http://www.lanstead.com.au/wp-content/uploads/2015/11/IIR-Lanstead.pdf THE LANSTEAD INVESTMENT MODEL
Lanstead takes part in a standard equity placement but what distinguishes the model is that it puts in place a Sharing Agreement with the company. The Sharing Agreement works in the following way: Lanstead buys and takes delivery of the shares, typically at a 15% discount to the prevailing share price. Lanstead then agrees a benchmark price (BMP) set in relation to the prevailing share price at the time of the placement. The BMP is typically set at a 15% premium to the share price. A time period is set, typically 18-months. Over this period additional funds are released on a monthly basis. Hence the total investment amount is variable and subject to the actual share price over time relative to the BMP. The model is described in detail below.
INVESTMENT MODEL IN DETAIL
The investment consists of two distinct phases, namely the equity investment and the Sharing Agreement.
With the equity investment, Lanstead agrees to invest an amount of funds priced at a discount to the current share price, as per any normal share placement. The discount that applies is generally 15%.
The Sharing Agreement consists of three distinct steps.
The BMP is agreed to at the outset of the Agreement, as well as the timeframe of the investment. In the past the BMP has ranged from a 15% to 20% premium to the prevailing share price at the time of the placement.
The investee company retains 15% of the total capital commitment at the outset of the investment period for immediate use and returns the remainder back to Lanstead to feed the monthly agreed scheduled payments.
Lanstead releases monthly payments to the company. The fixed monthly amount is based on the investment amount less the initial 15% upfront payment amount divided by the number of months in the investment term plus a variable component. The variable component is determined by the percentage amount that the end of month share price (or more specifically the 5 day VWAP at the end of the month) is above or below the BMP. In short, in any given month if the share price is above the BMP the company will receive a greater amount than the fixed monthly amount, and vice versa.
WORKED EXAMPLE
An example of the investment process would be the following.
Under the equity investment, Lanstead agrees to invest $10M priced at $0.20 (50 million shares) with the current share price being $0.23, equating to an approximate 15% discount. An initial 15% is issued to the investee company shortly after the settlement period.
At the same time Lanstead agrees a BMP of $0.28 and a set time period of 18-months. The ongoing monthly payments will consist of a set amount equal to the investment amount ($10M) less the initial upfront payment ($1.5M) divided by the 18-month investment term (approximately $500K per month) plus the variable amount. The variable amount is equal to the percent that the end of month price is above or below the BMP multiplied by the set amount.
For example, if at the end of the first month the investee company’s share price remains unchanged then the monthly payment amount would be adjusted by -20% (-$100K), that is the set monthly payment would be reduced to $400K.
Over the course of the investment term the actual investment amount will be variable and determined by the end of month share price performance relative to the BMP. The total investment amount is therefore very much path dependent. The longer the share price remains above the BMP, the greater the total investment amount, and vice versa. What remains constant, however is the number of shares issued by the company.
The investment model can be viewed as a series of 18 separate capital raisings (but without the investee company incurring all the various costs and time demands/distractions of actual capital raisings). On day one, Lanstead engages in a placement amount equal to 15% of the total committed funds and at a 15% discount. In month two, to keep things simple if we assume a 20% BMP premium and the share price has remain unchanged, then Lanstead will in effect engage in another placement equal to a 20% discount to the then share price and so on for each following month until the investment term ends.
The model provides some downside protection for Lanstead. Although in practice Lanstead occassionally finds that companies may select themselves out of the investment process if they are not confident they will achieve their growth initiatives during the 18-month investment term.
The chart and table below presents a randomly generated example of how the Lanstead investment model works. In the example, in those months where the share price is below the BMP the actual monthly amount is reduced by a negative variable amount. The converse applies in those months where the share price exceeds the BMP. In this example, the investee company receives a total investment amount that is $520,000 higher than the amount initially committed due to share price performance. Importantly, there has been no additional shares issued for the $520K received by the company. This demonstrates why a Lanstead investment is the cheapest and least dilutive source of capital for growth companies.
LWP Price at posting:
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