Palmer Capital, the UK-focused private equity real estate firm founded in 1992 by entrepreneur Ray Palmer, should start the second quarter as the first international platform of the real estate business of Canadian investment management firm Fiera Capital Corporation.
The acquisition of an 80 percent stake in Palmer Capital brings Fiera’s own real estate investment management business to around $3.5 billion of assets, combining Palmer Capital’s approximately £800 million ($1.02 billion; €880 million) of assets held in funds and separate accounts with Fiera Properties’ circa C$3 billion ($2.23 billion; €1.95 billion) of assets, also held in funds and individual mandates.
The acquisition is likely to be the start of a wider expansion both internationally and in the private alternatives space by his new Canadian shareholder, chief executive Alex Price told PERE.
For Price, founder Ray Palmer, and the firm’s remaining initial investors, the transaction, which was unsolicited by Palmer Capital, is both a value realization moment and growth opportunity that might have happened in 2016 – when approaches were made to buy both a half-stake and the entirety of the business – but has finally happened now.
“We were asking ourselves, ‘How do we achieve greater distribution?’ Investors increasingly are wanting fewer managers with more diverse services. Growth for a niche manager therefore becomes more difficult.”
“In 2016, we thought we should remain independent for a bit longer, to allow us to grow as a business,” Price said of that time. “However, ultimately our grow-sell decision came when a partner of the caliber of Fiera approached us.” Reflecting on the conversations in the firm’s board room, he said: “We were asking ourselves, ‘How do we achieve greater distribution?’ Investors increasingly are wanting fewer managers with more diverse services. Growth for a niche manager therefore becomes more difficult.”
Tellingly, Palmer Capital’s response to its previous discussions with suitors was to streamline an operation that had previously offered continental European and even Asian strategies. With 50 percent shares in those businesses versus the majority ownership for its bigger UK operations, the ambition to grow in these markets was challenging to meet. “We also found being small but spread out made us less organized and less focused,” Price remarks. Growth into Europe may well return for the enlarged business, however, as Fiera looks to expand its property investment management plans even further. “As part of a bigger organization, we may be part of a wider growth plan across Europe,” Price confirms.
Buying an 80 percent stake in Palmer Capital saw Fiera pay £40 million, shared between Palmer’s executives and external shareholders in cash and shares. The deal valued the business at a multiple of between 6x and 8x EBITDA.
For Price and other senior management, it meant a sale of around 50 percent of their company stock. For founder Palmer, who remains active as the firm’s executive chairman, it represented a major, but not complete, exit. For Palmer’s original backers, high-net-worth investors who have sold all their stock in the company, it represented a final exit.
Price is now forward-looking and sees 2019 as an important year in terms of helping Fiera realize its initial targets. This year’s ambitions include raising £150 million more equity for Palmer’s core vehicles to bring total capital raised for the strategy to over £600 million; and, more notably, plans for a Brexit-based value-add fund, for which the firm wants about £250 million. “I suspect Brexit will require more changes than many think,” he noted. “Supply chains will be impacted and changes to the needs of the service sector will be accelerated. That will impact offices for sure.” Added to that the demographic and technological factors that will underpin occupational behavioral shifts by tenants across every property type and Price believes the new fund will make for a compelling investment product with target returns in the typical value-add range.
“I suspect Brexit will require more changes than many think”
Price has confidence Palmer can deliver this given its prior performance. The firm’s value-add strategies have produced more than 15 percent per annum net returns since 2010 while its core strategies have generated 7-8 percent per annum.