28. Mercia Asset Management Plc
Backing Regional Growth
A champion of regional businesses, Mercia Asset Management Plc invests in small and medium enterprises (SMEs) across the UK, operating from its base in Henley-in-Arden. Positioned in the financial services industry, specifically in asset management, the company focuses on venture capital, private equity, and debt financing, targeting high-growth sectors like life sciences, digital entertainment, software, and deep tech to drive innovation and economic growth.
Mercia generates revenue through a hybrid model that combines fees from managing third-party funds with returns on its direct investments. It manages funds such as the Northern Powerhouse Investment Fund and Mercia EIS Funds, charging management fees, typically 1–2% of assets under management (AUM), and sometimes performance fees if returns exceed benchmarks. These funds support early-stage businesses, often providing initial capital between £1 million and £10 million. Mercia then deploys follow-on investments from its own balance sheet, earning returns through equity stakes or debt repayments as these companies grow or exit. In the first half of 2024, Mercia reported revenue of £17.9 million, up 19% from the previous year, with AUM rising 26% to £1.84 billion. Pre-tax profit surged 71% to £2.4 million, though its direct investment portfolio value fell 16% to £120.9 million due to market challenges.
Strategically, Mercia is pursuing its “Mercia 27” plan, aiming to double EBITDA and scale AUM to £3 billion within three years starting in 2024. It raised £57 million for its managed funds in 2024, including £29.2 million for its Northern Venture Capital Trusts, and post-period closed £4 million in Enterprise Investment Scheme funding. The company also realised £600,000 from selling Artesian Solutions, 11% above its prior valuation. Employing around 100 people across eight UK offices, Mercia leverages 20 university partnerships to source high-quality deals. Rising interest rates and inflation have made investors cautious, impacting SME valuations and fundraising.
Mercia’s regional focus and diversified investment strategy, backed by a healthy amount of liquidity, position it well to seize opportunities, but it must navigate a volatile market and competition to meet its ambitious growth targets. It’s an interesting business. Over the past two decades, the asset management industry has seen a relentless squeeze on profitability. This has been driven by a combination of rising regulatory burdens, the increasing popularity of passive strategies, and a sharper focus on value-for-money assessments.
Firms that manage to carve out a niche can still command premium fee rates, and that appears to be the case with Mercia. But niches, by definition, are small. That makes scaling tricky, and if scale is achieved, competition and fee pressure are rarely far behind.
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