The Foresight Clearwater VCT will look for UK buy-out and growth opportunities that need total funding of less than £10m because both firms believe demand for funding in this market exceeds supply.
The companies point out that funding smaller deals has become harder because bank lending has fallen and private equity firms have a preference for bigger deals. They believe more business owners will be looking for funding due to the recent increase in Entrepreneurs’ Relief from £1m to £5m This means sellers of a business can now qualify for a reduced capital gains tax rate, which may encourage more people to sell all or part of their business.
Foresight and Clearwater intend to fill the funding gap in this part of the market, which they see as providing many attractively priced investment opportunities because funding from other sources is constrained. The VCT will benefit from the VCT management experience of Foresight and the expertise of Clearwater, as strategic advisor, in identifying suitable investments.
The VCT will comprise a generalist portfolio of unquoted buy-out investments that Foresight and Clearwater believe are capable of generating a high tax-free income for shareholders.
Foresight and Clearwater think their partnership gives them a competitive edge. They say that many VCTs find opportunities through accountants and corporate finance advisers, but the uncertainty and cost of using such intermediaries puts many business owners off going to a VCT.
In contrast, the partnership should enable Clearwater to understand exactly what Foresight is looking for, so opportunities will only be introduced if they are suitable. The firms feel this more efficient approach, which speeds up the deal process and make completion a more likely outcome. The partnership could also be useful when finding an exit for investments, as Clearwater will be able to introduce potential buyers for each investment.
Investors looking for a generalist VCT may be tempted by both partner firms playing to their strengths. However, competition could come from top-ups to established generalist VCTs that provide immediate access to a mature portfolio.