I have written about this one a few times recently and they have confirmed the rumoured acquisition of Numeric Holdings which it was thought could lead to 20% upgrades. The deal itself is slightly complicated as they are paying $219 million cash up front with a further "earn out" payment of $275 million possible after five years dependant on the performance of Numeric over that period. This seems like a good idea as it will lock in the management and align their interests, especially as they will also be entitled to a 10.5% dividend based on each relevant years profit.
These figures seem to represent 1.5% or up to 3.4% of the $14.7 billion funds under management, which is slightly less in total than the 4% figure that Man is trading on. It also represents an EBITDA multiple of 10.5x, although I note that 57% of their $89.3 million revenues came from performance fees which can melt away quickly if they have a spell of poor performance. In addition as they have set out a 52.5% expense ratio only $26.5 million of current run rate of profits would be expected to flow through to Man so more like 18 to 19x. I also note that much of their asset base also seems to be institutional in nature which can also be more demanding on fees and less sticky than retail assets.
The Board of Man believes that the Acquisition provides attractive strategic, commercial and financial benefits to Man and its shareholders through the:
· Creation of a diversified, global quantitative investment platform comprising AHL and Numeric, with over $25 billion of funds under management and a broad product range across alternative and long only, trend following, technical and fundamental strategies;
· Further development of Man's footprint in North America, through a recognised brand, a presence in an important investment centre and relationships with a range of institutional clients;
· Provision of investment capacity in a number of strategies with an attractive and long investment track record and therefore the potential to add incremental funds under management through combining Numeric's investment offering with Man's global distribution capability;
· Addition of a highly experienced and well regarded team with a strong cultural fit;
· Alignment of the interests of Numeric Management with those of Man's shareholders through having over 90% of the maximum aggregate consideration payable to Numeric Management being dependent on the run rate profitability of the Numeric business at the fifth anniversary of completion; and
· Opportunity to achieve a strong risk-adjusted return on capital; additionally the Acquisition is expected to be earnings accretive from completion.
Summary & Conclusion:
Overall a sensible looking deal which apparently utilizes around $325m of their $525 million surplus capital according to a report on Digital Look and is generally seen as being sensible by analysts. This was backed up by the positive share price response yesterday which saw the shares rise by 6% at the close. If the initial estimates of 20% boost to earnings are forthcoming then I guess there could be a bit more upside to the share price from the recent base it has been building.