ACP Capital regrets rebuff from Davenham

Over the last 12 months, ACP says, it has held various meetings with Davenham’s management, primarily focused on its strategic direction and expressing ACP’s concern about the company’s increasing exposure to the UK property sector, its higher-risk property finance products, and about the availability and terms of any additional funding required to write new business in 2008 and beyond.

ACP considers that the risks of Davenham’s increased exposure to the UK property sector are rising, noting that property finance segment of the business represented 52 per cent of portfolio income for the year ending in June, up from 44 per cent for the previous year, and 61 per cent of Davenham’s portfolio at the end of June, up from 49 per cent a year earlier.
 
Davenham’s property lending products include 100 per cent loan-to-value financing in areas such as property development and land planning projects. ACP believes that such products are unacceptably high risk and should not be among the core products of a diversified asset-based lender to the UK small to medium-sized business market.
 
ACP expects Davenham’s committed funding lines to be fully used during 2008. Davenham is hoping to arrange new facilities to finance new business during 2008, but ACP says it fears that under current credit markets conditions, these facilities may not be available, or if available their terms may reduce the company’s growth profile and the profitability of new business.

ACP’s potential offer was based, it says, on the belief that Davenham would benefit from being part of a larger, more international finance group with a more balanced spread of business. ACP has invested in similar businesses to Davenham in France, Germany and Italy.

ACP believes that Davenham would be better placed to achieve sustainable growth through the development of new product lines and reducing its reliance on property finance. A purchase would also offer Davenham access to potential funding lines such as ACP’s sub-investment grade vehicle, ACP Mezzanine, which can fund sub-investment grade loan assets.

The ACP group, which comprises ACP Capital, ACP Mezzanine, and IFR Capital, is an Aim-listed integrated finance and asset manager focused on the asset-backed and non-asset-backed sectors in the European small and medium-sized enterprise markets. Its range of integrated financing products for the European SME market includes equity, mezzanine and senior debt funding, including leveraged loan and investment grade debt for all sectors).

ACP Capital intends to launch two managed vehicles per year, focusing on areas including strategic equity holdings in European SMEs, high-yielding senior debt instruments and infrastructure assets that will be originated either directly or through its strategic platforms throughout Europe.

The group recently announced a strategic investment of 19.83 per cent in GCI Management as well as the commitment of ACP Capital and ACP Mezzanine to underwrite a senior debt and mezzanine bridge respectively for the acquisition by IFR Capital of Homann Chilled Food.

ACP recently announced the creation of a strategic platform in France through the acquisition of a 45 per cent stake in Leasecom Group. It recently opened an office in Munich and plans to open another in Milan to provide proximity to key markets. ACP Capital also aspires to a full listing on the London Stock Exchange’s main board at the earliest opportunity.

Since January 2006, the group has raised over EUR1bn in equity and leverage for various projects and can finance up to EUR250m per transaction. To date, ACP Capital has launched two managed vehicles, ACP Mezzanine, a dedicated subordinated lender, and IFR Capital, an acquisition platform focusing on consolidation in the European food sector that forms part of ACP Strategic Equity.