Compass Group offer points to new direction for retail investment

Compass Group offer points to new direction for retail investment

On 19 May 2020, FTSE 100 company Compass Group plc (Compass) announced a placing, subscription and retail offer raising gross proceeds of approximately £2 billion. The transaction is the largest fundraising to take place during the COVID-19 pandemic, making it the highest grossing secondary offer on the Main Market since Astrazeneca’s £2.69 billion placing in April 2019.

As a provider of outsourced food services to a variety of clients including schools, corporate headquarters and entertainment venues, it was inevitable that Compass would feel the strain amid the fallout of the COVID-19 crisis. In a statement on 17 March, the company noted that ‘the acceleration of containment measures adopted by governments and clients in Continental Europe and North America have affected our expectations for the half year.’ By 23 April around 55% of the business was closed due to country lockdowns. The company released its half year update on 19 May, confirming that organic revenue had declined by 20.4% in March and 46.1% in April.

Branded as an opportunity to ‘reduce leverage, enhance liquidity and strengthen its position into recovery,’ the offer represented approximately 12.3% per cent of Compass’ existing issued ordinary share capital prior to the transaction. The company stated in its announcement that it had consulted with major shareholders in advance of the offer being made and received ‘strong support’ from both new and existing shareholders.

The bulk of the fundraising was structured as a non‑pre‑emptive placing of new ordinary shares to institutional investors. The company’s directors and members of the senior management team also confirmed their intention to participate in a subscription to the value of approximately £1.1m. In addition to the placing and subscription, Compass separately announced a retail offer, enabling shares to be purchased by the general public. In its announcement, Compass stated that:

‘While the Placing has been structured as a non-pre-emptive offer so as to minimise cost, time to completion and use of management time at an important and unprecedented time for Compass, Compass values its retail investor base and recognises the importance of pre-emption rights in the UK listed company environment.’

The retail offer was conducted via PrimaryBid, an investment platform partnered with the London Stock Exchange that aims to ‘to enhance fairness, inclusivity and transparency in capital markets’ by enabling private investors to participate alongside institutional investors in company fundraisings. The company was founded in 2012 with the intention of addressing concerns that listed companies were exclusively conducting fundraisings to institutional investors and excluding smaller shareholders and the general public. With no discernible competition, PrimaryBid aims to provide an attractive alternative available to companies wishing to include individual shareholders in upcoming fundraisings without the time and cost associated with publishing a prospectus.

To date, PrimaryBid has carried out 56 transactions since it launched, although interest may be increasing as the effects of the global pandemic take hold, with SRT Marine Systems, Xeros Tech Group and Inland Homes all offering retail investors the opportunity to participate in fundraisings via the platform during April 2020. In an open letter to UK-listed companies, Primary Bid highlighted the investment opportunity for individual investors presented by the COVID-19 crisis:

‘COVID-19 is leading to a large wave of recapitalisations for UK PLCs. We are concerned that UK retail investors are not receiving their entitlements to participate in these often discounted fundraisings.’

Calls for listed companies to move away from an institutional investor centric approach, combined with fertile conditions for an increase in company fundraisings present a huge opportunity for platforms such as PrimaryBid over the coming months. However, while PrimaryBid offers a time and cost effective solution for companies wanting to open their fundraisings to retail investors, the platform has its limitations. The retail offer must fall within one of the exemptions from the requirement to publish a prospectus under the Prospectus Regulation, so has to be limited to a total value of €8 million in gross proceeds, which means it is not an option for companies wishing to raise more than that amount from retail investors.

Market Tracker will continue to monitor the impact of COVID-19 on offers to the general public. In addition, our Coronavirus COVID-19 - ECM secondary issue tracker follows secondary issues by listed and AIM companies raising at least £10m since 25 March 2020 and looks at the effect of the coronavirus (COVID-19) crisis on equity fundraisings.

 

 

 

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