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BlackRock, Norges and GIC are among the investors signed up to back a listed private equity vehicle from the founders of Melrose Industries, in a float this week that will come as a welcome boost to the London market.
Simon Peckham, chief executive of Rosebank Industries, told the Financial Times that the new shell company would initially list on London’s junior Aim market. But the founders expect Rosebank to move quickly to the main market once it starts buying companies, probably reaching the FTSE 100.
The group has secured the backing of blue-chip investors including asset managers Artemis and Aviva to take a slice of an initial £50mn fundraising, he said. It will be run by six former Melrose executives.
Jersey-incorporated Rosebank will return to its investors for more funds once it has found its first deal. The company will target UK, US or Europe-based industrial and manufacturing companies with an enterprise value of up to $3bn. It will replicate the “buy, improve, sell” model which was the hallmark of Melrose over two decades, Peckham added.
The former Melrose boss and his colleagues are among the last of the City of London’s old-school corporate raiders, buying companies, turning them around on the public markets and rewarding themselves handsomely when they succeeded.
“We’re back . . . and we want to go and do it again,” said Peckham, adding that Rosebank would target underperforming public companies, businesses owned by private equity or divisions of larger groups.
Their run at Melrose culminated in an acrimonious and politically charged £8.1bn hostile takeover of engineering group GKN in 2018. After breaking up the business, the executives this year took the major share of a £180mn bonus pot, adding to bumper payouts from previous acquisitions.
Peckham refused to rule out another hostile bid for a public company.
Melrose raised £13mn when it listed on Aim in 2003 and went on to raise more than £10bn in equity and £17bn in debt to fund deals over two decades. But the GKN turnaround did not go as planned, something Peckham blamed partly on challenges posed by the pandemic.
Rosebank is set to publish an admission document as soon as Tuesday ahead of a flotation scheduled for Thursday. The group considered raising money privately, but Peckham said the Aim market proved by far the fastest option. Rosebank has promised early investors a move to the main board once it does its first deal.
The group is assessing 10 to 15 potential targets, said Peckham, predicting that most of Rosebank’s assets would be in the US in five years’ time. Its aim is to double the value of investors’ equity within three to five years. The group would look to find a second investment before selling off its first one, Peckham added, raising the prospect of rapid expansion.
Similar to Melrose, Rosebank management’s remuneration package will include a three-year incentive plan, handing them a 10 per cent share of the increase in the group’s value once returns for investors pass an annual rate of 8 per cent. “I don’t think people mind paying for performance,” Peckham said.
Peckham and his co-founders stepped back from Melrose this year after its strategy switched to focusing on aerospace. The executives considered raising a private equity fund or partnering with buyout groups on specific deals. But it “is just not as much fun”, said Peckham, because of the influence the groups would exert over investment decisions.
Rosebank bosses will contribute about 10 per cent of the initial £50mn fundraising, said Peckham. Of the Melrose co-founders, Christopher Miller, will be a non-executive while David Roper will invest but not be part of the management team. Outgoing Melrose chair Justin Dowley will chair the new group.
Aviva and Artemis confirmed they were investing in Rosebank. BlackRock, GIC and Norges declined to comment.
Kunal Kothari, fund manager at Aviva, said: “We supported this management team for well over a decade [at Melrose] and they have historically created value for shareholders.”