Toronto’s Covington Capital Corp. Tuesday announced a deal that would result in one of Canada’s largest and most highly diversified retail venture capital funds.

Covington Fund II Inc. has entered into a definitive purchase agreement with VenGrowth Investment Fund Inc., The VenGrowth II Investment Fund Inc., The VenGrowth III Investment Fund Inc, The VenGrowth Advanced Life Sciences Fund Inc., and The VenGrowth Traditional Industries Fund Inc. and the New Generation Biotech (Equity) Fund Inc.

The proposed transaction would see Covington Fund II acquire all of the assets of each of the VenGrowth Funds and NGBE Fund in exchange for Class A shares of Covington Fund II to be distributed to VenGrowth and NGBE shareholders.

Effective immediately, NGBE will suspend redemptions on the fund. Covington Fund II will offer its current NGBE shareholders restricted redemption rights following the transaction.

Immediately prior to the transaction, the combined net assets of Covington Fund II, the VenGrowth Funds, and NGBE are expected to be approximately $425 million. The combined fund will hold approximately 55 venture investments in its portfolio.

In addition, Covington Fund II has secured, subject to closing conditions, third party financing of up to $60 million from global private equity firm Paul Capital Advisors, LLC. The debt facility will be available to support Covington Fund II’s on-going liquidity requirements.

“We are extremely pleased to have Paul Capital involved in this transaction. Their participation in this transaction will provide Covington Fund II the resources necessary to complete the acquisition by providing an important liquidity option to shareholders,” says Phil Reddon, managing partner, Covington Capital.

Covington Fund II will continue to remain open to new fund raising and to roll-overs.

“The consolidation of seven funds, with its economies of scale and mature portfolio, provides a very attractive retail venture capital model to both current and future investors on a go-forward basis,” notes Scott Clark, managing partner, Covington Capital.

“We believe that under the new combined platform, Covington management, with its years of experience in both institutional and retail venture capital and its strong performance track record, has the capability to deliver performance to shareholders.” says David Ferguson, managing general partner at Toronto-based VenGrowth Asset Management Inc.. “Importantly, this transaction also provides enhanced liquidity options to shareholders.”

The proposed transaction is being recommended by the board of directors of each of the seven funds.

Following regulatory and shareholder approvals and other conditions to the proposed transaction are satisfied, the transactions will close simultaneously during the fourth quarter of 2010.

IE