What: Treasury Group Limited (ASX: TRG) is a relatively unusual business in that it takes equity positions in talented fund management groups and supplies operational support, distribution capacity and a full range of administration services. This effectively allows the asset managers to get on with what they do best – finding investment opportunities.
Key groups within their portfolio include such names as Investors Mutual, RARE Infrastructure and ROC Partners. At the end of FY2014 funds under management totalled $25.46 billion; and Treasury Group’s average equity holding per boutique was 41%.
Debt free Treasury Group enjoyed a reasonable 2014 with net profit up 26% and dividends up 25%; however soon after balance date a ‘company transforming’ deal was announced with an agreed proposal to merge with US-based Northern Lights Capital Group.
A similar business to Treasury Group with interests in high-performing specialist asset management groups. A secondary listing of the merged group will be sought on a global stock exchange within three years.
So What: The merger is expected to complete by the end of the 2014 calendar year. The combined group will represent 21 boutiques covering a wide range of asset classes. Distribution capability will be greatly enhanced as Northern Lights has representation in the US, UK and France. Cornerstone Northern Lights shareholders BNP Paribas and Laird Norton are supportive and will be joining the combined board.
The merger will be effected by way of an Australian trust with the present Treasury Group holding 61% and the present Northern Lights 39%. Profits / losses will be equity accounted and Treasury Group will remain listed on the ASX. All franking credits will remain with Treasury Group.
Now What: Although the full benefits of the merger are unlikely to be apparent before 2016 there is plenty to like about the proposal. For example both companies have deep experience in identifying and adding value to partners; distribution channels will broaden and investment risk will reduce with a more extensive range of specialised asset managers.
On my estimates Treasury Group ($10.40) sells at a FY2015 price earnings ratio of 17.5 and a fully franked yield of 5% – to my way of thinking, these are good value metrics.