Gresham House's position as a prominent manager for "sustainable alternative asset classes" was a source of attraction, the parties to the deal said.

US private equity house Searchlight Capital has made a £469.8 million ($615 million) final recommended cash offer for UK-based Gresham House, an alternative investments house.

The purchase implies an enterprise value multiple of about 15.9 times Gresham House's earnings before interest, taxation, depreciation and or amortisation (EBIDTA) for the 12-month period ending on 31 December 2022. (The "multiple" looks at a firm the way that a potential acquirer would by considering the company's debt. The multiple is enterprise value divided by EBITDA.)

Under the deal’s terms, each Gresham House shareholder will be entitled to receive 1,105 pence in cash for each share. The acquisition values the entire issued and to be issued share capital of Gresham House at about £469.8 million on a fully-diluted basis and values Gresham House at approximately £440.6 million on an enterprise value basis. The purchase price is a premium of about 63 per cent on the closing price of the Gresham House shares of 680 pence, a statement from the parties said.

Searchlight said it likes Gresham House's position as one of the UK's “leading asset managers in sustainable alternative asset classes.” It thinks Gresham House has established a “robust platform for future growth, underpinned by its track record of delivering strong investment returns for its clients across multiple strategies, asset classes and regions,” and the firm said it is “committed to supporting the existing Gresham House management team in continuing to execute its current strategy and maintain its focus on client service.”

The private equity firm said it sees “significant” potential from supporting Gresham House in making more “bolt-on” and “potentially transformational” deals.

The Gresham House directors, advised by Evercore and Blackdown Partners on the financial terms of the Acquisition, consider its terms to be “fair and reasonable,” a statement from the firms said.

Gresham House directors intend to unanimously support the acquisition.

Rationale applauded
"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 startups," Nicholas Hyett, investment manager at Wealth Club, said. "Those investment categories have struggled a bit in a rising interest rate environment, but Searchlight clearly sees the long-term potential."

Gresham shares were down by around 20 per cent over the year yesterday, reflecting a sell-off across the UK’s smaller and mid-sized companies, where cyclically adjusted PE [price-earnings ratio] has fallen 5 to 10 per cent in 12 months. That’s in spite of Gresham reporting rising revenues and an improved operating margin of 35 per cent at its last set of full year results. With organic AuM growth of 17 per cent, or £1.1 billion, Gresham is the go-go face of an asset management industry that has otherwise struggled to raise actively managed funds," Hyett continued. 

"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. 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," Hyett added.