Yorkville fund eyes small-cap IT solutions firms

By Malcolm Locke

LONDON (Reuters) - Yorkville Advisors UK, an investment fund focused on small and medium-sized companies, believes IT firms with technology that can help businesses streamline operations and cut costs are an attractive bet over the coming months.

The UK-based investment manager, which is part of Yorkville Advisors Global Investment, a $1 billion fund based in the United States, believes companies at the forefront of new technology will spearhead a recovery once markets rebound.

"There will be a recovery at some point and those companies that are well-funded, well-managed and who can deliver solutions-based technology will be the ones that perform well," Paul Strzelecki, head of Yorkville's London office told Reuters.

He believes the technology and preventative healthcare sectors, in particular, will be two special areas to watch.

"Internet-based technology companies and those developing mobile connectivity and data services are high on our agenda, while healthcare will become increasingly important," Strzelecki said in an interview.

"Other areas worth watching are renewable energy and the resources sector, where new technologies in oil and gas recovery and mineral extraction will provide plenty of investment opportunities," he added.

Yorkville, which has a number of investments on London's AIM market, describes itself as a hybrid fund, midway between private equity and a hedge fund.

Unlike a conventional hedge fund, however, it is not leveraged and does not short-sell stocks in the market.

Instead, it offers a range of financial services for small-to-mid cap companies, including financing through a combination of debt and equity, although it rarely takes a stake of more than 3.0 percent.

The group has also developed the use of SEDAs (Standby Equity Distribution Agreements) which offer companies flexible financing alternatives based on their capital structure and liquidity. Yorkville will typically give a firm undertaking to purchase a certain amount of stock in a series of tranches in return for a cash injection, avoiding the dilution that a conventional placing or equity issue would bring.

"As credit markets have tightened, we've seen a sharp increase in the number of companies adopting this approach. Over the past three months, the enquiry rate for SEDAs has more than doubled," said Strzelecki.

One of the major benefits of SEDAs is that it guarantees the availability of cash being over a period of time.

"This is very attractive for companies, especially in the current lending environment where conventional funding is hard to come by," said Strzelecki.

"Even those companies that could fund out of current cash flow are increasingly looking at SEDAs as an insurance policy and as an alternative way to fund growth opportunities."