Covington Capital Corp. has agreed to buy VenGrowth Asset Management’s five retail funds, as well as the New Generation Biotech (Equity) Fund. Covington, a Toronto VC fund, has also secured third party financing of up to $60 million. VengGrowth, also of Toronto, is a PE firm.
VenGrowth Asset Management announced today that its five retail venture capital funds (The VenGrowth Investment Fund Inc, The VenGrowth II Investment Fund Inc., The VenGrowth III Investment Fund Inc, The VenGrowth Advanced Life Sciences Fund Inc., and The VenGrowth Traditional Industries Fund Inc. (collectively the “VenGrowth Funds”), together with the New Generation Biotech (Equity) Fund, have entered into a Definitive Asset Purchase Agreement with Covington Fund II Inc. (“Covington II”). This transaction contemplates Covington II acquiring all of the assets of each of the VenGrowth Funds and NGBE Fund in exchange for Class A shares of Covington II. The transaction is subject to regulatory and shareholder approvals.
The transaction will result in one of Canada’s largest and most highly diversified retail venture capital fund. Immediately prior to the transaction, the combined net assets of Covington II the VenGrowth Funds, and NGBE are expected to be approximately $425,000,000. The combined Covington II fund will hold a venture portfolio numbering approximately 55 investments.
In addition, Covington II has secured, subject to closing conditions, third party financing of up to $60 million. The debt facility will be available to enhance liquidity to shareholders.
Since closing certain of the VenGrowth Funds to redemptions, the Manager and the Boards of the Funds have been actively exploring strategic options that would enhance liquidity, achieve economies of scale, and position the funds for long-term success.
Under the transaction, shareholders of the VenGrowth Funds will receive Class A shares of Covington II, at which point they will have three options:
* Continue to remain a shareholder of the new combined Covington II fund (certain funds’ shareholders will continue to have redemption restrictions)
* Roll-over the shares and receive new tax credits (current shares must have been held for at least 8 years)
* Redeem the shares for cash (subject to a redemption fee)
“This transaction would result in a number of key benefits to VenGrowth Fund shareholders, including a large and highly diversified portfolio, enhanced ability to provide follow-on funding to portfolio companies, and a larger fund structure that will result in lower management expense ratios (“MERs”) in the future. More importantly, our shareholders will have a variety of options with respect to what they can do with their shares.” Says David Ferguson, Managing General Partner, VenGrowth. “Under this new combined platform, we believe that Covington, with its years of experience in both institutional and retail venture capital, and its strong performance track record, has the capability to deliver performance to shareholders.” added Ferguson.
Covington II will continue to remain open to new fund raising and to roll-overs. “The consolidation of seven funds, with its economies of scale and mature portfolio, provides a very attractive retail venture capital model to both current and future investors on a go-forward basis.” states Scott Clark, Managing Director, Covington.
The proposed transaction is being recommended by the Board of Directors of each of the seven funds. The sponsor for the VenGrowth Funds – the Association of Canadian Financial Officers, as well as the sponsor for Covington II – the Canadian Police Association Incorporated, are in support of the transaction and will be co-sponsors of the new combined fund.
It is anticipated that subsequent to receipt of regulatory approvals, requisite shareholder approvals and other conditions to the proposed transaction are satisfied, the transaction would be completed during the fourth quarter of 2010. There can be no assurance that the transaction will ultimately be completed.
About VenGrowth Asset Management Inc.
A premier Canadian private equity investment group, VenGrowth Asset Management builds innovative companies into global successes. Since 1982, we have invested over $1.3 billion in more than 200 North American companies, working alongside business owners to maximize potential. For more information, visit www.vengrowth.com
About Covington Group of Funds
Established in 1994, Covington Capital Corporation is one of Canada’s largest providers of venture capital investment funds. Managing over $200 million in assets, Covington provides Canadians with the ability to access venture capital investment opportunities via their suite of retail venture capital product offerings. For more information, visit www.covingtoncap.com