Gresham House plc (LON:GHE), the specialist alternative asset manager, has today announced the acquisition of TradeRisks Limited for an initial consideration of £7.0 million, with further consideration of up to £4.0 million payable subject to the achievement of certain performance criteria.
TradeRisks is a fund management business and specialist provider of debt structuring and advisory services to the housing and social infrastructure sectors, with strong ESG credentials through its social impact investing in this structurally important area. TradeRisks’ wholly owned and separately FCA regulated subsidiary, ReSI Capital Management Limited (“RCM”), is the manager of Residential Secure Income plc (“ReSI plc”) (LSE: RESI), a closed-ended investment company which seeks to deliver secure income returns to its shareholders by investing in portfolios of shared ownership, retirement and local authority housing.
Key Highlights of the Acquisition
· Strategic rationale:
- Gresham House is already focused on its social housing offering for clients and the Acquisition extends its existing portfolio whilst providing it with its first listed fund in the housing segment
- ReSI plc had gross assets under management (“AUM”) of £321 million (including committed acquisitions) and NAV[1] of £184 million (NAV per share of 107.7p), as at 31 December 2019, including £72 million in shared ownership homes held within ReSI plc’s wholly owned Registered Provider of Social Housing, ReSI Housing Limited
- Strong cultural alignment between the two businesses, with the Gresham House platform being strengthened by the integrated expertise of the TradeRisks and RCM teams
- Independent asset manager with a highly experienced senior management team, strong brand and 19-year track record
- Gresham House also expects to raise further funds in the housing segment, via ReSI plc and new private funds targeting institutional investors as limited partnerships
· Upon completion, increases Group AUM to c.£3.0 billion
· Acquisition is immediately earnings enhancing and consistent with the Company’s stated financial and strategic acquisition metrics
The Group, through its British Strategic Investment Fund (BSIF), already targets local housing investments on behalf of local government pension schemes, and the Acquisition will enable the Group to scale its social housing strategy, broaden its sustainable offering to investors and benefit from the additional and combined expertise of the TradeRisks and RCM teams.
The Company expects the Acquisition to exceed its medium-term ROIC target of 15%. The Group has identified a number of cost synergies in the TradeRisks business, and the Acquisition is expected to support the Group’s stated longer-term objective to achieve a 40 per cent. operating margin.
Commenting on the Acquisition, Anthony Dalwood, Gresham House’s Chief Executive, said:
“Gresham House is focused on investing in sustainable real assets and the acquisition of TradeRisks and RCM is consistent with the group strategy to grow existing platforms. The acquisition allows Gresham House to enhance its social and affordable housing offering for clients, an area identified as structurally important to the UK economy, through a capable management team with strong track record. We expect the acquisition to be immediately earnings enhancing, increasing our AUM to £3.0 billion and driving additional shareholder value creation.”
Alex Pilato, Chief Executive of TradeRisks, commented:
“In Gresham House we have identified a partner that has a strong cultural fit with our business and is equally focused on the opportunity to raise further funds in the housing sector to accelerate the development of much needed new affordable housing. This acquisition is a positive move for the shareholders in ReSI plc through continuity of the existing management team, supplemented with the benefits of the Gresham House platform and expertise in areas such as investor relations, distribution, marketing, compliance and risk.”
TradeRisks and ReSI Capital Management Limited
TradeRisks (www.traderisks.com) is a fund management business and specialist provider of debt structuring and advisory services to the housing and social infrastructure sectors, with strong ESG credentials. Its wholly owned and separately FCA-regulated subsidiary, ReSI Capital Management Limited, is the manager of Residential Secure Income plc, a closed-ended investment company which seeks to deliver secure income returns to its shareholders by investing in portfolios of shared ownership, retirement and Local Authority housing. ReSI plc’s shares were admitted to trading on the main market of the London Stock Exchange in July 2017, and as at 31 December 2019 had gross AUM of £321 million (including committed acquisitions) and NAV of £184 million.
In the year ended 31 July 2019, TradeRisks reported audited profit before tax of £2.2 million and gross assets of £9.7 million. When adjusted to reflect Gresham House’s accounting policies, which will be applied post-completion, for the year ended 31 July 2019 TradeRisks generated revenues of £5.6 million and EBIT of £1.8 million.
Following completion of the Acquisition, all 23 TradeRisks and RCM employees will join Gresham House’s Real Assets division. Jon Slater, the current Chief Executive of RCM, will retire and Alex Pilato, current Chief Executive of TradeRisks, will take over his role, as well as assuming the overall leadership of the newly-formed combined Housing division at Gresham House.
Further details of the Acquisition
The Company has agreed to acquire (on a cash-free, debt-free basis), through its subsidiary Gresham House Holdings Limited and subject to the satisfaction of certain conditions, 100 per cent. of the share capital of TradeRisks Limited. The Acquisition shall be for a total initial consideration of £7.0 million, which may rise to £11.0 million subject to certain performance and trading criteria being satisfied over the three-year period following completion of the Acquisition.
Of the £7.0 million payable upon completion of the Acquisition, £3.5 million shall be payable in cash (from existing Group cash resources) and £3.5 million shall be funded through the allotment of 555,555 ordinary shares of £0.25 each in the Company to the vendors (the “Initial Consideration Shares”), based on a share price of £6.30. The Initial Consideration Shares shall be subject to a lock up until the third anniversary of completion of the Acquisition (being 5 March 2023), with all associated voting rights during this three year period to be voted in line with Gresham House’s Chairman.
The Initial Consideration Shares, which will rank pari passu with the Company’s existing ordinary shares, will be admitted to trading on AIM, a market operated by the London Stock Exchange, at 8.00 a.m. on 11 March 2020.
