BRIGHTSPHERE INVEST GRP INC BSIG
November 02, 2021 - 1:48am EST by
abra399
2021 2022
Price: 29.82 EPS 0 0
Shares Out. (in M): 83 P/E 0 0
Market Cap (in $M): 2,480 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 1,510 TEV/EBIT 7 0

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Description

Summary 

 

BrightSphere is an event-driven special situation with an imminent tender offer pending for $1 billion of stock representing 42% of the outstanding shares. The company’s business is essentially the holding company ownership of Acadian, a highly regarded $100+ billion quantitative international asset manager which Brightsphere refers to as their "crown jewel." Brightsphere is in the process of liquidating, having sold 6 other asset managers recently. Acadian is currently valued via Brightsphere at 7x EBITDA, while fair value according to the company and comparables is more than 10x EBITDA. 

 

Valuation Overview

 

Price $29.82

 

Shares 83.2M

 

Market Cap 2.48B

 

Cash 1.4B

 

Debt 0.428B

 

Enterprise Value 1.51B

 

Quarterly EBITDA is estimated at 50-53M excluding overhead (more on this later), or 200-212M EBITDA per year, resulting in a 7.1-7.5x unleveraged 2021 EV/EBITDA multiple at the current price.

 

Tender Offer and Pro Forma Valuation

The company announced on last week's Q3 quarterly call that they anticipate buying $1bn of stock in a buyback before year end. I expect a tender offer with a range of $32-35. Proforma for a tender offer at the high end of my range, a valuation of 10x EBITDA would result in a $35 stock price. If they are able to repurchase $1bn of stock at $32, then 10x EBITDA on the pro forma share count results in a $38.5 stock price.

 

Acadian

In the company's words, Acadian is a leading, at-scale investment manager with a track record of over 35 years and $113.7 billion in AUM as of September 30,

2021. The firm is a Quant-focused investment platform with strength across team, technology and data, offering unique capabilities in long only active, multi-asset class, ESG, managed volatility and long-short. The firm has strong investment performance with more than 80% of strategies outperforming the benchmarks over short and long-term horizons. Acadian has diversified offerings with more than 70 strategies across developed and emerging markets and approximately 80% of AUM invested outside the U.S. The firm has long-standing blue-chip institutional client relationships (average client relationship of 8 years) and an experienced management team with an average tenure of 20 years at Acadian. As of September 30, 2021, 88%, 81%, 85% and 88% of Acadian’s strategies by revenue beat their respective benchmarks over the prior 1-, 3-, 5-, and 10-year periods. I refer readers to the recent investor slide deck which shows highlights of the Acadian platform:

 https://s24.q4cdn.com/475726427/files/doc_presentations/2021/10/BSIG-Earnings-Presentation-Q3'21-_-Ex.-99.1-FINAL.pdf 

 

Holding Company Overhead 

There is currently $20 million of holding/public company overhead which management anticipates will be reduced to $10 million shortly. Here’s what management said about the overhead on the recent call: “We think now that with just one business, simplified business, we can probably maybe bring down the $20 million to $10 million pretty quickly. And then maybe because the business is pretty scaled, the remaining $10 million can also, over time -- we can whittle that down. Now in the context of another scaled player who leads these capabilities taking on the business, then, of course, the entire $20 million is not needed because most of it is in support of public company reporting. So there is -- yes, there is a little bit of overhead, which we view as an opportunity. So we really view the operating EBITDA, which I touched on as $50-ish million -- $50 million to $53 million per quarter, we really view that as a core EBITDA.”

 

Tender Offer Rationale 

On the call, the CEO explained the reason for the tender offer: “And yes, we got attractive valuations for most of those businesses, including some businesses that, at the time, were seeing a lot of outflows. In most cases, we've got more than 8 to -- more than 8x EBITDA. In some cases, double-digit EBIT to EBITDA. And then we ended up with a lot of cash on our balance sheet. So as we look at using this cash on the balance sheet, we have been in the M&A game, of course, having been a multi boutique in the past, and we've continued to look at various targets. Most of the time, the valuation was really high. Even for half decent platforms, it was 9 or 10x EV to EBITDA. And for the ones that had growth, it was in double-digit EV to EBITDA. So as you look at where to use the capital, we are trading our own business at an EBIT to EBITDA with a 6 handle. And our business is very well positioned, as I touched on earlier, in terms of being a unique, differentiated business and having all the growth opportunities ahead of it. So rather than paying 9 or 10x EBITDA for a business and take on execution risk, we would rather just buy-in our own stock. It's just much smarter and lower risk investment for us as a part of the proceeds that still de-lever and just manage an optimal leverage.”

 

Brightsphere asset sale history

Brightsphere sold the following assets in the past couple of years: Campbell Global (forestland investment manager) $4.7bn in AUM sold Q3 2021, Investors Counselors Maryland (value equities/smid cap) $3.2bn AUM, sold July 2021, Landmark Partners (secondary private equity investments) $18.4bn AUM for 16.4x EBITDA in June 2021, TSW $22bn AUM in June 2021, CopperRock (international growth equities) $3.9bn AUM in July 2020, Barrow Hanley (value equities) $52bn AUM, sold July 2020. 

 

Comparables

A recent sell side report lists 20 comparables that are on average 10.8x EBITDA, with a median of 10.4x EBITDA. The comps with similar AUM include Lyxor ($147bn AUM, 15x EBITDA, April 2021), Oaktree ($120B AUM, 9.7x EBITDA, March 2019), OppenheimerFunds ($250B AUM, 10.2x EBITDA, October 2018), USAA Asset Management ($69B AUM, 8.1x EBITDA, November 2018), Waddell & Reed ($66B AUM, 6.5x EBITDA, December 2020), Barrow Hanley ($44B AUM, 8x EBITDA, July 2020), Aberdeen ($382B AUM, 11x EBITDA, March 2017), RidgeWorth Holdings ($40B AUM, 10.8x EBITDA, December 2016).  Waddell & Reed and Barrow Hanley have far less defined niches in comparison to Acadian. 

 

Ownership

John Paulson owns 25% of the company, and will maintain this percentage stake proforma for the tender offer. Other insiders own an additional 3% of the shares. Paulson’s basis is less than half the current price as he bought his position from HNA Group three years ago.

 

Target Price

Ultimately, I think $35-38 per share is where this stock is headed--one way (tender offer) or the other (proforma for tender offer/ultimate sale of Acadian), as this approximates fair value. Acadian generates $200-$212 million in EBITDA per year. This cash flow accrues to investors who buy the company at the current enterprise value of $1.4bn. At the current purchase price we are being paid a mid single digit return ($200 million EBITDA, net of overhead and taxes) while we wait for the value to be maximized through a sale.

 

Summary

 

What I like about the investment is that it’s event-driven with a high likelihood of realizing a meaningful premium to the current price in the tender offer and/or the ultimate sale of Acadian. Given how rapidly the other businesses have been sold off, and the fact that this is the last business being sold by a motivated and intelligent seller, I do not think investors will be waiting very long for value maximization. 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Tender offer in the short term, and sale of Acadian and liquidation of the company in the not too distant future.

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