Singapore-based Daniel Mark Harrison & Co. (DMH&CO), an Asia-based family office belonging to banknote printing company Harrison & Sons, has entered into an agreement to invest in Britain’s oldest cash shell Highway Capital (HWC.L), listed on the main board of the London Stock Exchange.
DMH&CO is the lead investor, while other Asia-based family offices too are participating in the deal, expected to conclude before the end of the year.
DMH&CO’s investment in Highway is being structured in the form of a call option to purchase 3.5 million shares of HWC.L at 35p per share once the stock reaches 150p per share, and as loan notes which can be converted into ordinary shares at a fixed price after the loan period has come to an end.
The transaction will see DMH & Co infusing “a substantial block of fresh capital” into the firm, following what Daniel Mark Harrison, Chairman & CEO of DMH&CO, described as a “period of undertaking extensive due diligence” on the team led by CEO Maciej Szytko, as well as their investment strategy.
DMH&CO COO Kathlin Liao said, “I am extremely confident about giving Maciej and his team money from our own books as well as from those of private China funds we deal with. There is a clear synergy between the two combined operations of DMH&CO and Highway, too, and that is why we are committing a fairly significant portion of our Asian capital resources to this business right now.”
In addition, DMH&CO will partner with Highway Capital independently to acquire deep value assets in Baltic countries and in Europe as the public company seeks to expand its asset base. The agreement was finalised by the two entities in late October.
Asked about which were the geographic regions of Europe they would be targeting, Harrison told DEALSTREETASIA: “Central Europe – which encompasses old and new Eastern Europe, principally – is where Highway Capital is focused, since the management team comes from Poland. The Chairman of the company, Ludwik Sobolewski, is one of the most senior bankers in the region.”
He continues: “He is currently CEO of the Bucharest Stock Exchange. The other members of the management team are tremendously well-connected and talented asset managers with a really superb understanding of the Polish, Romanian, and even Russian markets the likes of which you don’t find that much of. We are very lucky to have spotted them really.”
Commenting on this, Daniel Mark Harrison, Chairman & CEO of DMH&CO, said, “We are really excited to become significant stakeholders in Highway Capital, which has a long, long way to go now that it is getting the benefit of a substantial block of fresh capital.”
2016 has seen DMH&CO aggressively expand throughout the Asia Pacific, leveraging on its real estate development business, which it moved into an unlisted public company vehicle earlier in the year in preparations for an IPO on London’s AIM board.
The family office has also benefited from orchestrating a successful rescue package for a group of Hong Kong investors affected by a North English property development project that fell through in late 2015.
The last 12 months have seen DMH&Co expand from a single office in Singapore to two additional offices in Bangkok and Hong Kong, with a flagship office to be opened in Mayfair, London, before the end of this year. In email communications with DEALSTREETASIA, Harrison explained that the Singapore office deals with deal structuring and administrative work, while the Hong Kong offices leads regional operations and marketing, with Bangkok as the ASEAN HQ.
According to Harrison, the Bangkok office is “involved in the bulk of our regional JVs with a lot of real estate focus,” with the company considering establishing more offices across Mainland China in 2017.
Given that distressed assets are part of its investment strategy, coupled with the role of China’s economy in driving growth in the current economic climate, this will enable it to tap both distressed assets within China and consolidate them during what is a prolonged market correction and economic transition from manufacturing to service-based industry.
Asked about their investment thesis in Asia and whether it was opportunistic, strategic or focused on a particular theme, Harrison elaborated: “In the West, you have to go in guns blazing to get value – literally. Asia isn’t like that: rather, there’s a whole line of rope and if you don’t watch out you can hang yourself rather than climb up the hillside. You end up seeing a whole range of great value deals in Asia, but in reality, maybe only 2 out of 50 max will end up generating anything near that kind of cash on the forecast timeline.”
He continues: “In other words, there is a lot of theoretical profit in Asia which is never going to see the light of day, at least not within the promised time line. For this reason, we tend to pick one or two external opportunities to invest in here per year, but for the most part, we’d rather invest in our own internal operations and leave our joint venture parters with the choice on what to do there.”
Given their footprint in Southeast Asia and East Asia, as well as the burgeoning venture capital and technology startup venture space in the region, Harrison shared: “We have just partnered with a brilliant financial and tech engineer called Marcelo Garcia-Casil, into whose company DX Markets we sunk a pile of cash for a recent Series A raise.”
He adds, “Marcelo and I have begun a fund called Monkey Capital which is structured utilizing the benefit of our ex-VC (i.e. property, public stock portfolio etc.) balance sheet in other areas, meaning that investors’ downside is massively shielded while the upside is actually a little more leveraged than usual due to the excess liquidity floating around. It’s a brilliant model and if we get it right it will likely change the face of how a lot of VC funds raise and manage their assets.”
Ongoing investment themes
“Targeting distressed assets is a part of our strategy, but these days, you don’t actually need to go that deep into the woods. There are many property developments and both traditional and hi-tech businesses with millions in positive EBITDA around for the taking and these assets are all virtually self-financing if you have the balance sheet to back it up,” Harrison shares, adding, they were looking at about four to five deals a week.
In terms of sectorial focus, the family is sector-agnostic. “The investment business is very much like the management consulting business – while there might be preferable deals or industries you can work on at any one time, ultimately to remain competitive and to consistently produce way above average returns, then it becomes a matter of keeping a very open intellectual focus,” he reasons.
“I would also argue that being sector neutral keeps you much more honest as well, which helps a lot in investing. You see many VC fund managers in particular fall into the trap of kidding themselves about their own poorly performing investments, and a lot of that is because they are too up-close to one industry segment -in this case technology,” he concludes.