Wednesday, 28 April 2010

Race for FoF Acquisitions Starts with Thames River Capital

The increasing likelihood of hedge fund M&A has been a theme of this blog since it launched in October last year: the first podcast was on that topic (http://simonkerrhfblog.blogspot.com/2009/10/test-podcast.html) and a recent post was on M&A in the fund of hedge funds sector (http://simonkerrhfblog.blogspot.com/2010/04/fund-of-hedge-funds-consolidation-gun.html).

The most significant deal in Europe to date was announced today, as Thames River Capital, a stalwart of the London hedge fund industry, is to be acquired by institutional money manager F&C Asset Management plc (F&C). F&C had assets under management of £101.5 billion as at 31 March 2010,a rise of 3.8% over the first three months of the year. Thames River Capital had £4.2bn AUM at the end of the last quarter, a rise of 5.1% from the start of the year.

Some details of the acquisition are given below, and in terms of indications for further deal flow it should be born in mind that the mix of the business at Thames River is now biased towards long-only - the hedge fund element is mostly in a successful (£0.92bn) and growing fund of hedge fund business unit. Thames River also has a very effective sales and maketing team - F&C has potential to make good mileage fron further utlisation of this prime asset of Thames River's if F&C management see it the same way, and if the boutique nature of the target acquired can be broken down some.

The gun really has been fired for fund of hedge fund takeovers.


Release Extract:

F&C Asset Management plc (“F&C” or the “Group”) is pleased to announce that it has entered into a conditional agreement to acquire the Thames River Capital group (“Thames River Capital”) for consideration of up to £53.6 million (comprising initial consideration of £33.6 million and conditional consideration of up to a further £20 million) payable in cash, loan notes and/or F&C shares as described below. Thames River Capital is a London-based, specialist asset management business with an estimated £4.2 billion of assets under management as at 31 March 2010.



Highlights of the Acquisition:

• Acquisition of a UK-based specialist asset management business providing products principally to wholesale and wealth management investors through nine investment teams (the “Investment Teams”)

• Established sales and marketing capability within Thames River Capital comprising a team of 24 individuals with a proven track record of delivering new business flows

• Initial consideration of £33.6 million payable in cash or loan notes at completion and up to a further £20
million of conditional consideration payable in F&C shares or loan notes if Thames River Capital meets
certain financial performance targets at 31 December 2011 and 30 June 2012

• Initial consideration for the Acquisition to be funded through a combination of a cash placing of F&C
ordinary shares equal to approximately 5% of F&C’s issued share capital (the “Placing”), F&C’s existing cash resources and new indebtedness of £15 million


• F&C will acquire, through Thames River Capital (UK) Limited (“Thames River Capital UK”), an economic interest in the management fee profits and performance fee profits generated by the Investment Teams, which for the 11 month period ended 28 February 2010 amounted to approximately 40%2 in aggregate of those total profits

• F&C has also agreed terms under which its economic interest in the share of management fee profits of all of the Investment Teams can be increased over time (the “Commutation Arrangements”)

• Retention and incentive plans have been agreed for Thames River Capital’s key personnel under which
conditional awards will be granted over F&C shares with a value equal to £35 million that will be subject, in the case of the incentive plan, to the achievement of certain financial targets and vest between 30
months and six years after completion of the Acquisition (the “Management Share Plans”)

• F&C to follow the same post-acquisition integration strategy for Thames River Capital as it adopted for its recent successful acquisition of REIT Asset Management. Appropriate governance and monitoring
procedures will be implemented whilst allowing Thames River Capital to retain the distinctive investment
style and culture that has made it successful

• Acquisition to exclude Nevsky Capital LLP, a current associated undertaking of Thames River Capital.
Prior to completion of the Acquisition, Thames River Capital’s interest in Nevsky Capital LLP will be
demerged and will, thereafter, be directly held by the current Thames River Capital shareholders

• Acquisition is anticipated to close in or before the third quarter of 2010

footnote: Based on the total management fee profits and performance fee profits of the Investment Teams for the specified period after deduction of costs and partners' base drawings. The interest that F&C will acquire, through Thames River Capital UK, in the management fee profits and performance fee profits generated by the Investment Teams differs in the case of each Investment Team.

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