Pacific Current Invests in Banner Oak Capital Partners Pacific Current Group Limited (ASX:PAC, Pacific Current), a global multi-boutique asset management firm, is pleased to announce it has purchased a 35% stake in Banner Oak Capital Partners (Banner Oak), a private equity real estate firm.

Banner Oak is a Dallas-based alternative investment manager offering a private equity real estate strategy focused on the creation and growth of fully integrated private real estate operating companies. Currently, Banner Oak manages approximately $5.7 billion in assets across its platform. Banner Oak launched as a standalone investment advisor after spinning out of Hunt Realty Investments in 2016. Since its inception, Banner Oak has been engaged with a prominent US pension fund to provide investment capital into numerous real estate operating companies and the real estate projects these operating companies are developing.

PAC is making an initial investment of US$35.0 million (A$48.2 million). The agreement also includes an “earn out” provision that could result in Banner Oak receiving additional consideration of up to US$5.0 million. PAC will receive 35% of the management company’s earnings, excluding carried interest. The agreement also includes provisions that will provide PAC with more than its 35% pro-rata share of Banner Oak earnings in the initial years of the investment. PAC classifies Banner Oak as a Tier 1 investment, and estimates its contribution to PAC over the next 12 months to be approximately 25% of PAC’s FY21 underlying NPBT. PAC has acquired a passive, non-voting minority interest.

The transaction will have no impact on the day-to-day management or operations of Banner Oak. PAC MD, CEO & CIO, Paul Greenwood stated that, “Banner Oak is a unique manager with a distinctive value proposition and a stellar track record. We believe the manner in which institutional private real estate investing is evolving bodes very well for Banner Oak’s approach of partnering with real estate operators.” Banner Oak founder, Patricia Gibson, noted that, “We are extremely pleased to be entering into a strategic relationship with Pacific Current. Their long term approach to the investment management business, strong culture and deep expertise represent an excellent fit for Banner Oak. As we enter the next phase of Banner Oak’s evolution, we believe this relationship will position us to achieve the next level of disciplined growth.” 2 Berkshire Global Advisors served as the exclusive financial advisor to Banner Oak on this transaction.

A conference call will be held today at 11.00am AEDT. The Presenters will be Paul Greenwood, MD, CEO & CIO and Ashley Killick, CFO. The dial-in details and Investor Presentation will be provided shortly.

***

This minority stake of investment is typical for PAC and does make it difficult to analyse this company. To a large extent you do just need to sit back and hope management know what they're doing, but given it's very choppy history that can be difficult to do. A lot of its recent performance can be attributed largely to its investment in GQG. I don't know why they didn't address how this would be funded - seems an obvious omission.

[Held in RL only, without massive conviction]

PAC was already my largest position but I was busily buying up as many as I could this morning.

PAC is similar to PNI and owns stakes in Fund Managers. Their largest holding is 5% stake in GQG which yesterday confirmed it is listing on the ASX in late Oct. They are raising 1.2bil and have confirmed bids of 800m from cornerstone institutions with the prospectus going out to the wider market today.

The price range for the IPO is 2 – 2.20 but with demand clearly strong I think the top end is likely. PAC are selling 20% of their stake at the IPO price.

At a price of 2.18 GQG will be worth around 6.3billion and PAC will receive $65million in cash and $250 million in GQG shares. The remainder of PACs holdings are worth ~$265mil. 

IPO bids will likely be scaled back and it is a decent chance that PAC will likely enjoy further value from GQG opening at a small stag profit on day 1.

At $8 PACs market cap is currently around 400mil and using the ballpark calculation above it is worth around 600mil.

Not many people have heard of PAC but over the next 3 weeks The GQG IPO will get a lot of press in the AFR and other mainstream circles, so I expect they will know it shortly. I think this quick rerate will continue playing out and the SP will head toward $10+ as the GQG IPO date approaches.

PAC owns a 5% equity stake in GQG partners.

GQG Partners is looking to IPO on the ASX shortly.

If it goes through it would value PACs stake at around $300m.

The current EV of PAC is around $350m. 

Could be a good trade to make 30-50% return in the next couple of months if everything works out

03-Sep-19:  From Wilsons:  https://login.wilsonsadvisory.com.au/rsearch//pac-030919-buy-back-on-track.pdf