Mercia Asset Management PLC (MERC.L) Q2 FY2026 Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Mercia Asset Management plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Mercia Asset Management plc. Mark, good afternoon, sir.

Good afternoon, and welcome all. good afternoon, all, and welcome to the interim results for Mercia, Mercia Asset Management for the 6-month period to the 30th of September. I'm Mark Payton, Co-Founder of Mercia, CEO of Mercia with a strong venture background in life sciences through value creation and scale up.

Yes, good afternoon, everybody. I joined Mercia 11 years ago to float the business with Mark when there was just a small handful of us.

Thank you, Martin. And from both of us, you'll hear about Mercia, the investment model and importantly, I think, the growing market opportunity that we face. Martin will run through the figures for the last 6 months, and then we'll update you all on progress and our outlook going forward, and we look forward to your questions along the way. For those that don't know Mercia, Mercia has become, over those 11 years, now one of the leading U.K. private capital. And I think it's really important that we address -- we highlight the fact that we address the private markets, private capital asset managers where we look to source deals that others do not see. Our purpose has remained the same, and that is one of wealth creation and prosperity for what we describe as all of our stakeholders. And what we mean by this is our shareholders, our third-party fund investors, our investees and our employees. And the vision of the group is to position ourselves as being the first choice for those stakeholders. The core focus of the business is one of capital deployment on a regional and national basis across the U.K. through the asset classes that we currently manage, which is venture, development capital. And by development capital here, we refer to this as being private equity and debt and property finance. And over the coming period, we're looking at real asset deployment as well. And we do this through our physical nationwide footprint across our 11 offices. We look at AUM growth historically, and we look to that going forward as well as circa 70% growth every 3 years, and the group benefits from a diversified recurring revenue fee of circa 80% recurring. And I think importantly, the group is fully aligned with what's termed the ISA. This is the government's industrial strategy across 8 sectors, which include technology, digital, life sciences, cleantech, et cetera; and the Mansion House Compact, which has evolved now into the Mansion House Accord, and I'll talk a little bit about the importance of that for Mercia going forward. Mercia was developed really to address both an opportunity and a challenge. The challenge really is highlighted in this slide, which is in -- and these are most recent figures, but they have been a pretty consistent theme over the years. So in 2021, there was 12,600 high-growth businesses or SMEs, small- to medium-sized enterprises across the U.K., of which 21% of those were based in London. However, approximately 66% of all capital deployed was into those London-based businesses. And why is the question that one could ask. And that's because you have to be where those deal opportunities are located. And you can see our 11 offices here. And to put that into context, the majority of the investment capital deployed in the U.K. is based in London. So it's not a surprise that the majority of that capital is then deployed into London-based businesses. Our differentiation is our physical presence close to the deal opportunities across the U.K. And what we face are really attractive markets. And here, these are figures taken from 2024 across the asset classes we currently manage, so venture capital, development capital and property finance. This excludes the real asset arena that we're moving into. And what we've done is we've taken from those pools of capital 10% of the market to say that's the market share that we're tending to get. That's our addressable market. And if you look at each one of these boxes, so down on to venture capital, and these are figures from 2024, GBP 400 million to GBP 600 million was invested that year in our part of the market, that's Series A and below. And we invested our last full financial year, which is FY '25, GBP 131 million. So a full, fivefold growth opportunity in terms of meeting that 10% addressable market within venture. And then on to development capital, again, to the niche market that we occupy, approximately GBP 500 million to GBP 1 billion invested in that same period in terms of 10% addressable market share, and we invested GBP 72 million. So then a sizable increase, again, four, five, sixfold increase to get that 10% market share. And then within private finance, again, in our target market, 10% of that total addressable market in that year of 2024, GBP 600 million to GBP 1.4 billion, and we deployed GBP 81 million. So we're often asked how large can this business grow with its regional and national focus. I think this, excluding the real asset and adjacent asset classes that we're looking to grow into, tells you that we can go at least to GBP 10 billion in terms of our own AUM, at least GBP 10 billion in terms of deployment capital going forwards. And that's looking backwards into the figures of 2024. However, what's happening now is the growth of asset allocation into the private markets across a range of sectors. And I think that's really important to sort of bring to life is that we manage retail capital through EIS and VCT. We manage public sector capital, which is predominantly through British Business Bank, and we manage institutional capital. So when you look at those 3 pools of capital, you look at the changing dynamics within the markets we operate in. So British Business Bank recently announced that it has an additional GBP 4 billion to deploy on a domestic basis against this Mansion House Compact and the Mansion House Accord and the ISA industrial strategies. And the Mansion House Compact and Accord is a really important feature, which I'll bring out in a latter slide in a moment. But here, this is about pointing capital from within the U.K. domestically rather from overseas. And there's an increased desire for that to be up to 5% in the private markets. And at the moment, about 4% of this capital is pointed towards the U.K. predominantly into the public market. So this is an emphasis into the private markets. Other sort of changes that are going on. So that's public sector, BBB, institutional, but then there are sort of regulatory changes, the Solvency II Act coming through, which is a reduced liquidity requirement, resulting in increased capital allocation to private credit and infrastructure. And then as you get pooling on the local government pension schemes, there's an emphasis on place-based impact investing on a regional deployment basis. That's capital we already manage and then opportunity to grow within that. And then fund structures, a number of you may have heard of LTAFs, where the larger managers are using this on a multi-asset basis to allocate down to smaller managers as they look for a deal origination basis. So all of those features are playing together. And in the next slide, this really talks about the total asset allocations going on through source. So over GBP 9 trillion within the U.K. And to put some context here, if the U.K. was an asset manager, it would be the second largest asset manager in the world behind the U.S., which is tremendous. But then actually, back to my point about 4%. So 4% of that GBP 9 trillion is currently directed into the U.K. market, predominantly into the public market, actually not into the private market. To set some context here, if these figures were the U.S., it would be 60%. If it was Japan, it would be 50%. Germany, France, 40%. So the U.K. here is differentiated in a truly negative way by such a small amount of that capital being redirected on a domestic basis. And that really is the tailwind that we're seeing at the moment. The conversations we're having with various forms of capital, private capital looking for private capital opportunities across venture, across development capital and across property finance.

Thank you, Mark. These highlights are our summarized interim financial results for the 6 months to the 30th September. The small revenue variance is due mainly to a generally quieter investment climate compared with the corresponding period last year. However, we have grown our EBITDA by 14% to GBP 4.2 million, thanks to our ongoing focus on operational efficiencies. And this, combined with our continuing strong cash balance of GBP 35 million, has enabled our Board to declare an increased interim dividend of 0.39p per share, which will be paid on the 14th of January to shareholders on the register at close of business on the 12th of December, a 5% increase. Both our NAV per share and our assets under management have remained strong at 43p per share and GBP 2 billion, respectively. which included GBP 52 million of fund inflows during the period. We are maintaining excellent investment dry powder with circa GBP 600 million of available capital to equity invest or lend across the U.K. This slide shows our sustained sequential organic EBITDA and EBITDA margin growth driven by those operational efficiencies I mentioned across the group. And you can see here for 3 consecutive 6-month periods, the steady growth in both EBITDA and the margin. Against a continuing challenging market backdrop for some open-ended fund managers, Mercia achieved a resilient performance across our asset classes with, in addition to the GBP 52 million of inflows, GBP 16 million of portfolio value increases and GBP 56 million of distributions to fund investors and dividends to our VCT and our own Mercia shareholders. And there were no redemptions as all of our fund mandates are closed end. This slide provides a breakdown of our funds under management by asset class, investor type and funds type as at the 30th of September. Combined, these typically long-dated or evergreen funds are generating a blended fee margin of circa 2% across our 65 investment mandates and just over 80% of our revenues are contracted and recurring. This is our consolidated profit and loss account for the 6-month period. And you can see there the strong growth in EBITDA of 14% EBITDA and also the growth in margin from 20.8% up to 24.6%. The group is now consistently profitable. Our balance sheet remains extremely strong at GBP 187 million. The balance sheet portfolio, which Mark will talk to in a moment, is up to GBP 131 million. And as you can see there, we have the GBP 35 million of cash and no debt. And this strong balance sheet is what underpins both our share buyback policy of GBP 3 million per annum and the increase in our interim dividend. And here in our cash flow statement, you can see the cash-generating nature of our business, combined with a relatively small amount of investment into the balance sheet portfolio in the 6-month period of GBP 5.5 million. The GBP 1 million that was spent in the first 6 months on the share buyback, we're now up to about GBP 1.6 million across 8 months. But also now, I'm pleased to say that some of our employees are able to exercise share options, which they've held for many years. And you can also see there proceeds received from the exercise of share options by employees. These last 2 slides of my section really balance what we do with our shareholders' money between returns to shareholders and investment in M&A. So this first slide shows the cumulative GBP 25 million now, including the interim dividend of returns to shareholders through both the progressive dividend policy since the depths of COVID in December 2020 when we started our dividend policy, but also the GBP 5 million share buyback we completed a year or so ago and the new GBP 3 million share buyback policy. And we balanced shareholder returns, with our thus far, successful M&A policy, which since IPO, we've completed 3 successful acquisitions. And what we do there to benchmark how our M&A sets against other capital allocation policy is an estimate of what our weighted average cost of capital is, which is 9% and then looking very closely at whether or not the acquisition strategy that we've adopted and the transactions that we've completed exceed our weighted average cost of capital. And as you can see here, so far, each of our acquisitions have comfortably exceeded our weighted average cost of capital and therefore, maintaining that balance of shareholders' funds between distributions back to shareholders, but also continuing with our M&A strategy is the core of our capital allocation policy today, which we will always keep under close review. Thank you.

Thank you, Martin. And I will talk about the direct investments in a second, general progress across the group and an outlook as we go forwards. So in terms of the direct investments, we started the period with circa GBP 126 million in value across what is in effect now 17 active investments. And what I should say is a number of years ago, before we started the Mercia 27, we stopped adding new investments to the balance sheet. And in this period, which we call the Mercia 27, we're at the interim period. We made a commitment now to unwind the balance sheet and looking over that 3 years to divest up to 27% by value of these direct investments. So GBP 126 million in opening value, circa GBP 5.5 million invested, and I think that's another key point here is that these businesses now either require no further investment support or a limited amount of investment support. So we're seeing a declining requirement for capital in this portfolio, too. We've seen fair movements up and down, and I think the most -- and it's sort of a base point, so GBP 340 million down, so basically stand still. The biggest movement here is circa GBP 3.5 million in Medherant. Medherant's got a partner program, but it's also managing and developing its own patch technology for a testosterone patch that had a supportive trial over the summer period. It received investment to take to what really is a dose-ranging and pivotal trial coming up in the winter. We just started that trial actually. And we don't envisage putting any further money into this business once that trial is completed. And on that basis, what we've been able to do is turn the preference stack on. So our investments -- most of our investments, many of our investments on the balance sheet, a degree of them will have preference shares in them. What we choose to do as a house is that we don't typically turn those preference shares on until we're comfortable and confident that the business does not require further investment. The reason being if it does, a new investor may come in and change that stack and readjust those preference shares. So on that basis, we have a value lift here, not because we've lifted up the enterprise value, and they were positive clinical trials, but not because we've lifted up on that, but because we've lifted it up on the preference stack being turned on. And I just think it's important actually to outline that. And so we closed out the 6-month period with a holding value of circa GBP 131 million. And I'll come on to the divestiture timing, et cetera, in a slot slide in a moment. I'm sorry, the slides have all just jumped, okay. So the next slide actually does talk to what exactly I was just speaking about. So when we started this 3-year plan, FY '25, what we said is that we expect no exits in that first year period of the 3-year plan. And we got -- we sold one small business actually brought back GBP 600,000. In FY '26, the forecast was up to GBP 10 million in exits, so we've got a range of GBP 7.5 million to GBP 10 million, and we are committed to that. So we've got a half year that we're progressing that in, and that's to bring back capital onto the balance sheet. And then in the final year, as we have said throughout this journey, we expect the exits on the balance sheet to be very much back-ended so that we get GBP 50 million to GBP 70 million in that final year period, taking us towards that 70% by value exit point. Now these are the top 10 assets held on the balance sheet. And this accounts for about 85% of the total balance sheet value, which I think is also important to note. Netacea, which is a cyber play business that's moving towards breakeven, so has nominal capital requirements going forwards. Voxpopme is basically at breakeven position, revenue growth, good strong customer retention. So again, limited capital requirements. Medherant, I've spoken to. Warwick Acoustics is a flat speaker technology. It's got very sophisticated high-end headphones, but more importantly, it's being integrated into a number of OEMs, one lead OEM, which we were hoping, this is within the automotive sector, to come out this autumn this year, sadly for a number of reasons, that's been moved into 2026, but we still expect that to come out, and that will be a significant value inflection for that business. The Cards, Universe and Everything, VirtTrade, which is a platform gaming company, that's just bringing through a new game to lift revenue up. That will require a modest amount of investment from us. Eyoto, which is a remote ophthalmic instrumentation business will require a modest amount of investment for us, has made commercial sales with a building pipeline. In -- sorry, Invincibles Studios, Soccer Manager as it was laterally called. That has had its most successful games launch to date with a record number of users on that platform. That is at breakeven, does not require further investment from us and is expanding its game and gaming platform. Locate Bio, which is a generics growth form repair cement that's got early clinical data. And at the moment, the management team there are looking to formulate a new clinical trial to advance that company. That will require additional capital. Intelligent positioning, which is a sophisticated SEO platform utilizing large language model and an integrated AI facility is in revenue growth now. It's in terms of breakeven, so it requires no further investment from us. And the final business, which is Aonic. For those that will remember, this is the business that acquired nDreams, our virtual reality business about 2, 3 years ago now. We have a residual stake in this business. The business is turning over about EUR 300 million, making EUR 80 million EBITDA, and it itself is looking at an IPO exit in the near to medium term. And at that point, we would look to get out of the business that does not require capital from us. So hopefully, that shows you how limited capital requirements now of these businesses as they mature towards what we expected exit events for the group. And just in terms of the quality of opportunities we see by being physically based across the U.K. Some of you will recognize some of the brands and labels on the right. For instance, the Beauty Tech Group was a business that came through the Northern VCTs and was recently listed on the main market. whether it's through the debt team backing the Harrogate Spring Water opportunity or whether it's through our property finance team backing the Birmingham Hippodrome. There's some very strong labels on there that we benefit from accessing because of our physical presence and strong brand name. We've invested GBP 95 million in this first half, and that's been GBP 43 million across the Ventures division, which includes the GBP 5.5 million from the balance sheet, GBP 33 million of development capital and GBP 19 million in property finance. And to the to the Mercia 27. This chart here shows our starting point, which was GBP 1.8 billion in AUM, GBP 5.5 million in EBITDA, 18.2% EBITDA margin. And actually, that divestiture there, GBP 26.7 million was the sale of nDreams to Aonic. And as we move forward and we target our third year end game, if you like, the 31st of March 2027, we have reasonable confidence to get to GBP 3 billion in terms of AUM and EBITDA of GBP 10 million and our EBITDA margin of 26% and the divestiture of the balance sheet of up to GBP 80 million. With GBP 52 million of inflows, and I'll talk more to the organic FUM inflows in a moment, we remain confident on all those fronts, we will achieve those goals. And in terms of increased operational efficiency, there are 2 metrics and measures that we use here. One is EBITDA margin and one is assets under management, AUM per employee. On an EBITDA margin, so at the opening year, we were at 18%. We moved to 21%, 22% and 24% in these figures as we head towards a 26% EBITDA margin. On an AUM per employee, you can see the GBP 13 million, GBP 14 million and GBP 15 million climb there. And that's really through a number of features actually, automation, the use of AI agents, sort of implementation of unified IT systems across the group. But really, what we're trying to do here is build a scalable business so that as the business grows, we do not have to add the level of headcount that we've had to add historically. And this image here, this talks about the asset management, the AUM, funds under management gathering over the period. You can see there it's a sort of circa 50% CAGR. And in terms of the third year of this 3-year plan, you see the growth coming across all asset classes that we manage and then a move into real assets. And then if you look across at the feature here in terms of the table and the target FUM, you can see by the end of this year, so we've had GBP 52 million of inflows so far. We expect that to grow to GBP 142 million. And then the final year, we expect that to grow to GBP 738 million in addition. So you can see circa GBP 880 million of inflow pipeline. That still speaks to the fact that 50% of our growth historically has come through organic FUM gathering and 50% through acquisitions. And we would expect an acquisition to come through the pipeline during this 3-year period. You'll notice in the FY '27 period that we see institutional capital starting to feature heavily in our third-party FUM gathering. Sorry, I have to -- I don't know why the slides keep changing like that. And then finally, in summary, there are tailwinds for growth here. And you can see from here that we see strong domestic growth prospects for our private markets in terms of investable assets and assets under management. We have diversification, which I think is really important for a sustainable long-term company growth, whether it's by the regions in which we're seeking deals, the deal origination and types of deals we're seeking, the asset classes we manage or indeed the investor pools of capital that we manage. The revenue is predictable and recurring at circa 80%. We have a blended fee margin of 2%. And I think really importantly, increasing shareholder cash returns to you. GBP 25 million returned over a 5-year period should be put in the context of a market cap for the business of less than GBP 130 million. We will continue with that progressive dividend policy, and we will continue for the foreseeable future with the share buyback to do so that we continue to return capital back to our shareholders. Thank you very much for your time today.

Perfect. Mark, Martin, if I may just jump back in. Thank you very much indeed for presentation this afternoon. [Operator Instructions] I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboards. Guys, as you can see we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But Mark, Martin, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Thank you.

Excellent. I'm afraid the slides keep flicking around all the time, but forgive me on that. So there's a question I will pass on to Martin, which refers to, in 2015, share price 60p, today, 30p. Why do you think that is?

So back in 2015, not long after we floated, at that time, there was, I think, a general confidence in the valuations of private assets. And there were a number of businesses such as ourselves who are building balance sheet portfolios. And all of us had share prices which were sitting at a premium to NAV. And in the years that have passed subsequently, I think that sort of confidence in the intrinsic value of these private asset investments has turned more to a skepticism towards them with some validity. And I think, therefore, all of us, to a greater or lesser extent, have been affected by that move to a more skeptical approach to private asset valuations, and that's reflected in share prices going from a premium to NAV to a discount to NAV. I think also, I don't think it's helped in our particular case with the liquidity challenges, which everyone is familiar with about being on AIM. And hopefully, one of the ways that we'll be able to address that in the future is to, in due course, at the right time to move from AIM to the main market.

Thank you, Martin. I've got a number of questions, which I think fit nicely into one batch, which is to do with exit environment and when do we expect realizations for the balance sheet to start. And the exit environment, as this individual has quite rightly pointed out, are typically trade sales, IPOs, secondaries, et cetera. And how do we see those over the next 1 to 2 years? What do we see unfolding? Well I did mention about the Tech BT Group, and we've done a main market IPO on that. I have to say IPOs have never been our main exit environment for our portfolio, specifically for our venture portfolio. And to put that into context, of the GBP 2 billion we manage a little over GBP 1 billion is in venture. Of the circa 500 companies that we have across our different asset classes that we look after, approximately 250, 260 are in venture. So it's half our business is venture. And we have routinely been selling those businesses to trade acquirers. And that market is still the same. What's happening in that market and what's causing -- and this is why we back-ended these in the first place because this was starting to unfold at the beginning of the strategic plan. Our deals are just taking longer. Deals are taking much, much longer. So when you've got a trade sale going forward, there is not a quick trade sale anymore. It takes time to happen. Those companies can be global. One of the questions is, are we seeing more from U.S. companies? What we're seeing more of is not so much U.S. companies acquiring our venture businesses, but U.S. investors coming into the U.K. and being an increased area of syndication, but also competition for deals. And that, I think, fits quite nicely with the other point, which is secondaries, is that we're seeing those U.S. funds coming in also providing secondary capital for management teams within these businesses, but also an exit environment for our own investment. So I would say going forwards in the next 1 to 2 years, it will be -- the exits will be trade sales and secondaries, and we'll have to wait and see whether the IPO, public markets really do kick back into life. Another question was why cap yourself for Series A when you're doing this venture investment, which I think is a very good question. And for those of you that were like us listening with intent at the recent autumn budget, you may well have heard that EIS and VCT, which is the 2 retail pools of capital we manage, are now allowed to do up to GBP 20 million from a GBP 10 million knowledge intensive is what most of our businesses do, up to GBP 20 million per annum and up to GBP 40 million into a company in its entire life. That is a doubling of the amount of capital we can do from both VCT and EIS. So we would expect to be able to now move into Series B because of the volume of capital we can deploy will match that. So I would imagine that's a moving piece now is that I would imagine that Series B is a place where we'd go up to. And in terms of institutional new funds, a Series B to Series E institutional fund is highly attractive and something at the moment we're formulating. And then in terms of the balance sheet realizations, that really clicks into that answer in the first point, which is it will be trade sales. I mean Aonic is the only one that could be an IPO, and we are then, therefore, dependent on the IPO market returning for the value that those managers are looking for. But it will be trade sales, and it will be strategic exits. So very rarely are our businesses bought on an earnings multiple or a revenue multiple. They are usually strategic exits for us. Forgive me while I just scrolled down. Next question, which I am going to give to Martin. Why do you think the share buybacks have had any big benefit? Why do you think the share buybacks have any benefit to shareholders? There is no evidence.

Thank you, Mark. Well, I suppose there is a correlation between the stability -- the relative stability of the share price since we started the buyback. I've never felt that for a business like ours, share buybacks would have a big impact because I'm not sure that our business is valued on an EPS basis, of course, which will be the normal mechanism by which a buyback would impact the share price. But we have seen, in fact, since we started this particular buyback a very leveling of the share price generally. And also, if you're tracking our buyback announcements, there's quite a few days when actually there is no trade with the buyback mechanism. So I think it's a helpful mechanism which is there throughout the year should institutions or individuals wish to sell without damaging the share price.

Thank you, Martin. I'm going to keep you on the hotspot, I'm afraid. So there's an interlinked questions here, which I think are related. So in terms of M&A, how -- so the first thing is about targets. So what targets, how much do you envisage that we could acquire through M&A? What is it we're looking for in terms of M&A? How do you value those prospects? You can choose to answer or not answer it. And what would you pay in terms of M&A? And I think it's really important to put into the context is this isn't a new skill for Martin or Mercia. We bought 3 businesses very successfully as you've seen so far.

Okay. So remind me, Mark, then please, if I don't remember to answer all of those questions as I go through them. I'll try and go through them fairly sequentially. So historically, I would -- I think roughly half of our AUM has come through M&A. And I think that's likely to be a trend which will continue. What do we look for? We're -- the first thing we're looking for really is either adjacent asset classes or more of the same. That's been our approach, having started as a venture manager investing through our EIS funds originally and then moving into regional venture and then moving into VCTs where the ticket sizes are typically larger. We already had a small part of our business was doing SME lending and then the more recent acquisition, Frontier Development Capital took us into greater SME lending and with larger check sizes and also into property lending. So something that is adjacent to what we're already doing, including hopefully, a move into real assets would be the logical next step for us. How do we think about M&A and pricing, et cetera? Well, price is the very last thing we look at. We never think about if we can get a deal for this price, it will be a great deal. That's the road, I think, through ruin, which there are many examples of that. We start with culture. The #1 thing is culture for us. And we have a very simple hurdle rate, which is if we can't come up with 20 reasons why we think this is a good business to buy, we don't even engage. And in each of those 3 cases that I highlighted earlier, each one of those on paper was over 20 before we engage with them. And it's the Pareto principle. It's the 80-20 rule, which is that 80% of your value creation is likely to only come from 20% of your value drivers. So if you set that 20% bar too low, you're increasing execution risk from M&A. So that's how we approach it. The key thing for us is culture. If we are over the 20 value drivers, if we think it's something that would add value to our business, to shareholder value creation, how do we think about pricing? Well, we calibrate a number of things. So we'll start by looking at the revenue multiple. We think look at EBITDA multiples. We're looking at potential purchase price relative to the AUM that the business is managing. Then we look at sort of the public multiples. If you read the research notes, there are different ways in which Canaccord and Sing as an equity development may put a notional share price on us, whether that's 4% of AUM plus NAV or whether that's 20% post-tax profits and NAV. So we look at all of those things. And ultimately, we'll come to something that we feel is a fair price to offer. We always try and structure our transactions so that approximately 2/3 of the consideration is initial consideration and approximately 1/3 is contingent. And similarly, we always offer particularly with a treasury reserve of shares in a treasury reserve, we do have some flexibility of issuing shares as part of the consideration, although we're always very conscious at this -- particularly at this time of not issuing too many shares because of the dilutive effect to shareholders. So it's a fairly complex matrix that Mark and I have been using for 10 years. But I hope that gives you a flavor of how we approach M&A.

And if I can just add to that a bit. So an additional element was how many acquisitions, 1, 2, a number? And what is it we're looking for? Is it AUM? If so, what's the AUM, et cetera?

Yes. Well, hopefully, I've sort of given a view around the AUM, which is we're at 2 billion today. We're looking to get to 3. We see organic growth opportunities, as Mark highlights. We want to go north of GBP 3 billion. So I suppose to perhaps give some guidance there, if we could find a business that was GBP 0.5 million -- sorry, GBP 500 million in AUM upwards. I think given the scale that we are today, that would potentially be a very good fit.

Fabulous. Fabulous. Thank you. There was one question about do you do Series A venture because you're not investing in London? Well, I think it's really important to note that although 80% of what we do is outside of London, 20% is. And actually, we see Series B and onwards opportunities across the country. So it isn't because we avoid London, we don't do Series A. It's actually more of a structural thing is that our funds have not been able to go to that sort of level of capital deployment at Series A and beyond, which we believe now changes with the change in rules. And another question was about how sensitive is the business to the changes of interest rates since 2022. Well, I'll talk to venture and Martin, if I can pass you on to debt, et cetera. But within venture, it's been -- it's pretty -- I mean it doesn't -- the interest rate doesn't really influence the venture activity. So the interest rate changes, and you can look at it over the cycles, interest rates have been all over the place, and there have been venture booms when there's been high interest rates as well as low interest rates. So within the venture market, that's not so much the case, but maybe across the group, there may be differences.

No, I think in our lending divisions, bearing in mind, we're lending different quantums to SMEs and then we're also doing sort of property finance as well. I mean, in the SME lending space, interest rates between sort of 9% and 11% that we've been charging have been absolutely fine. It hasn't stifled deal flow. We tend to be on the property lending side, maybe 3% or 4% over base. that hasn't stifled deal flow at all. So I think the interest rate -- although interest rates have all moved up in a competitive landscape, bearing in mind that we are expected to make a return on the funds that we're managing, we haven't seen an adverse impact on our own deal flow.

Thank you. I think that's all the questions.

Well, there was, if I may, just a couple of other ones. So one was a question on how would you fund M&A? Yes. And I mean there's 2 ways to look at that. And one is to wait until we begin to exit the balance sheet portfolio. And another way of thinking about it, if the appropriate opportunity came along and you didn't think you could wait, and it was in shareholders' interest to move quicker, then we would look to put some form of facility in place that would enable us to do that, which would then obviously be repaid from realization proceeds. And one final point, if I may, which is around -- questions around IHT relief. And we have said for a number of years that we believe our shares qualify for IHT relief. And I'm pleased to say that we've just refreshed our tax advice within the last month, and that advice has remained very firmly that they believe that Mercia shares do qualify for IHT relief.

Thank you.

Perfect, guys. If I may just jump back in there. Thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Mark, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and to the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great.

Wonderful. And thank you, everybody, for your questions. And actually, just for your attention during this. We -- Martin and I work hard to reach out to our valued shareholders in retail, and this is a brilliant platform to do that. These results, I think, in the context of where we operate in are strong. We see increasing EBITDA, increasing margin, increasing deal flow. And across all the pools of capital we manage, we see inflow opportunities. So we're very optimistic. Rarely have I been this optimistic as we look forwards to the coming months and years. So strong business, scalable business, strong domestic markets with quite a lot of structural change pointing towards our operation. So, thank you all for your support, and we look forward to updating you on the progress of the Mercia 27 at the prelims.

That's great. Mark, Martin, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Mercia Asset Management plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon.