies 2018

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