It was scheduled to IPO today for $25, which would be a projected 21 PE ratio (historical PE was close to 50) with a 4.8% yield. It withdrew the offering at 7:32am citing market conditions. Clearly they couldn't round up enough suckers at that price..
I believe unwind goes to Q3. This is not GAAP accrual basis accounting. The assets are based on their fair market value at the end of the quarter. A subsequent sale is the best basis for that estimate unless it can be shown that there was an event that caused an appreciation after the end of the quarter.
Your reply appears to assume that ACAS is a collection of non earning assets which fluctuate up and down quarterly. Is there not an NOi of about $.30 plus or minus per share per quarter?
How does this fit into your analysis?
Interesting, the difference between the markets indifferenc and the optimism on this board about the possible restructuring. One wonders: are the posters on this board of the view that the majority of market participants: A. Don't know about the restructuring, B. Know but don't believe it will happen, C. Believe it will happen but will add no value D. Are just plain stupid?
I don't believe a contract is required. This is not GAAP accrual basis accounting. It is estimating the fair market value of the asset. If the asset is sold prior to releasing the financials then that price can be used to support the estimated FMV. The possible exception would be if there was clear evidence that an event had occurred that caused the FMV to rise from September 30, 2014 to the date of sale.
I take your point. However, FSC is leveraged and is incurring a total G&A charge of over 7% per year. This makes for high profits for FSAM (the IPO) but looks like it will eventually kill the golden goose.
If FSAM can go public at $25 it appears to be a good short on its own merits but also as a paired hedge with ACAS. If FSAM can achieve price gains from $25 then this will be a favorable omen for ACAS.
I believe that the 2.2.20 for ACE is on the net assets not the gross assets and that there are no additional G&A charges.
Does it change your valuation of ACAM?
My conclusion about Fifth Street: It derives nearly all of its income from outrageous fees charged to Fifth Street Finance Corp. (FSC), a BDC. As of June 20, 2014 FSC had gross assets of $2.743 billion and net assets of $1.351 billion. Fifth Street Asset is collecting fees of about $88 million annually, which is 3.2% of gross assets and 6.5% of net assets. To add insult to injury FCS is hit with another $12 million of annual expense, exclusive of interest expenses. This brings the total G&A annual expenses to 7.4% of net assets.
If this IPO is successful in the next two weeks at $25 per share I will be looking to short the stock. My concern is that if the public stockholders get burned on this it could reflect poorly on ACAS planned restructuring.
ACAS is a jewel compared to Fifth Street Asset.
The fees earned by Fifth Street Assets come primarily from their management of the BDC, FSC.
Interestingly as of 6/3014 they claim EAUM were in excess of $4 billion for FSC while in fact the total assets of FSC were only $2.7 billion. FSC pays a management fee of 2% on its gross assets (excluding cash) and an incentive fee of 20% on income over 10% of net assets and an additional 100% on income from 8% to 10% of net assets.
Clearly, this is well in excess of the fee structures received by ACAM on the $13.1 billion in 3rd party EAUM. However, if ACAS can spin off its $6 billion in net assets to an externally managed fund then it possibly could earn a net income of 67 cents er share on the over $19 billion of EAUM. If this could be capitalized at 15 times earnings it would be worth $10 per share for a write up of over $6 per share with a resulting NAV per share of $26..
More information on Fifth Street IPO. Offering 8 million A shares to existing 42 million B shares will result in 50 million shares outstanding and giving existing B shares 96% of the vote. At an offering price of $25 per share the NAV per share will be 28 cents. On a proforma EAUM of about $4.2 billion they project revenues of about 2.2% or about $95 million. This is about $1.90 per share. They project that proforma adjusted net income, after backing out non recurring compensation expenses, will be about 1.4% of EAUM or about $1.20 per share. All of this income is projected to be distributed as dividends in 2015. At a $25 price this results in projected 21 PE ratio and a 4.8% yield.
Assuming ACAS could earn the same 1.4% on its 3rd party EAUM of $13.1 billion this would be $183 million, or 67 cents per share. At a 20 PE ratio this results in a value of about $13 per share for ACAM for a write-up of $10 per share, bringing the net asset value of ACAS to about $30 per share. .
The Prospectus describes Fifth Street as an emerging growth company which has grown its assets under management from12'31/10 TO 6/30/14 at a compound annual rate of 52.7%. This appears to be the basis for the business being valued at 50 times earnings. The lead underwriters are the blue chip Wall Street banks: MS, JPM, GS, RBC and CS.
For comparison ACAS has $19.4 billion EAUM (earning assets under management) which at a 25% valuation would be worth $4.85 billion or $18 per share. Further, ACAS grew their total assets under management from 12/31/10 to 6/30/14 from $22.6 billion to $116.8 billion for a compound annual growth rate of 58.7%. They grew their EAUM during this period from $9 billion to $19.4 billion for a compound annual rate of 24.3%.
Now all ACAS has to do is get its consultants GS, A lead underwriter for Fifth Street Asset, to mark-up a copy
of this prospectus for ACAS. To be conservative use a 25 PE ratio based on the growth rate of EAUM at 25%.
Media reports that CEO Tannenbaum will become a billionaire after this offering. If ACAS could get even half this PE ratio, say 25, it could be worth an extra $3 to $4 per share on write up for ACAM. Any observations as to why Fifth Street is so richly valued?
The Prospectus shows about $3.9 EAUM with a annualized net income of about 50 cents per share. The indicated price is about $25 per share for a PE ratio of about 50. Is this possible? If so what does this mean for ACAS?
ACAS is up about 2% from its year ago price of 13.87. ARCC is off 1.78 from its year ago price of 17.94. This nets to a .16 loss or about 1% after factoring in 1.78 of dividends. PSEC is off 1.31 from its year ago price of 11.21. This results in a nearly unchanged position after factoring in dividends of 1.33.
Conclusion: ACAS is caught up in a general selloff in BDC's.