TIDMDUKE
RNS Number : 8483T
Duke Royalty Limited
11 January 2017
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS
RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION,
DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE
UNITED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR ANY OTHER
JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. PLEASE SEE THE
IMPORTANT NOTICE AT THE OF THIS ANNOUNCEMENT.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED
UNDER THE MARKET ABUSE REGULATIONS (EU) NO. 596/2014. UPON THE
PUBLICATION OF THIS ANOUNCEMENT, THE INFORMATION CONTAINED IN THIS
ANNOUNCEMENT IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
11th January 2017
Duke Royalty Limited
("Duke" or the "Company")
Change of advisors and operational update
Duke Royalty Limited is pleased to announce that it has
appointed Grant Thornton UK LLP as its Nominated Adviser and Cantor
Fitzgerald Europe and Mirabaud Securities LLP as co-Brokers with
immediate effect.
As previously mentioned in the Company's interim statement
released to the market on 17 November 2016, the Company has
recently been in advanced discussions to raise additional capital,
either in the form of equity or debt. In light of these
discussions, the Company's intention is to undertake an equity
fundraising to raise up to GBP50 million in an equity placing
("Placing") in order to provide the Company with the capital to
build a diversified portfolio of royalty finance and associated
finance opportunities. It will also seek the re-admission of the
Company to AIM by producing an Admission Document.
Background
The Directors believe that royalty finance is an attractive
funding opportunity for privately owned businesses, with the
potential to generate attractive returns uncorrelated to general
equity market performance. The Directors believe that there is a
substantial addressable market for royalty finance and that the
Company will benefit from the combined talent and experience of the
Board and executive team, coupled with the exclusive collaboration
that the Company has with Oliver Wyman to assist it to source and
assess royalty funding opportunities.
The Directors' strategy is to build a diversified portfolio of
royalty streams from companies ("Royalty Partners"), focusing on
income growth through the deployment of the Placing proceeds to
take advantage of a pipeline of near term royalty opportunities in
the SME market. It is an objective of the Company to pay a
significant proportion of its free cash flow from the royalty
revenues it receives to Shareholders as dividends.
Duke's royalty financing model
Duke will provide its Royalty Partners with long term financing
which is expected to have a term of between 25 and 40 years (or
even, in certain circumstances, a perpetual term). The contemplated
terms of the royalty agreements are such that in the first year,
the Royalty Partner would typically pay Duke a monthly distribution
or royalty (typically 12-15 per cent. per annum of the financing
amount). In the second year, and each year going forward, the
monthly distribution would then be linked to the year on year
growth in the revenue of the Royalty Partner collared at six per
cent. per year of the total increase or decrease in revenue over
the prior year.
The Directors envisage that royalty financing will be an
attractive alternative source of capital to potential Royalty
Partners in transactions which include:
-- growth capital;
-- acquisition financing;
-- minority, management or private equity shareholder buy-out;
-- balance sheet recapitalisation / debt refinancing;
-- estate planning; and
-- take-private transactions.
The Company's royalty financing structure is designed to attract
potential Royalty Partners by offering finance at a reasonable cost
of capital that is both non-dilutive to their existing owners and
which does not result in refinancing risk. In addition, the
Company's royalty finance model allows current owners and managers
to stay in control of their businesses due to passive management
involvement by Duke. Furthermore, the royalty financing from Duke
would be repaid by the Royalty Partner over the long term, usually
25 - 40 years (thereby minimising short or medium term refinancing
risk). Duke would be provided with monthly operating and financial
reports from the Royalty Partners but typically funding would have
fewer covenants compared to debt. In addition, unlike private
equity financing, it is expected that there will be no pressure
imposed by the Company to exit the financing arrangement but
Royalty Partners would typically retain a buyback option during the
life of the royalty finance agreement to redeem up to 100 per cent.
of the royalty provided by Duke to the Royalty Partner. Duke
expects that this buyback payment will typically be the greater of
(i) a pre-determined fixed amount specified in the royalty
financing agreement and (ii) a multiple of the annualised royalty
payment from the Royalty Partner to Duke on the date of exercise of
the buyback option.
From a Royalty Partner's perspective, the royalty financing
model typically carries a lower cost of capital than equity and is
designed to better align the interests of the Company with the
Royalty Partner due to the long-term nature of a royalty financing
agreement.
The Company has built a near term pipeline of potential royalty
agreements totalling approximately GBP75 million: a summary of the
pipeline is described in the Company's corporate presentation
available on the website as described below.
Exclusive Collaboration with Oliver Wyman
On 7 August 2015, the Company entered into an exclusive
collaboration agreement with Oliver Wyman, a global management
consultancy firm wholly-owned by Marsh & McLennan Companies
(NYSE: MMC), for the sourcing of Royalty Financing opportunities in
the pharmaceutical and healthcare sectors. Under this
collaboration, Oliver Wyman provides the Company with deal
origination and undertakes due diligence work on potential Company
Partners in the pharmaceutical and healthcare-related market in
exchange for a share of the future distributions received by the
Company from Company Partners once the relevant Royalty Financing
has been completed.
Oliver Wyman's Health & Life Sciences practice has over 200
professionals in offices around the world. Oliver Wyman brings its
global network of professionals, with a deep bench of clinical,
health system, and risk experts and a successful track record of
valuing biopharmaceutical and other healthcare intellectual
property for its Fortune 1000 clientele. Oliver Wyman's Health
& Life Sciences practice serves clients in the pharmaceutical,
biotechnology, medical devices, provider, and payer sectors with
strategic, operational, and organizational advice; deep healthcare
knowledge and capabilities allow the practice to deliver fact-based
solutions. Under the terms of the collaboration, Oliver Wyman will
identify, analyse and assist in the acquisition of royalty
interests for regulatory-approved, patent-protected ethical
pharmaceutical and other healthcare products.
Outside of the pharmaceutical and healthcare sectors, should the
Company and Oliver Wyman agree that Oliver Wyman has industry
knowledge and capabilities of value for the purposes of the
evaluation of potential Royalty Financings in others sectors, the
Company and Oliver Wyman may agree to work together under the same
compensation terms as in the August agreement. As of the date of
this document, Oliver Wyman has provided its services, upon the
same terms as the August agreement, for the purposes of the
evaluation of three potential targets in sectors outside of
healthcare.
Oliver Wyman is a global management consulting firm with more
than 35 years of experience consulting with leading companies in
industries such as financial services, health & life sciences,
media and technology, leisure and energy. Oliver Wyman has more
than 4,000 professionals in over 50 cities across 26 countries in
the Americas, EMEA, Asia and Australia.
The Company's strategic relationship with Oliver Wyman combines
a global, respected source of deep knowledge with a publicly-quoted
royalty company to create a unique offering to potential Company
Partners and public investors.
The Directors believe that Duke's relationship with Oliver Wyman
brings the Company three distinct advantages:
1. a global footprint that allows deal execution anywhere in the world;
2. a global network of professionals from whom it can leverage expertise; and
3. intellectual capital, proprietary methodology and datasets,
and experience in forecasting and risk assessments.
The Company remains responsible for capital raising, negotiating
and structuring definitive agreements with potential Company
Partners and making the ultimate decision on any Royalty
Financing.
The agreement, which was signed on 7 August 2015 is for an
initial term of five years (subject to automatic 12 months
renewals, unless otherwise terminated in accordance with the terms
of the agreement).
Proposed Equity Fundraising
The Company is proposing to raise up to GBP50 million. It is
intended that the proceeds from this anticipated fundraising will
be used to capitalise on a number of already identified near term
opportunities for royalty financing. Over the last 15 months, the
Company has been evaluating a number of late stage royalty
financing opportunities and from that work the Company has managed
to build a near-term pipeline of six potential royalty financing
transactions across a number of sectors ranging from leisure
through to industrials, healthcare and IT. The aggregate investment
value of this near-term pipeline amounts to approximately GBP75m
thus providing the Company with a good number of possible royalty
financing opportunities that it will look to close post-completion
of the proposed fundraising. Whilst there can be no assurance that
any of these pipeline royalty financings will close as they remain
subject to negotiation, definitive documentation and final due
diligence, in the absence of unforeseen circumstances the Board
anticipates that the net proceeds of the proposed fundraise should
be fully invested (or committed to be invested) within 12 months of
Admission. However, there is no fixed period within which the
Company would be required to conclude royalty agreements or return
funds to Shareholders.
Dividend Policy
Following the Shareholders' approval of the new Investing Policy
in June 2015, Duke's focus has been on bringing royalty investing
to the European market with the objective of generating predictable
and stable cash flows from royalty agreements with a view of paying
an attractive, growing and sustainable cash dividend yield for
Shareholders.
Although the Company has never paid a dividend, it is the
Directors' intention to start paying dividends in the financial
year ending 31 March 2018 and that the Company will, in normal
circumstances, pay out approximately 80 - 100 per cent. of its free
cash flow to its shareholder in the form of dividends. With the
proceeds of the Placing, the Company is targeting an annualised
dividend yield of between 7 and 8 per cent. once fully invested
with a minimum targeted dividend yield of at least 5 per cent in
the financial year to 31 March 2018*. It is intended that, any
dividend paid by the Company will be paid on a quarterly basis on
or around, the end of each calendar quarter.
* This is a target only and not a profit forecast. There can be
no assurance that the target can or will be met in this timescale
or at all and should not be taken as an indication of the Company's
expected or actual future results. Accordingly, potential investors
should not place any reliance on this target in deciding whether or
not to invest in the Company or assume that the Company will make
any distributions at all and should decide for themselves whether
or not the target dividend yield is reasonable or achievable
Duke's Competitive Advantages
The Directors' believe that the Company's structure provides
competitive advantages over comparable diversified royalty
financing companies. These include:
First mover advantage of diversified royalty financing focused
on the UK and Europe
Because it is listed on AIM and domiciled in Guernsey, the
Directors believe that the Company's corporate structure will allow
deal sourcing from both the UK and Europe, where North American
domiciled competitors have generally not been focused. In addition,
the Directors believe that the Duke offering will be ideally suited
to the European marketplace where there are a high number of
private SME companies that match Duke's royalty financing
mandate.
Extensive experience in royalty management and capital
markets
The Company's CEO, Neil Johnson, having a career in investment
banking in both the UK and Canada, pioneered the model for Canadian
public companies to list on the UK public markets, helping them
raise over GBP3 billion of capital during his tenure as Head of
Corporate Finance at Canaccord Genuity's UK operation. His previous
firm, where he was co-Founder and CEO, was an alternative finance
company listed on the Toronto Stock Exchange.
The Company's Chief Investment Officer, Jim Webster, has twice
been a senior executive of newly-formed royalty companies over the
past 25 years. He was a senior officer from virtually the inception
of the first public pharmaceutical royalty investment company, Drug
Royalty Corporation listed on the Toronto Stock Exchange. During
Jim's tenure, during which he became President, Chief Executive
Officer and Chairman of the Investment Committee, he had an
internal rate of return of 32.1 per cent.
The Company's Investment Committee member, Justin Cochrane, has
15 years of royalty financing and investment banking experience.
Previously, he spent 5 years as an Executive Vice President of
Corporate Development for Sandstorm Gold Ltd., a public mining
royalty company listed on the Toronto Stock Exchange.
Exclusive deal sourcing and due diligence collaboration with a
global management consulting firm
Due to the global nature of the Company's exclusive
collaboration with Oliver Wyman, the Directors believe that the
Company has a global reach for deal sourcing that its current
established diversified royalty financing competitors do not have.
In addition, for its due diligence activities, the Company's
exclusive collaboration with Oliver Wyman allows the Company to
draw on the deep industry knowledge of Oliver Wyman's
professionals.
Independent Investment Committee
The management believes the formal structure of an Investment
Committee, with a mandate to review and recommend deals to the
Company's Board and to opine on the Company's late stage pipeline,
creates a robust due diligence process which is unmatched by its
competitors. Separating the Investment Committee from the internal
management team is designed to increase the level of scrutiny by a
team of qualified experienced executives with a broad range of
differing skills. Any formal recommendation by the Investment
Committee to the Board will have followed extensive due diligence
and will provide the Board carefully vetted opportunities from
which to make an assessment. Only the Board can enter into and bind
the Company into providing such royalty financing to any potential
Royalty Partner.
Tax-efficient domicile
As the Company is registered in, and managed from, Guernsey, it
is subject to a lower rate of corporate tax compared to its
Canadian diversified royalty company peers. This enables the
Company to lower the cost of capital for its Royalty Partners,
thereby making the Company's financing offering more attractive to
potential Royalty Partners.
General
The proposed Placing is still in contemplation and therefore is
still subject to the funds being raised and an Admission Document
being published. Assuming a successful completion of the
fundraising, the Company will then be readmitted to AIM as a Rule 8
investing company, and the requirement to complete a transaction in
line with its investing policy in accordance with AIM Rule 15 by 30
March 2017 will no longer apply. An updated corporate presentation
on the Company is available on the Company's website
www.dukeroyalty.com
For further information:
Duke Royalty Limited Neil Johnson
Charlie Cannon-Brookes
+44 (0) 1481 741 240
Grant Thornton UK LLP Colin Aaronson / Samantha Harrison
(Nominated Adviser) / Carolyn Sansom
+44 (0) 20 7383 5100
Mirabaud Securities LLP Peter Krens / Edward Haig-Thomas
(Joint Broker)
+44 (0) 20 7878 3362
Cantor Fitzgerald Europe Marc Milmo / Catherine Leftley
(Joint Broker) / Callum Butterfield
+44 (0) 207 894 7000
About Duke Royalty
Headquartered in Guernsey, Duke Royalty Limited provides
alternative financing solutions to a diversified range of
businesses in Europe and abroad. Duke Royalty's experienced team
and exclusive partnership provide financing solutions to private
companies that are in need of capital but whose owners wish to
maintain equity control of their business. Duke Royalty's royalty
investments are intended to provide robust, stable, long term
returns to its shareholders.
Duke Royalty is listed on the AIM market under the ticker DUKE.
For more information, visit dukeroyalty.com.
The information in this announcement is for background purposes
only and does not purport to be full or complete. No reliance may
be placed for any purpose on the information contained in this
announcement or its accuracy or completeness. The material set
forth herein is for information purposes only and is not intended,
and should not be construed, as an offer of securities for sale in
the United States or any other jurisdiction.
This announcement is not a prospectus and investors should not
purchase any Ordinary Shares referred to in this announcement
except on the basis of information to be published in an Admission
Document.
This announcement is not for publication or distribution,
directly or indirectly, in or into the United States (including its
territories and possessions, any state of the United States and the
District of Columbia), Australia, South Africa or Japan. The
distribution of this announcement may be restricted by law in
certain jurisdictions and persons into whose possession any
document or other information referred to herein comes should
inform themselves about and observe any such restriction. Any
failure to comply with these restrictions may constitute a
violation of the securities laws of any such jurisdiction.
Any purchase of Ordinary Shares in the proposed placing should
be made solely on the basis of the information contained in the
Admission Document to be issued by the Company in connection with
the Placing and Admission. No reliance may or should be placed by
any person for any purposes whatsoever on the information contained
in this announcement or on its completeness, accuracy or
fairness.
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements involve known and unknown risks and uncertainties, many
of which are beyond the Company's control and all of which are
based on the Company's board of directors' current beliefs and
expectations about future events. These forward-looking statements
may be identified by the use of forward- looking terminology,
including the terms "believes", "estimates", "plans", "projects",
"anticipates", "expects", "intends", "may", "will" or "should" or,
in each case, their negative or other variations or comparable
terminology, or by discussions of strategy, plans, objectives,
goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts.
Forward-looking statements may and often do differ materially from
actual results. Any forward-looking statements reflect the
Company's current view with respect to future events and are
subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Company's business,
the results of operations, financial condition prospects, growth
and dividend policy of the Company and the industry in which it
operates. Forward-looking statements speak only as of the date they
are made and cannot be relied upon as a guide to future
performance.
These forward-looking statements and other statements contained
in this announcement regarding matters that are not historical
facts involve predictions. No assurance can be given that such
future results will be achieved; actual events or results may
differ materially as a result of risks and uncertainties facing the
Company. Such risks and uncertainties could cause actual results to
vary materially from the future results indicated, expressed or
implied in such forward-looking statements. Forward looking
statements speak only as of the date of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
APPURAURBWAAAUR
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