LONDON (Alliance News) – London-based finance firm Chrystal Capital wants to get more involved in public company financing efforts, having recently moved into the listed company space, and thinks the boutique’s roster of wealthy family clients offers a unique new source of potential funding for new equity raisings, founding partner James Innes told Alliance News in an interview.
Chrystal Capital helps private and public companies to raise funds through its network of around 350 family client investors. It has advised on at least 25 transactions since it was launched in 2010, raising more than USD560.0 million for its clients, which include companies and fund managers.
Innes says that most of the family offices in Chrystal’s contacts book typically have billions of dollars of assets. He spends time getting to know those families, talking to their matriarchs and patriarchs in order to understand where they are in terms of their investments. Innes says that some of those family offices have become more active in their investment approach since the financial crisis.
“That doesn’t necessarily mean direct investments into companies. It could mean allocations to fund managers, it could be property, and so on,” Innes told Alliance News. “We’re just getting an understanding of where these families are looking to invest their capital. What you’ve found generally since the debacle of the financial crisis is that lots of these families are taking much more of an active interest in how their money is allocated.”
The bulk of Chrystal Capital’s activities has so far been focused on co-investing with family offices in private company transactions across a number of sectors, including oil & gas and software technology, as well as raising money for private company clients that already have connections with a family office. Typically, these are companies which are owned either in part, or even in full, by family offices.
“We do that because we feel that those companies and existing shareholders will have empathy with the families that we bring in as new investors,” Innes says. “We’re working with companies that are raising, say, only GBP10.0 million, and we’re working with billion dollar companies in the US that are raising hundreds of millions of pounds. It’s not the size of the opportunity but who is already involved in that company.”
But Chrystal Capital has also started to do public company deals. It started off with convertible bonds and is now moving into pure equity through initial public offerings or secondary placings. According to Innes, Chrystal wants to work alongside the mid-market and lower-mid market houses on deals raising between GBP150.0 million and GBP200.0 million in equity for listed companies. However, Innes says that Chrystal isn’t a nominated adviser or financial adviser.
“We’re purely looking to be a value-added placing agent,” Innes says. “That doesn’t mean we don’t partake in the process with the documentation, but we leave that mainly to other house, but we still assist and pass our judgements on what should be in the documents and how opportunities should be presented. We’re just looking for the distribution.”
“Our message to the companies is that this is a really good idea for them. We have a completely different set of investors than your mid-market broker will have. That means you’ve got a better chance of raising their money,” he added.
However, Innes says that there are challenges to Chrystal’s goals in the public equity markets, pointing to the brokers themselves as a source of friction.
“The difficulties sometimes come from the brokers themselves, who, if they have a good company – and hopefully they all think they have good companies – put their arms around it, with their sales teams raising all the money. Effectively, they go back to the same 20-30 institutional investors they go to for all their IPOs and sell to them,” Innes said.
“Isn’t it better to have a more diverse shareholder base?” he asks. “There’s a barrier between what we believe is good for the company and what the brokers are telling them. But there are some enlightened brokers out there,” he added.
So Innes wants to talk to other people close to companies, such as their non-executive directors and financial advisers, in order to give them Chrystal’s message.
“My message is that you’ve got to go out and pick the right brokers to raise the capital for your IPO. But you should be speaking to Chrystal Capital because you choose two or three brokers on a deal, but they’ve all really got the same investor base, whereas if you bring Chrystal Capital onto the ticket, you’ll still [get] all those institutional investors because that’s what the other broker will do, but you’ll also bring in these family offices,” Innes says.
Innes says that Chrystal has a flexible approach to the way it does business because of the way it operates.
“A big issue for investors is typically you as the adviser get paid your fees on the IPO, taking them typically in cash fees and then you’re off,” Innes says.
Chrystal, Innes says, is willing to put a significant portion of its fees directly into the stock alongside investors, or even into escrow accounts with the potential to return those fees to the company or the investor – as long as it meets compliance rules – depending on certain performance conditions. Innes says that up to the entirety of Chrystal’s fees will go into the stock for a year or more as opposed to just a month or two after the company’s debut on the stock exchange.
According to Innes, Chrystal’s flexibility is possible because the corporate finance boutique isn’t reliant on IPOs or the public equity side as a whole.
“The more interesting part about my business is the private company stuff and the co-investing with the families. What I’m trying to do on the IPO side is to show my family offices good opportunities to create strong relationships so that what they’ll actually do is the co-investing and invest on the private company side,” Innes says. “So on the public side I can be exceptionally flexible on how I take my remuneration, whereas the brokerage houses have massive costs, it’s all they do for a living, and they have to take their cash fees.”
By Samuel Agini
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