We look to buy into companies when there is a natural primary opportunity to do so. We call this our primary opportunities approach. We are always looking to buy into good quality companies at reasonable valuations that typically pay dividends. There are four ways in which we buy into primary opportunities.
- Placings by companies – whereby a company seeks to raise money by issuing new shares. This can be for a variety of reasons but is typically for expansion and/or acquisition purposes.
- Placings by strategic or forced sellers – this is typically by private equity, founders, management and other large sellers.
- Initial Public Offerings (IPO’s) – we see most companies that are looking to IPO on the London market with a market capitlisation in excess of £100m. Whilst we only invest in a minority, it is a company’s first stage as a listed entity and allows us a good insight and to get to know and understand the company. If we do not invest at IPO, there are likely to be further primary opportunities in the future, particularly if the company is successful. Some of our greatest returns have been made by investing at IPO.
- Subundwriting and buying the rump – we like to sub underwrite as we believe the risk reward ratio is in our favour. We must be comfortable with the underwriting price in the event we are left with the underwriting stick. This rarely happens so we may look to purchase the rump, i.e. the rights not taken up by existing shareholders. We expect share prices to be depressed following a large supply of new shares and over time expect this to unwind.