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Nick Train, one of the UK’s best-known fund managers, has labeled the sale of British chip designer Arma a “mistake” that has potentially deterred other technology companies from listing on the London Stock Exchange.
The fund manager said Arm would now be a “top five company” on the London Stock Exchange if it had remained listed in Britain and not been sold to Japanese investment group SoftBank.
“(The sale of) Arma in 2016, it was objectively a mistake,” he told the Financial Times. “It’s hard to blame people, but SoftBank bought Arm for £24 billion. It is now listed on the Nasdaq and is valued at £110bn. So it’s a big fail.
“I guess tech entrepreneurs have seen that institutions (shareholders) are willing to sell and maybe that’s a disincentive,” said Train, who did not own shares in Arm.
Train’s comments come as London continues to struggle with companies leaving the London market in favor of New York to access more investors. British policymakers are trying to make London a more attractive location for tech companies through listing and regulatory reforms.
Train co-founded the £16bn investment firm Lindsell Train in 2000 and runs the Lindsell Train UK Equity fund and the Finsbury Growth and Income Trust. It supports a small number of British companies — between 20 and 35 — on a long-term basis.
But Train believes the recent rejection of an approach to takeover online property group Rightmove could be a sign that “lessons have been learned from the premature sale of Arm”.
REA, the Australian property platform controlled by Rupert Murdoch’s News Corp, made three bids in September but the approaches were rejected by Rightmove’s board, which valued the deal at as much as 6.1 billion pounds.
“The institutions, including us, were not interested, despite the fact that the offer was 30 per cent above Rightmove’s price at the time,” Train said. “We don’t mind that the stock is 20 percent below the offer because we think this company could double, triple or quadruple in the years to come and why would we miss that opportunity?
“When you have a business with a digital platform of the caliber of Rightmove, you don’t sell that cheap.”
In contrast, other holdings in Train’s portfolio, such as investment site Hargreaves Lansdown, have been subject to takeovers. “The reality is that there has not been a single day since the offer was confirmed that the share price has been above the offer value,” he said.
A consortium of private equity firms, including CVC Capital Partners, bought the company for £11.40 per share in August, valuing Hargreaves Lansdown at £5.4 billion. “Whatever I feel about it, I just have to objectively accept that it’s an indicator of value,” he added.
Football club Manchester United it also came into focus last year when billionaire Sir Jim Ratcliffe bought a 25 percent stake from the Glazer family. Train used this as an opportunity to sell a quarter of his portfolio investment “at the highest valuation ever recorded for a football club.”
“We have 75 percent of our shares left that we couldn’t offer, and we’re in a position, I guess, where we stay aligned with the Glazers.” . . I expect one day one entity will own 100 percent of Manchester United, but who knows when.”
Train admits its portfolio has suffered from “an ongoing period of poor performance, which is disappointing for our clients”.
The UK equity fund returned 4.6 per cent last year, compared with 7.9 per cent for the FTSE All-Share index on a total return basis. Over the long term, the fund has averaged a return of 9.3 percent annually since inception, compared to a benchmark of 5.9 percent.
“I’ve had shocking returns from three luxury or premium goods companies: Burberry, Diageo and to a lesser extent . . . Fever-Tree,” he lamented.
Train has increased stakes in digitally-focused companies over the past year in an attempt to improve performance. “We have more than 50 percent of the portfolio in technology-related businesses. . . I think it could grow a little more,” he said.
One of Train’s biggest investments is Newcastle-based software company Sage.
“What could attract tech companies to list in the London market? If Sage, as a leading UK software company, could do really well over the next five years and people could believe that a UK technology company could achieve a Nasdaq-type rating, that would help.”
Among Train’s biggest successes is consumer goods group Unilever, which he said has outperformed the Nasdaq on a total return basis since 2000. Train has backed the stock since 2006.
The FT revealed last month that Unilever was planning soar his ice cream business.
Train warned against separating other parts of the business. “I would say we should be cautious (about) forcing Unilever to break up, because that could create diseconomies of scale for a business that has objectively done quite well over the decades.”
