Published 14 Mar 2014 15:38
(The following article was published on Alliance News Professional and Alliance News Investor earlier Friday.)
LONDON (Alliance News) – Rare and antiquarian book dealer Scholium Group will price next week’s initial public offering at 100 pence per share, giving it an initial market valuation of GBP16 million, Chief Executive Phillip Blackwell told Alliance News.
The company plans to raise up to GBP10 million in the IPO, money it will use to increase its stock, develop the business, and set up a new trading division that will branch out into the wider rare and collectibles market, Blackwell said in an exclusive interview.
Blackwell founded the company in 2009 and built it up through three acquisitions. He now wants to grow it organically and through further acquisitions.
“We want to accelerate the growth and profitability of the rare books business. It has high growth potential, but it is very working capital intensive,” he said.
“The second thing we are looking to invest in, is to develop a new business unit called Scholium Trading, a business which seeks to acquire, alongside our own dealers, very high-end expensive items for sale and trading across the wider art market,” Blackwell said. “This is something we have been doing within the Shapero Rare Books unit, but we want to take it out of that business, and give it its own structure and funding to accelerate growth.”
Shapero Rare Books is based in London’s affluent Mayfair area, and has been trading for 35 years as a rare book dealer, as well as handling other works on paper like maps of historic importance, vintage photographs and artistic prints.
Scholium also operates a specialist art bookshop in South Kensington, and another business called Ultimate Library, which creates high quality reading libraries for luxury resorts, including Aman Resorts and Four Seasons Hotels and Resorts. It has just signed a contract to create a library for Jumby Bay, a premier private island resort in Antigua.
“The common theme between the three is that they have all been built on a buy-and-build strategy, and we have turned their performances around,” said Blackwell. “It is our intention over time to replicate our success in growing Shapero into other sectors of the market, but it is way too early to identify these specific targets.”
Blackwell said South Kensington Books and Ultimate Library do not require extra funding as they are cash generative and can grow organically, with good growth potential.
The antiquarian books and collectibles sector, like those dealing art or fine wine, tends to be the preserve of the wealthy and successful. Blackwell said demand is currently being fuelled by “newly minted millionaires” particularly clients living in London or from countries like Brazil, Russia, India and China, as well as Chile, Mexico and Hong Kong.
“The typical profile of an art collector today is; male, in our market 50 years old to 70 years old, successful, and is therefore rewarding themself for that success by buying beautiful objects,” said Blackwell.
“Our clients range from people who are excessive about collecting one particular genre, for example early English maps or a collection of the first edition James Bond books,” he added.
Its books sell from as little as GBP50 to as much as several million pounds.
“The first printed atlas from 1473 sold for GBP2.5 million. The most expensive book we sold last year was for approximately GBP400,000, and the cheapest book we sold was GBP50,” Blackwell said, adding, “the complete set of works of ornithologist John Gould sold for GBP1.25 million.”
Scholium gets its books and collectibles a variety of ways, but usually due to generation changes, debt, divorce or downsizing.
The company’s management team is steeped in the business. Blackwell is a descendant of the founders of Oxford-based university bookshop chain Blackwell Group, founded in Oxford in 1879. He is former group CEO of Blackwell Ltd and director of Blackwell Publishing, which was sold to US publisher John Wiley & Sons in 2007.
Also on the team is Chairman Jaspar Allen, founder of collectibles auctioneer and dealer Noble Investments PLC, which was sold to Stanley Gibbons Group PLC in December last year for approximately GBP42 million, as well as Pierre-Yves Guillemet a former Christie’s book dealer with a particular focus on Russian markets.
The group is currently stocking around 6,000 items, with an average value of around GBP6,100, and that is one of the problems of a business in the sector which is looking to find funds for growth.
“The problem with art dealers today, is that they are quite capital intensive. The flip side is that they are very nicely asset backed, but a lot of that capital is tied up in the assets that they are selling and trading,” Blackwell said.
Blackwell currently has a 42% stake in the company, which he said would be diluted down to between 13% and 15% once new shares are issued and admitted to AIM. Other major shareholders include Thomas James Jennings, with a 34% stake, and Bateman Street Investments LLP, which holds a 21% interest.
Scholium said it intends to adopt a so-called “progressive” dividend policy, paying out about 3% to 3.75% of earnings on an annual basis. It will pay its first dividend as a listed company in June, followed by an interim dividend in September.
“With our current capital structure, there are loan notes that pay a coupon, which is around a 2.6% annual coupon, so the company has the discipline to pay dividends, but in the new structure all those loan notes will roll up into new shares, and will be dividend payable. All the original investors, none of whom are leaving at this stage, will see what was a coupon on a loan note, transferred into a dividend, which they are comfortable with,” said Blackwell.
The listing will almost coincide with one of the company’s most important events of the year, the European fine art fair, called TEFAF, which begins on Friday. Top fine art dealers and collectors will come together in Maastricht in the Netherlands, and it is both an important period and event for the company.
“It is a bit like a shopping spree, with everyone under one roof. It is very good news for us, and also a very important month for us, as March represents about 15% of our overall revenues,” said Blackwell.
Blackwell said the group is currently trading comfortably within expectations for the financial year ending March 31. Its broker is currently expecting earnings before interest, taxes, depreciation and amortisation to be about GBP550,000 for the year, up from around GBP330,000 the prior year.
“We are currently trading comfortably within our broker’s earnings forecast for the financial year coming to an end, and we are ahead of last year for revenues,” said Blackwell, adding “This has been driven by a combination of strong working capital, interesting business mix, and margins maintained, with a slight improvement.”
Shapero Rare Books made revenues of around GBP5.38 million in the financial year ended March 31, 2013, while its South Kensington Books business made revenues of approximately GBP550,000.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
Copyright © 2014 Alliance News Limited. All Rights Reserved.