In January, Palmer Capital chief executive Alex Price was in the firm’s Hong Kong office when a colleague told him something of interest: UK fund manager Invista Real Estate Investment Management wanted to sell its Asia business.
The idea immediately appealed to Palmer because it would help the firm’s ambition to grow its fledgling Asia business. However, it wasn’t until Price returned to his firm’s headquarters in London that he started viewing the transaction differently.
In an interview with PERE about the recent takeover, Price said: “I realised it was more than a deal to buy the Asia part of the business, but a corporate deal.”
The acquisition, it turned out, involved taking over the management of £749 million (€927 million; $1.2 billion) in assets contained in two funds, the Asia-focused Invista Real Estate International Fund (IREIF) and the UK-focused Invista Real Estate Opportunity Fund (IREOF). It also involved the transfer of staff and, tantalisingly, the possibility of some new investors. Further stoking interest was the arbitrage between Invista’s stated worth and its market capitalisation of £25 million, Price explained.
In order to fund the acquisition, Palmer approached The Townsend Group, knowing that the Cleveland-based investment advisor had the “right mindset” for the transaction. Price said he knew the deal would be of interest to the US group because it played to three current market trends in private equity real estate: the upheaval and rationalisation of some fund managers; the move towards greater control over investments by indirect investors; and the desire by some US investors to re-enter Europe.
Townsend provided Palmer with two loans, one of nearly £25 million and the other of £16 million, to fund the takeover of Invista, making it one of only two limited partners in the two funds. Friends First Life Insurance of the UK retained its 50 percent stakes in the two funds throughout the takeover.
According to Price, the £25 million loan was paid back to Townsend via the transfer of Invista’s shares in the two funds. In fact, he noted that Townsend already made a profit as the value of its interest is now higher than the value of the original loan.
“We went to Townsend because we knew that is what they were looking for,” Price added. “There are probably only a small handful of investors that could have done this transaction, and Townsend is one of them.”
Invista might have been a good deal, but it nevertheless was a “rocky road” towards consummation. Palmer first met with the firm’s senior management back in May, but Invista already had elected to sell to a rival London firm, Internos Real Investors. There also was a third suitor rumoured to be waiting in the wings should that deal collapse.
Even though its first approach was rebuffed, Palmer continued wooing Invista. After some tussling, Palmer eventually topped Internos’ offer to pay 12.5 pence per share. At 4 am one Monday in June, Palmer announced its intention and, with no counteroffer in sight, its bid succeeded. The deal, along with necessary shareholder approval, was completed last month.
“Would I do it again?” Price muses. “Not sure.”