- Disposal boosts Chrysalis’ liquidity
- SBO to receive back original investment
- Analyst says deal is ‘good news’ for UK tech
British semiconductor company Graphcore may have been sold to Japan’s Softbank (9984:TYO) at a fraction of its peak value, but the deal has allowed investment trusts Chrysalis Investments (CHRY) and Schroder British Opportunities (SBO) to realise some cash and report uplifts in NAV (net asset value).
Graphcore, which also features in the portfolios of Edinburgh Worldwide (EWI) and Schiehallion (MNTN) as well as Molten Ventures (GROW), was once considered a rival to high-flying Nvidia (NVDA:NASDAQ).
The Bristol-headquartered machine intelligence semiconductor company develops IPUs (Intelligent Processing Units) that enable AI (artificial intelligence) computing.
Softbank didn’t disclosed how much it paid for Graphcore, but it is thought to be considerably less than the £2 billion the UK company was valued at following a 2020 financing round.
WHAT DID CHRYSALIS SAY?
Growth capital trust Chrysalis, whose shares were marked up 2.3% to 85.1p on the news, confirmed that the ‘likely disposal’ it teased in December 2023 was indeed Graphcore.
It expects to receive £43.8 million worth of proceeds from the sale, 25% above the carrying value at 31 March and adding 1.46p to the trust’s NAV.
Chrysalis explained that Graphcore had been one of the riskier positions in its portfolio, one that offered ‘a play on the rise of the, at the time, nascent AI market, but where the downside protection of the company’s position in the capital structure offered a way of defraying that risk’.
Managers Nick Williamson and Richard Watts said that while their Graphcore investment thesis ‘did not play out as originally envisaged, the knowledge the company built in this space was valuable and this has been recognised by SoftBank. As such, we congratulate Nigel Toon (Graphcore’s CEO) and his team on effecting this exit and wish them well for the future.’
Significantly, the sale boosts Chrysalis’ liquidity to around the £50 million buffer required before it can return sale proceeds to shareholders, likely through buybacks, although Numis expects another disposal will be needed to ‘fuel significant returns of capital. We note that Klarna is expected to IPO in Q1 2025, while the manager has stated that other processes, “at different stages of maturity and certainty” are in process.’
SBO RECOUPS INVESTMENT
Shares in Schroder British Opportunities, which originally backed Graphcore in late 2020, were bid up 0.6% to 78.5p on news it will receive back its original capital investment in the company, minus some expenses.
The trust had been valuing its holding in Graphcore at a lower value, so the sale will result in an uplift of 22% on the latest first quarter valuation.
As for Molten Ventures, which first invested in Graphcore in 2016 and further supported the business in subsequent funding rounds, its shares weakened 0.6% to 387.5p on Friday.
The FTSE 250 venture capitalist has realised a total return of $26 million (£20 million) from the sale of its Graphcore stake, but this represents a multiple of just 0.9 times the invested capital.
However, Molten Ventures was at pains to point out this means ‘the majority of the cost has been returned which demonstrates the benefit of downside protection with preference shares.’
THE ANALYST’S TAKE
Dan Ridsdale, head of technology at Edison, thinks the deal is actually good news for UK tech and Graphcore.
‘Nvidia has carved out dominant position in Generative AI processing with the ecosystem and capital it now has at its disposal, will be very hard to displace for large scale LLM/GenAI deployments,’ said Ridsdale.
‘There are other opportunities within AI however and the industry does will need viable competitors to Nvidia, but Graphcore will need substantial capital to remain in the mix. It is a positive that Graphcore has found an investor willing to take the risk and provide the capital to put Graphcore in the mix.’
