BGF responds to Archimed’s takeover offer for Instem Life Science

BGF notes the bid approach for Instem Life Science plc (“Instem”), announced 30 August 2023.

BGF is the second largest shareholder in Instem, owning 1,953,450 shares, equivalent to 8.53% of the issued share capital. BGF has been an investor in Instem since June 2020.

Whilst BGF acknowledges the recommendation of the Board, it does not agree with this recommendation:

• The valuation basis for the recommendation is at least partly predicated on a headline profitability forecast that is subdued by the investment being made into the ToxHub platform which, per Instem’s RNS on 15 May 2023, Instem has secured commercial rights to. BGF is strongly supportive of the investment into the ToxHub platform.
• We share the excitement around the potential for the ToxHub/Centrus platform under Instem’s ownership, which was conveyed in the RNS statement on 15 May 2023. The statement highlighted a “serviceable addressable market of c.£150m” and Phil Reason, CEO, stated “we believe the launch of Centrus provides a transformational growth opportunity for Instem”.
• With the ToxHub/Centrus opportunity being such a recent development, there has not been any opportunity for Instem shareholders to benefit from its commercial potential.
• Aside from the ToxHub/Centrus development, we highlight the successful execution of the company’s broader growth strategy, both organic and inorganic, which is also delivering a more favourable mix of recurring (+43% in FY22) and SaaS (+41% in FY22) revenues. We note that these trends have continued per Instem’s half-year results, announced 15 September, with recurring revenues +27% and SaaS +29%. We commend management on this progress and remain very supportive of Phil Reason’s leadership.
• We note the Chair’s remarks in the 30 August 2023 bid announcement that Instem’s strategy “is anticipated to generate substantial long-term value for shareholders”. This sentiment was reinforced in the 15 September 2023 half-year results: “management believes that the long-term prospects remain strong – with the Company’s high levels of recurring revenues underpinning confidence as well as the relatively untapped upside from the growing AI opportunities yet to be factored in – especially as Toxhub is derisked.” Phil Reason, CEO.
• The price of the bid represents a discount to Instem’s peak price in 2021 (905p, on 20 September 2021), despite the materially positive commercial and financial progress made by the business since that period.
• There was no pressure from BGF or, to our knowledge, any other shareholder, to pursue an exit of the business and deliver “certainty of cash today” per the Chair’s statement in the bid announcement on 30 August 2023.
• Included in the Board’s rationale for the recommendation for the bid included “greater access to capital” under Archimed’s ownership. BGF rejects this assertion.
• In June 2020, Instem raised £15.75m in a placing that was “significantly oversubscribed” to fund a series of acquisitions which were unnamed at the time of the raise. This raise clearly reflected investor confidence in the business and demonstrated Instem’s ability to access to capital from a variety of investors.
• BGF participated in the June 2020 placing and has consistently reiterated its support to management, including its ability to invest more capital into the business. BGF has increased its position in Instem since, demonstrating that support. Since the June 2020 fundraise, BGF has not been approached by the Board or its advisers regarding the need for further funding.
• BGF is an independent investment company, with a balance sheet of £3bn dedicated to supporting smaller growing companies in the UK. BGF takes a long-term view and is resourced to support growth businesses on this basis.