January 9, 2017
Palmer Capital has undertaken a restructure in order to focus purely on the UK and incentivise management, having rebuffed two unsolicited offers to buy the business.
In doing so, the fund manager’s founder and chairman, Ray Palmer, has begun a process of reducing his stake by selling to management. The business has sold both its Hong Kong and continental European businesses back to the local managers.
The changes have been made primarily to ensure the £1bn assets under management business is not tarnished through unruly expansion, and to tackle succession planning and the burden of regulation.
Palmer himself has sold his equity stake from around 65% to 55%, with the rest of the management increasing from around 25% to 35%, with 10% still owned by external investors.
The buy-in has been led by chief executive Alex Price, who now owns a stake of over 25%, supported by fellow directors Chris Button and Rupert Sheldon as the next largest shareholders.
The chairman’s equity will continue to be sold in a move that should see younger management further increase its stake and new talent offered a chance to buy in.
Palmer Capital will retain a minority shareholding in Arcona Capital, the European business it set up in 2007 that has around €380m (£322m) of assets under management.
The Asian business, established in Hong Kong in 2010 and combined with assets acquired from Invista in 2012, owns around £15m of property directly and has now been rebranded E3 Investments.
“A year ago, we were approached by different companies, in one case to buy a 49% stake, in another to buy the entire business. The first wanted to buy in to create a real assets platform and the second wanted a real estate bolt-on as it was already invested in alternative asset classes,” said Price.
KPMG was subsequently appointed to undertake a strategic review but the accidental pricing exercise conjured an urge within existing owners and management to retain control.
“We made a positive decision not to sell but instead to back ourselves by acquiring equity as well as focusing entirely on the UK, where there is plenty of value to be had.
“We have a unique business model by backing best-in-class property companies alongside the investment management business, which works well for our core group of long-term investor partners, and now we think we have an equally aligned succession plan.”
The approaches led to some honest self-assessment from the value-add specialist.
“Investment managers today need to be small and focused or big and beautiful, with a large equity-raising capability. We were starting to put ourselves in the middle ground.
“To get bigger, we needed to diversify into less specialist areas and geographies, to employ a lot more back office staff and get to over €10bn AUM, which is a long journey,” Price says. “We have a business that is disproportionately profitable relative to its size,” adds Palmer.
While being a mildly reluctant seller, Palmer acknowledges the importance of succession planning throughout the different levels of the business and says there are some fund managers that are in danger, having not done so.
“I have always enjoyed working with the team we have, both at Palmer Capital and in the property companies. I have the belief that with the team we have across Palmer Capital, we can substantially build the business, which is why I am happy to pass equity throughout the business to help make this happen.”
The business presently employs 30 people, and another 60 work at the companies it backs (see below).
It is now fuelled by UK and Middle Eastern capital, and focused on buying income-producing assets, typically sale-and-leasebacks from corporates, urban redevelopment, and buying redundant commercial land for conversion to residential.
The new Palmer Capital shareholder management group
● Ray Palmer, Chairman
● Alex Price, Chief Executive This we see as an ever evolving suppport for the on=going intricccied
● Rupert Sheldon, director, Head of Income REIM
● Chris Button, Director, Head of Value Add REIM
● Steve Wright, Director
● Charles Allen, Acquisitions Director
● Lynne Fennah, Chief Financial Officer
● Emma Cullen, Chief Operating Officer
Palmer Capital’s Operating Businesses
A central part of Palmer’s business model is backing property businesses it then uses to source and develop opportunities for its investors. It last backed Angle Property in 2011 and is now searching for a new venture. It is open to all opportunities, but has some ideas in mind. Palmer said: “The obvious omission is we don’t back a property company based in Manchester. We also have a variety of PRS-style interests and we are thinking about a specific sector specialist.”
Palmer Capital’s current operating businesses:
● Angle Property, South East
● Cubex Land, South West
● Danescroft Land, London and South East
● Manse, Scotland and North
● Opus Land, Midlands
● Opus North, Yorkshire and North
● Wrenbridge, East of England
Author: David Hatcher, Head of News & Finance Estates Gazette