Software and eCommerce portfolio update

Mercia Asset Management PLC

("Mercia" the "Company" or the "Group")

Software and eCommerce portfolio update

Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused specialist asset manager with c.£872million of assets under management, is pleased to provide an update on its portfolio of Software and eCommerce investments across both its direct portfolio and managed funds.

As at 30 September 2020, Software and eCommerce investments accounted for five out of the Group's top 20 direct investments representing c.25% of the total direct portfolio by value and by number. Within its managed funds, software and eCommerce investments accounted for c.30% by number of the total Group portfolio of investments.

Mercia is well positioned to continue to fund and nurture existing and new regional businesses in this fast growing sector with strong liquidity, local presence and its Complete Connected Capital model. 

Mercia's direct and managed investments in this sector are performing strongly, scaling and generating significant interest from third parties, resulting in Mercia's growing track record of successful exits. During an eight-week period towards the end of 2020 the Group exited three software assets, making a combined return on investment of 7.4x and an internal rate of return ("IRR") of 39%.

Dr Mark Payton, CEO of Mercia Asset Management PLC, said: "In respect of our proprietary investment capital, Mercia has returned approximately £20million to date from six full cash exits, three of which were from the Software and eCommerce portfolio. The sale of Clear Review announced last quarter, the strong returns from two managed funds exits, and the growing strength of the portfolio are clear indicators of Mercia's ability to identify and nurture early-stage businesses to create value for our shareholders and fund clients alike.

"Our Software and eCommerce portfolio companies span several verticals, which ensures that we are connected to a range of opportunities within this rapidly developing sector as structural changes in the way we shop, buy and engage with others continue to accelerate. With UK start-ups and scaleups raising record investment in venture capital funding in 2020, despite challenging macro conditions, we know that the UK is outperforming many of its peers. As we move through 2021, we believe it will continue to become clear that it is in fact the UK's regional businesses that are driving innovation and it will be these regional businesses that will play a significant role in economic recovery."

Exits

Direct investment - Clear Review Limited ("Clear Review")

On 19 October 2020, Mercia announced the sale of Clear Review for a total cash consideration of up to £26.0million. This exit demonstrated Mercia's Complete Connected Capital model. The company was first backed by Mercia's managed funds in 2018 as the founding investor and became a direct investment in June 2019, prior to being sold to Advanced Business Software and Solutions Limited, the third largest British software and services company in the UK. Of the total cash proceeds of £5.0million, £1.0million represented a 2x return on Mercia's direct investment (72% IRR) and the remaining £4.0milion an 8x return on Mercia's EIS managed fund investment (122% fund IRR).

Managed funds - Agilitas IT Solutions ("Agilitas")

On 30 November 2020, Mercia's three Northern VCTs announced that they had sold their stakes in Nottingham-based Agilitas to the global private equity investor Perwyn, providing an 8.4x return. Agilitas is the UK's leading channel services provider, delivering managed inventory solutions as well as technical, lifecycle and training services. During the Northern VCTs' six-year tenure with the company, the business continued to deliver double-digit growth though the expansion of its channel service propositions and geographic footprint. The sale represented an excellent return for Mercia's Northern VCT shareholders.

Managed funds - Refract Limited ("Refract")

On 11 December 2020, Mercia exited from its managed fund investment in Refract, representing a 1.8x return on the fund's original investment, equivalent to a 20% IRR. The Newcastle-based company, which provides sales engagement and conversation analytics that help sales teams improve conversations and close more deals, was acquired by the US software firm Allego. The deal was built on a year-long partnership between the two companies, during which time aspects of Refract's technology were integrated into Allego's capability.

Portfolio update

The summaries below consolidate publicly disclosed information on Mercia's direct and managed funds' investments in Software and eCommerce. No new information is disclosed within.

Direct investments

Intechnica Group Limited ("Intechnica") - 27.5% fully diluted direct investment and 20.7% fully diluted stake held by Mercia's managed funds

Manchester-based Intechnica has developed a bot management solution for high volumes of website traffic. Intechnica's bot solution complements its professional services business which helps organisations transform and grow through consulting, software engineering and practical machine learning and AI applications. Intechnica has annual sales of c.£10million and in July 2020 secured syndicated funding of £5.0million from Mercia's proprietary capital, the Northern Powerhouse Investment Fund ("NPIF"), and the Future Fund.

Voxpopme Limited ("Voxpopme") - 17.1% fully diluted direct investment stake with a further 14.1% fully diluted stake held by Mercia's managed funds

Birmingham-founded and now with most of its operation in the US, Voxpopme is a video insights platform that provides innovative video analytics for tier one international clients such as Microsoft, Shell, Coca-Cola, Verizon and Expedia. Voxpopme has annual sales of approximately of $6million and scaling, and in November 2020 secured a syndicated investment of £3.1million.

W2 Global Data Solutions Limited ("W2") - 16.2% fully diluted direct investment stake with a further 12.7% fully diluted stake held by Mercia's managed funds

Cardiff-based W2's software as a service ("SaaS") tools provide real-time identity verification services to help organisations prevent fraud and money laundering. Mercia first invested £2.0million in October 2018. A recent syndication of £1.0million included £0.3million of Mercia's proprietary capital to provide working capital to support continued double-digit revenue growth in a market now estimated to grow from $2.2billion to $4.5billion by 2025.

Third-party managed funds' investments

The following is a selection of promising businesses within Mercia's third-party managed funds, which represent potential future candidates for Mercia's direct investment portfolio.

SHE Software Limited ("SHE") - Mercia's managed funds hold fully diluted stakes totalling c.32%

SHE, based in Glasgow with operations in the UK and North America, provides market-leading health and safety software solutions. The company was quick to respond to COVID-19 with the launch of new functionality addressing customer needs during lockdown and providing practical operational support for companies' return to work. Momentum remains strong, with 38 new customers in the past six months, maintaining the business' six-year 40%+ compound annual growth rate ("CAGR"). In February 2020 the company received £7.0million of investment, with Mercia's Northern VCTs contributing £1.0million.

Clarilis Limited ("Clarilis") - Mercia's managed funds hold fully diluted stakes totalling c.33%

Leamington Spa-based Clarilis is a drafting automation platform working with leading law firms, in-house counsel and content providers worldwide in all legal practice areas. Mercia's Northern VCTs participated in a new £6.0million investment round together with Gresham House in August 2020. This followed major client wins including Gowling WLG, Slaughter and May (UK), Arthur Cox (Ireland) and Oon and Bazul (Singapore), partnerships with content providers such as FromCounsel and the opening of the company's first international office in Singapore.

Gecko Labs Limited t/a GeckoEngage ("GeckoEngage") - Mercia's managed funds hold fully diluted stakes totalling c.7%

GeckoEngage, headquartered in Edinburgh, is an educational technology business that works with leading universities across the world to improve their student recruitment, driving efficiencies and conversion rates. Its SaaS tools include an event management solution platform and a bot-enabled conversational messaging platform that helps schools communicate with students one-to-one, across multiple channels. In July 2019 GeckoEngage raised £3.0million in a syndicated investment round that included Mercia's managed funds. Since this initial investment, the company has grown its ARR to £2.5million and is now profitable.

CurrentBody.com LTD ("CurrentBody") - Mercia's managed funds hold fully diluted stakes totalling c.26%

This Cheshire-based online retail specialist has secured growth capital funding of c.£10million following five years of rapid growth. The business has successfully launched its own-brand product range and complementary skincare range and is present in 12 international territories. The company has relocated to the North West digital and tech hub, SciTech, at Alderley Park to house its expanding team.

Oddbox Delivery Limited ("Oddbox") - Mercia's managed funds hold fully diluted stakes totalling c.23%

Oddbox is behind the UK's first sustainable fruit and vegetable box delivery service. Mercia's Northern VCTs participated in a £3.6million investment round together with angel investors and Seedrs in March 2020, following significant growth in the preceding 12 months, fuelled by increased demand for sustainable shopping options. The business has since expanded outside London, across South East England, continues to rescue tonnes of produce from going to waste and has accelerated its growth during the past six months.

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About Mercia Asset Management PLC:

Mercia is a proactive, specialist asset manager focused on supporting regional SMEs to achieve their growth aspirations. Mercia provides capital across its four asset classes of balance sheet, venture, private equity and debt capital: the Group's 'Complete Connected Capital'. The Group initially nurtures businesses via its third-party funds under management, then over time Mercia can provide further funding to the most promising companies, by deploying direct investment follow-on capital from its own balance sheet.

The Group has a strong UK footprint through its regional offices, 19 university partnerships and extensive personal networks, providing it with access to high-quality deal flow. Mercia currently has c.£872million of assets under management and, since its IPO in December 2014, has invested c.£106million into its direct investment portfolio.

Mercia Asset Management PLC is quoted on AIM with the EPIC "MERC".