17th Jul 2023 12:47
(Alliance News) - Gresham House PLC's private equity interest demonstrates the appeal of UK alternative assets, and more firms in that space may attract suitors.
Gresham House, which actively manages GBP8.00 billion in assets across the UK, Ireland, Australia, and New Zealand, on Monday said it had agreed to be taken over by Searchlight Capital Partners LP.
Searchlight will pay 1,105 pence per share. The offer values Gresham at around GBP469.8 million on a fully diluted basis, or GBP440.6 million on an enterprise value basis.
The acquisition price represents a 63% premium to the 680 pence closing price of Gresham House on Friday, and implies an enterprise value multiple of around 16 times Gresham House's earnings before interest, tax, depreciation, and amortisation for the year ended December 31. Searchlight said the bid is final and will not be upped.
Gresham House shares surged 55% to 1,056.32p each in London on Monday, early afternoon.
Peel Hunt hailed the terms of the transaction, noting the premium to Friday's closing price, alongside a 10% premium to its all-time high back in April 2022.
Peel Hunt added the Searchlight offer values Peel Hunt at 4.5% of its estimated assets under management as of December 2023. Peel Hunt maintained its 'buy' rating for Gresham House.
"The offer is within 2% of our 1,128p target price, and looks reasonable, although a more robust environment would have justified a higher price in our view," said Andrew Shepherd-Barron, an analyst at Peel Hunt. "A counter-bid looks unlikely."
Meanwhile, Wealth Club's Nicholas Hyett said Searchlight's takeover of Gresham House "highlights [the] appeal" of UK alternative assets.
"The acquisition of the UK's largest forestry investment manager, and second-largest [venture capital trust] manager, is a big vote of confidence in the UK's alternative investment industry," Hyett said.
"As a booming alternative asset manager, Gresham has been an important driver of capital behind major government initiatives to decarbonise the economy and spur innovation through investment in start-ups. Those investment categories have struggled a bit in a rising interest rate environment, but Searchlight clearly sees the long-term potential."
The Wealth Club analyst was also keen to stress an underlying strength of Gresham House's financials.
"With organic [assets under management] growth of 17%, or GBP1.1 billion, Gresham is the go-go face of an asset management industry that has otherwise struggled to raise actively managed funds," Hyett added, noting Gresham House reporting rising revenues and an improved operating margin of 35% in its previous annual results.
"Given that success, it's no surprise Searchlight is said to be supportive of the current structure and management team at Gresham. That means in the short-term, clients should see little change – important given the very long-term nature of many of the investments Gresham manages," the analyst added.
"However, the new owners have likely been eyeing up Gresham's debt free balance sheet with interest. Asset management is a cash generative, capital light business – and we wouldn't be surprised if the business was leveraged up in the future to help pay for the acquisition."
Peel Hunt's Shepherd-Barron also gave a read-across for Foresight Group Holding Ltd from the Gresham House takeover, noting Gresham House as the infrastructure and private equity investment manager's "nearest listed peer".
"We do see Foresight as a potential take-out candidate – management has already commented that it might welcome a larger partner," he said.
Peel Hunt said the equivalent price for Foresight would be 710p, adjusting for quality of earnings and giving a higher value to fee-related earnings than to performance-related earnings such as carried interest. Shares in Foresight were up 0.7% to 432.00p each in London on Monday early afternoon.
Foresight also trades on a March estimated price-to-earnings ratio of 11.6 times, according to Peel Hunt.
Peel Hunt rates Foresight at 'buy', with a 550.0p price target.
By Greg Rosenvinge, Alliance News reporter
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