VCT merger flurry predicted

There are currently over 90 VCTs in the UK and 40 have a market cap of under £10m. The market view is that critical mass for a successful and profitable VCT should be between £30-60m. With so many falling short of this size, Noble expects to see increased consolidation in the VCT industry.

Consolidation has already commenced with the merger of Chrysalis VCTs [Chrysalis VCT Plc with Chrysalis VCT A Plc, Chrysalis VCT B Plc, and Chrysalis VCT C Plc] and the merger of Quester VCT plc and Quester VCT 2 Plc and Quester VCT 3 Plc, which is expected to complete at the end of this month forming one VCT with net assets of approximately £50m.

Factors driving the need for consolidation include: cost efficiencies of one larger trust can be c.0.5% to 1% of NAV per annum; significantly below that of smaller trusts; opportunity for greater diversity within the portfolio; potential for a smoother flow of dividends as realizations are made from a wider portfolio; larger VCTs are easier to promote to private investors.

Obvious candidates for consolidation include those fund management houses that have more than 3 VCTs. The second area for consolidation is for larger VCTs to acquire the smaller ones to augment the underlying investment.

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