So far we have had another busy year to date investing in primary opportunities – that is investing when companies are raising money.
So far we have had another busy year to date investing in primary opportunities - that is investing when companies are raising money.
One of the key reason to invest predominantly in primary markets is that, when a company is raising money, it needs to give prospective investors a particularly accurate, up-to-date picture of its business.
It means therefore that we are buying with full information and not buying as blind as in the secondary market.
It also means investors can buy at a discount to the prevailing market price or what is considered ‘fair value', and usually free of stamp duty and commission.
Broadly speaking, we see the majority of opportunities in companies that are growing but, importantly, ones that are positioned in sectors that are themselves growing too.
We like companies that are market leaders in their sector or at least have the characteristics to become market leaders - such as being a ‘disruptor' in their field.
One such company we have recently purchased was Essensys, a leading software provider to the fast growing flexible workspace industry.
With a high turnover of clients, one of the challenges of a flexible workspace is to manage the IT, compliance and billing of the tenants.
Essensys software handles this and we purchased this at IPO when the company raised £28m to fund further expansion.
Subsequently, the company reported that it is trading ahead of market expectations, largely thanks to its expanding US operations.
In general, we prefer companies that while UK listed, are able to sell their products and services overseas and, again, Essensys is a great example of this.
Nevertheless, in recent weeks we have actually seen compelling value emerge among UK domestic stocks.
One such example is Marlowe, a fire and water safety business, which is an acquisitive company in a fragmented industry.
This firm's strategy is to buy up smaller rivals, improving their profitability by using technology and making use of the group's existing infrastructure to remove back office costs of the acquired companies.
There is also the potential to cross-sell services among newly acquired companies' customers. We recently added to our holding of this as part of a £20m fund raise to acquire a water safety testing business.
There is no doubt the increased political uncertainty in the UK and continued pressure on sterling has highlighted the valuation discount between the UK and other developed markets.
However, our belief is that some clarity on the UK's future trading relationship with the EU will help narrow this discount.