Towry £97 million purchase of Ashcourt Rowan has been applauded by two of the UK's top small cap teams.
The deal, which came in at a 60% premium to Ashcourt Rowan's closing price on 30 January, sent shares in the company rocketing 56% to settle at 263p by yesterday's closing bell.
Jonathan Winton, who was named co-manager on the fund in April 2013, told Wealth Manager he saw an opportunity arising from the restructure of the business, which followed the arrival of Jonathan Polin as chief executive in August 2011.
One of Polin's first actions was to announce an emergency placing by the struggling firm, which had lost £16.8 million in the previous year. This gave him the firepower to overhaul the business.
'As well as being in an attractive industry, we believed that significant value could be achieved from the actions which management was taking to restructure the business, which would culminate in higher margins over time,' Winton said.
'Whilst we felt this value could be realised as a stand-alone company, this is a consolidating industry, so it’s not a surprise that the asset became attractive to another industry player.'
A-rated Gervais Williams (pictured), who held 0.76% of Ashcourt Rowan through the Miton UK Smaller Companies fund he runs with A-rated Martin Turner, admitted the deal took him by surprise. The duo bought into Ashcourt Rowan a year ago when it placed 8.25 million shares to fund its £14.25 million acquisition of UK Wealth Management.
'We thought it was a good deal and would improve Ashcourt's market position and if anything we thought there would be more deals and that Ashcourt Rowan would lead the consolidation in the industry,' Williams told Wealth Manager.
'The industry is consolidating to reduce costs and increase its client base. We didn't think Ashcourt Rowan would be taken over and this was nice surprise on the upside.'
Williams said the acquisition was a good example of how much value there is in the small cap market.
'Ashcourt Rowan has made lots of progress over the last three years and I believe there are many other companies in our portfolio capable of making similar progress with plenty of upside potential,' Williams said.
Hedge fund Polygon Capital is the biggest investor in Ashcourt Rowan with a 29% holding, while River & Mercantile and Artemis own 6.59% and 4.93% respectively.