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Caledonia Investments knows all about managing private wealth. Small wonder that a bet on the sector has paid off for the Cayzer shipping family’s investment vehicle.
On Tuesday, the FTSE 250-listed investment trust announced the sale of its majority stake in Seven Investment Management to Ontario Teachers’ Pension Plan. The deal puts a reported enterprise value of about £450mn on the business. It has made an annualised return of about 15 per cent since 2015 when it bought the company from insurers Zurich Insurance and Aegon.
7IM — named after its seven founders — has grown over the past eight years with the help of four acquisitions. It has more than doubled assets under management to £21bn and increased profitability by bearing down on costs. The price is below the sum that was reportedly offered by bidders before last year’s market downturn. Nonetheless, it is a premium of more than a third to the sector’s average multiple of 14 times current earnings.
Caledonia’s private capital investments are predominantly UK mid-market companies. They account for roughly a third of its portfolio, with the rest split between listed equities and North American and Asian private equity funds. Emphasis on private equity has not cramped its ability to increase dividends, which have risen at or above inflation for 56 years.
But dividend hero status does not distract from an eye-watering discount to net asset value. Peel Hunt puts this at 34 per cent. It has widened by a considerable amount recently, reflecting sector-wide concerns about private equity exposure. The Cayzer family’s holding — at 48.8 per cent — is another factor. It limits the scope for share buybacks and reduces the chance of activist investor involvement. It is 20 years since dissident members of the Cayzer family campaigned unsuccessfully for the trust to be broken up.
The 7IM deal premium should reassure investors. They might reasonably hope for a degree of mean reversion. On previous occasions when the discount has widened beyond 30 per cent, it has significantly narrowed within a year.
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