Honeycomb Investment Trust plc (LSE:HONY) is to acquire Pollen Street Capital Holdings Limited via an all-share offer.
Honeycomb shareholders will end up representing 54.47% of the enlarged company, while Pollen Street shareholders will own the equivalent of 45.53% of the company's enlarged share capital.
Based on the closing price of 967.5 pence per Honeycomb share on 14 February 2022, the combination values Pollen Street's entire share capital at around £285mln.
Honeycomb, whose external investment manager is a member of the Pollen Street group, said the combined group would benefit from a complementary set of investment management and balance sheet activities, with strong earnings growth.
The combination opens up the possibility for increased liquidity on account of broader expected interest, larger market capitalisation and potential future FTSE 250 inclusion, Honeycomb said.
If the merger is approved, 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.
The combined group will be entitled to 25% of the total carried interest entitlement in the most recent flagship private equity and credit funds of Pollen Street, as well as 25% of the total carried interest entitlement in all future funds established by 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,” said Robert Sharpe, the chair of Honeycomb.
“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," he added.
Honeycomb has received irrevocable undertakings representing roughly 50.4% of Honeycomb's issued share capital (as at 14 February 2022) to vote in favour of the proposed merger, while M&G Investment Management, which controls 6% of Honeycomb, has indicated its intention to vote in favour as well.
Lindsey McMurray, the managing partner of Pollen Street, said the transaction represents “an exciting opportunity”.
“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,” he added.