Honeycomb Investment Trust is acquiring its investment manager Pollen Street Capital, with the aim of creating a combined group with assets under management (AUM) of up to £5bn in the next few years.
London-listed Honeycomb will acquire Pollen Street in an all-share deal that values the investment manager at £285m. Pollen Street’s shareholders will receive new company shares equivalent to 45.5 per cent of the enlarged company.
Robert Sharpe, chairman of Honeycomb, said the deal has “a compelling strategic rationale, which will deliver strong operational and financial benefits, and generate future growth opportunities.”
The new entity will move from being an investment trust to a commercial company. However, it will continue to invest in direct lending opportunities, and expects to generate stable returns which will remain in line with the investment profile of Honeycomb on a standalone basis, Honeycomb’s announcement on the London Stock Exchange said.
The combined group is expected to deliver “a compelling revenue profile” with interest income from Honeycomb and recurring fees and fast growth from Pollen Street, and the possibility for increased liquidity. This may lead to future FTSE 250 inclusion.
“The transaction represents an exciting opportunity to build upon our strong foundations and further develop the institutional platform of Pollen Street as well as provide capital to support the development of our strategy to build a purpose-led asset management firm,” said Lindsey McMurray, managing partner of Pollen Street.
“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.”
Sharpe is expected to chair the enlarged group following the completion of the deal and McMurray will take the chief executive role.
Numis analysts said that Honeycomb’s manager had delivered a good performance but “the fund remained off the radar of many given its size and liquidity”.
It noted Pollen Street’s “strong track record within its private funds” and said the sector is benefitting from structural tailwinds.
“Therefore the shift to an operating asset management business with balance sheet investments has the potential to widen the shareholder base and will also remove the need to report costs,” Numis added.
BofA Securities and Cenkos advised Honeycomb on the deal, which is expected to close in the second quarter of 2022.
In 2020, Honeycomb made a failed effort to merge with Pollen Street Secured Lending (PSSL) investment trust, which was also managed by Pollen Street Capital. The PSSL board rejected its advances and PSSL was subsequently acquired by Waterfall Asset Management.
Last year, Honeycomb’s shareholders voted against winding down the company.