The protracted takeover of the Pollen Street Secured Lending (PSSL) investment trust shows the difficulty of mergers and acquisitions (M&A) in the sector, according to research by brokerage Numis.
Waterfall Asset Management completed a takeover of PSSL, which had rebranded to Alternative Credit Investments (ACI), earlier this year, after a drawn-out acquisition process that began in February 2020.
A proposed offer to acquire the alternative finance-focused investment trust was first made in February 2020 and its manager at the time, Pollen Street Capital (PSC), was accused of refusing to co-operate with due diligence requests.
PSC denied this but was given a termination notice while a new manager was sought and to give Waterfall time to make a formal offer.
Waterfall was appointed as the new manager in October 2020 and made a cash offer worth £639.2m the following month.
This was accepted and the fund, which once backed loans from Zopa and Funding Circle when it launched as P2P Global Investments in 2014, went private in the first quarter of 2021.
“The difficulty of M&A was demonstrated by the protracted takeover ACI,” analysts at Numis said.
“It was acquired by Waterfall Asset Management and the fund delisted in March 2021 at the end of a process that had taken over 12 months.”
Numis said it was unsurprising to see Pollen Street defending their management contract but warned that they damaged their reputation in the process.
The analyst said the saga was triggered by an unstable shareholder register.
“Performance was dull compared to overinflated expectations at launch, but Pollen Street were appointed and stabilised the portfolio,” Numis said.
“However, sentiment really turned when large institutional investors started seeking an exit, particularly Invesco.
“This was a painful experience for several of the direct lending investment companies in recent years and highlights the importance of a diversified shareholder register.”
Numis estimated that £1.64bn of capital was returned to investors during the first quarter of 2021 from share buybacks, redemptions by ongoing funds and liquidations or distributions by exiting funds.
This was higher than the £768m returned to investors during the first quarter of 2020, although this disparity was primarily driven by approximately £640m leaving the universe following the completion of the ACI takeover, Numis said.