How Much Will That SRI Deal Cost?
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Wednesday, September 20, 2017

How Much Will That SRI Deal Cost?

The impending sale of Pax World Management [profile] offers fundsters a more detailed-than-usual glimpse at the anatomy of an asset management sale. Pax's buyer, Impax Asset Management, reveals a host of the deal's details in an analysts' presentation.

London-based Impax, a publicly-traded SRI shop (IPX on the LSE), has agreed to shell out up to $90 million to buy Portsmouth, New Hampshire-based Pax (which has 50 staff and was founded back in 1971). That $90 million translates into about two percent of Pax's $4.5 billion in AUM, a pretty standard ratio for asset management deals. The price tag also translates into 3.4 times Pax's 2016 net revenues of $26.3 million and 20.5 times Pax's 2016 EBITDA of $4.4 million.

The mechanics of the deal go like this. When the deal closes (current ETA is by February 28, 2018), Impax will buy 83.3 percent of the outstanding Pax shares, mainly from the family of Pax chairman Larry Shadek, for $44.2 million up front ($38.1 million in cash and $6.1 million in Impax stock) and up to $31.3 million (all cash) in an earn-out in 2021 if Pax's AUM rises to $8 billion in 2020. The remaining 16.7 percent of Pax, owned by Pax management, will convert into $8.3 million worth of Impax stock in 2021, plus they'll get up to $6.3 million more (in Impax stock) if Pax's AUM rises to at least $8 billion. (Both earnouts start at Pax's AUM rising to more than $5.5 billion at a minimum.)

For the initial $44.2 million payment, Impax will use $12.1 million of its own cash, raise $26 million more by issuing debt, and issue $6.1 million in new stock.

The two firms have many non-overlapping investment specialties, despite both being SRI-focused asset managers. On the traditional active side, both firms have U.S. equity strategies, but only impax has traditional active global thematic, global unconstrained, Europe, and Asia strategies, as well private equity strategies. Only Pax has traditional fixed income strategies, as well as passive global thematic and U.S. strategies.

Looking forward, the Pax mutual funds will keep their brand, but Pax World itself will be rebranded as Impax Investment Management (US). The investment teams on both sides of the pond will remain independent but will share research, operations will become global, and over time the sales and marketing teams will integrate.

Barron's, CityWire, and InvestmentNews all covered the deal.

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