Duke Royalty Limited, a provider of alternative capital solutions to a diversified range of profitable and long-established businesses in Europe and abroad, has acquired Capital Step Holdings Limited and Capital Step Investments Limited (Capital Step).
The acquisition more than doubles Duke’s royalty portfolio, increasing the Company’s core investments from five to eleven and thereby significantly accelerating the company’s growth plans and providing portfolio diversification benefits.
The new Royalty Partners are in a range of diversified industry sectors, including new investment sectors such as telecommunication services, media, recruitment, insurance broking and technology solutions.
The acquisition creates an implied enterprise value of GBP21.65 million; initial GBP10 million of cash consideration and the assumption of GBP11.65 million of debt. In addition, deferred consideration up to a maximum of GBP1.5 million which is subject to the achievement of certain performance related milestones to the period ended 31 March 2020.
The acquisition is expected to be immediately accretive to Duke’s shareholders in terms of cash flow per share, and assists with the Company’s strategy to consistently increase its quarterly dividend. It also fits with the Company’s strategy to diversify its royalty portfolio and to become the premier diversified royalty finance company in Europe and abroad.
The debt facility assumed is with Honeycomb Investment Trust (Honeycomb), a credit fund with Pollen Street Capital as Investment Manager. Pollen Street Capital was a spin-out of RBS in 2013 and currently manages GBP2.6 billion of assets. This enables Duke to fund future investments via debt before having to raise additional equity, thus avoiding dilution to shareholders and excess cash on its balance sheet.
The acquisition is expected to generate significant additional synergies in the form of an expanded team with deep credit experience as well as an enhanced origination platform and deal pipeline of potential future Royalty Partners.
Neil Johnson, CEO of Duke Royalty, says: “This transformational and accretive acquisition fits with our strategy to deploy the capital raised last year to diversify our royalty portfolio. It also removes our only known competitor in the UK royalty finance market, strengthens our team, and provides a robust future deal pipeline into which the enlarged group can deploy capital.”
“We are very much looking forward to working with our new Royalty Partners, which include a number of solid businesses across a broad range of complimentary sectors. We also welcome the existing members of the Capital Step executive team who will enhance Duke’s offering in a number of areas. Having undertaken extensive due diligence on Capital Step’s Royalty Partners and its financing model, which is closely aligned with that of Duke’s, the Board is confident that this strategic acquisition will extend the Company’s first mover advantage in the UK royalty financing sector. We look forward to updating the market as our growing brand continues to gain traction in the UK and European SME market.”
