Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: lathinker on March 26, 2019, 02:43:13 PM

Title: IAM.TO - Integrated Asset Management
Post by: lathinker on March 26, 2019, 02:43:13 PM
Here is one for the folks looking at Merger Arb situations:

IAM, a Canadian asset manager, is going to be acquired by Fiera Capital (FSZ). Here is the release: http://www.globenewswire.com/news-release/2019/03/22/1759240/0/en/Integrated-Asset-Management-Announces-Agreement-to-Be-Acquired-by-Fiera-Capital.html (http://www.globenewswire.com/news-release/2019/03/22/1759240/0/en/Integrated-Asset-Management-Announces-Agreement-to-Be-Acquired-by-Fiera-Capital.html)

In essence, shareholders can choose to receive either cash or FSZ stock worth 2.576 CAD/share. If everybody opted for cash, a shareholder would receive:

1) 1.932 CAD in cash
2) 0.644 CAD worth of FSZ stock. Note that the number of FSZ shares to be received will be fixed based on the 5-day average price of the FSZ stock priot to the merger effective date, thus mitigating (though not eliminating) the market price risk on the FSZ stock.
3) potentially a special dividend for the difference between IAM  net cash balance and 10 MM CAD
4) a CVR paying the performance fees (net of incentive compensation and tax) of two real estate funds.

With IAM trading at 2.55 CAD and not taking into account the minor price risk on FSZ shares, you can buy the potential special dividend and the CVR for free. What are they worth?

3) I have not seen a definition of Net Cash Balance but I guess it will not be more conservative than "Cash & Cash Equivalents" less "total Liabilities. As of 31 Dec, this number came down to 13.2mm CAD, leaving 3.2mm CAD for distribution (0.115 CAD). They have stopped dividends and may realize some receivables, so there my be a bit of upside to this number

4) The release states that "for certain purposes of the transaction" the CVR was valued at 0.174 CAD. According to the latest annual report, unrealized performance fees stood at 10.8mm CAD. Assuming 25% of the amount to be paid to employees and a 35% tax rate, the net performace fees stand at about 5.3mm CAD or 0.19 CAD per share. Depending on performance, the fees may grow, shrink or disappear from here.


Deal risk is minimal in my view:
- small takeover by national bidder
- they need a 2/3 majority at their EGM, but management and other major holders representing 62% of the capital have committed to support the transaction
- funding not a problem

So overall, at a price of 2.55 CAD, you get the special dividend and the CVR pretty much for free - risk/reward looks good enough for a small position. Bought shares today.
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on June 17, 2019, 08:01:24 AM
Deal is about to close. Best idea in terms of risk/reward posted on this forum ytd as far as I am concerned. Now my largest position. Didn't want to bump the thread for fear of competition.

Vote was a formality, CVR valued at ~$0.174 by the company using a 10% discount rate even though the underlying assets are real estate. Insiders own a huge amount of shares and have every incentive to pay out as a large a special dividend as possible (whether they manage to do so remains to be seen - probably this week or next week). Deal is at a small premium so downside is limited. And the best thing is that there was an enthusiastic seller the first few days after the announcement - enough for a few PA accounts to pick up a nice amount of shares around $2.56.
Title: Re: IAM.TO - Integrated Asset Management
Post by: bizaro86 on June 17, 2019, 11:25:54 AM
I have a big position here as well. I agree with everything posted, but would note that the CVR is a carried interest on real estate assets, not the assets themselves. So it is more leveraged to RE prices than straight real estate equity.

I like picking up stuff for free that has large potential future payouts.
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on June 17, 2019, 11:38:51 AM
Yes, correct. What I meant to say was (see appendix H-11 / H-12 of the proxy): the $0.174 was arrived at assuming real estate is sold at prices equal to the December 2018 appraisal and then discounting that back to a present value. But were the funds to liquidate today the CVR would distribute ~$0.26 already. The $.0174 assumes no changes in real estate prices and a discount rate of 15% p.a. (not 10% as I said in my previous post) for future distributions. So you could argue the $0.174 is pretty conservative already.
Title: Re: IAM.TO - Integrated Asset Management
Post by: Hielko on June 17, 2019, 12:41:21 PM
I think from a theoretical finance perspective applying a discount rate to appraised real estate values, or in this case, a leveraged derivative of appraised real estate values is simply incorrect. The appraised value is already a present value, discounting it again doesn't make sense.

One issue with this deal that it is contingent on the adjusted cash balance of the business being above $10 million. I don't think this is a huge risk, but it's there.
Title: Re: IAM.TO - Integrated Asset Management
Post by: bizaro86 on June 17, 2019, 01:26:11 PM
Yes, correct. What I meant to say was (see appendix H-11 / H-12 of the proxy): the $0.174 was arrived at assuming real estate is sold at prices equal to the December 2018 appraisal and then discounting that back to a present value. But were the funds to liquidate today the CVR would distribute ~$0.26 already. The $.0174 assumes no changes in real estate prices and a discount rate of 15% p.a. (not 10% as I said in my previous post) for future distributions. So you could argue the $0.174 is pretty conservative already.

I agree that is conservative, just noting the leverage involved. The real estate in the funds is presumably leveraged (maybe 3:1ish?) And then there is the further leverage because of the nature of carried interest. I think the spread of possible values for the CVR is probably very wide, and I haven't tried to determine an exact value.
Title: Re: IAM.TO - Integrated Asset Management
Post by: SafetyinNumbers on June 18, 2019, 12:02:28 PM
I went to the special meeting on Friday. They expect to announce the special dividend (if any) by the end of this week and try to have an effective date of June 27 but there is a chance it could slip into July.

Body language suggested if there is a special dividend that it will be relatively small. I'm guessing something between 2-6 cents.

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.

It's also my largest position.

Title: Re: IAM.TO - Integrated Asset Management
Post by: Rod on June 18, 2019, 12:15:01 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.
Title: Re: IAM.TO - Integrated Asset Management
Post by: SafetyinNumbers on June 18, 2019, 12:30:29 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.

The deal was approved at the meeting on Friday. I think instructions were due last week on consideration. The default is 75% cash and 25% Fiera shares.
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on June 18, 2019, 12:34:25 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.

I don't think that is the case. The deadline for electing how you want your proceeds has passed (it was two days before the meeting) and if you haven't made a choice you will get the combined consideration. I'm pretty sure your other broker messed up.
Title: Re: IAM.TO - Integrated Asset Management
Post by: Rod on June 18, 2019, 12:46:39 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.

I don't think that is the case. The deadline for electing how you want your proceeds has passed (it was two days before the meeting) and if you haven't made a choice you will get the combined consideration. I'm pretty sure your other broker messed up.

Yeah, looks like it. iTrade sent me the "Form of proxy" as seen on SEDAR, which is for the vote only, nothing else. I guess you guys will be getting some of my cash  ::)
Title: Re: IAM.TO - Integrated Asset Management
Post by: bizaro86 on June 18, 2019, 01:23:08 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.

I no longer have any accounts with Scotia iTrade for this reason. They are terrible to deal with for corporate actions. My experience was generally:

1) Call and wait on hold
2) Tell the person I spoke with what I wanted to do (tender, whatever)
3) Have them argue that there is no such action and I am mistaken
4) Argue some more, finally convince them that I should get escalated to a supervisor
5) Have the supervisor tell me there is no such action and I am mistaken
6) Convince the supervisor to send in a ticket for someone to research
7) 2 days later, get an automated message that I should call them.
8) Call and wait on hold
9) Give instructions verbally to someone with absolutely no finance facility whatsoever, slowly and painfully.

After a few odd lot tenders where I spent hours on the phone for a $100 profit, I moved my accounts. YMMV, but if you expect to do special situations with any regularity I wouldn't use iTrade.
Title: Re: IAM.TO - Integrated Asset Management
Post by: Rod on June 18, 2019, 01:47:33 PM

I elected all cash and it sounds like if that option was selected, it will be about 90% cash but I'm assuming they understood my question correctly.


I hold IAM in an account with RBC Direct Investing and also one with Scotia iTrade. Only RBC asked me for how I wanted to receive proceeds--iTrade just asked for a vote on the deal. Anyone notice anything like that with their broker? I'm assuming if the deal is approved, iTrade will send the form to indicate whether I want cash or stock.

I no longer have any accounts with Scotia iTrade for this reason. They are terrible to deal with for corporate actions. My experience was generally:

1) Call and wait on hold
2) Tell the person I spoke with what I wanted to do (tender, whatever)
3) Have them argue that there is no such action and I am mistaken
4) Argue some more, finally convince them that I should get escalated to a supervisor
5) Have the supervisor tell me there is no such action and I am mistaken
6) Convince the supervisor to send in a ticket for someone to research
7) 2 days later, get an automated message that I should call them.
8) Call and wait on hold
9) Give instructions verbally to someone with absolutely no finance facility whatsoever, slowly and painfully.

After a few odd lot tenders where I spent hours on the phone for a $100 profit, I moved my accounts. YMMV, but if you expect to do special situations with any regularity I wouldn't use iTrade.

Who do you recommend?
Title: Re: IAM.TO - Integrated Asset Management
Post by: bizaro86 on June 18, 2019, 02:05:49 PM
I use Interactive Brokers and RBC Direct Investing.
Title: Re: IAM.TO - Integrated Asset Management
Post by: SafetyinNumbers on June 18, 2019, 08:14:34 PM
I use Interactive Brokers and RBC Direct Investing.

I use those and TD Direct Investing as well. You can get an agent quickly if you call through the app.
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on June 25, 2019, 12:33:45 AM
$0.08 special dividend announced (link (https://web.tmxmoney.com/article.php?newsid=5617781121453150&qm_symbol=IAM)), conditional upon deal closing. Nice, bit more than I was expecting.
Title: Re: IAM.TO - Integrated Asset Management
Post by: Foreign Tuffett on July 03, 2019, 08:11:42 AM
Transaction has closed. Note the consideration for each election.

https://finance.yahoo.com/news/fiera-capital-corporation-completes-acquisition-135800973.html (https://finance.yahoo.com/news/fiera-capital-corporation-completes-acquisition-135800973.html)
Title: Re: IAM.TO - Integrated Asset Management
Post by: Foreign Tuffett on July 09, 2019, 08:23:58 AM
$0.08 dividend, minus 15% Canadian withholding tax, hit my IB account on the 4th. Note that I'm in the US.
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on July 12, 2019, 06:43:51 AM
Deal has closed. Average buy price was ~C$2.62. Cash, net dividend, tax credits and FSZ consideration worked out to be ~$2.645 or something per share. Still left with a CVR that should, if things stay the way they are, should pay out $0.25 over the next few years (and I hope / expect over C$0.17 within a year as real estate fund 1 reaches its initial maturity date in March 2020) . Large position for me (10%+), good to have some margin space again. I've been buying all the way sinds March. Very happy with how things turned out and content with being confident enough to make this a huge position.

The one thing that bothers me a bit is that I should perhaps have been buying more shares around March 22 - March 27. Basically if I had done my homework with a bit more urgency and had bigger balls I could have been more aggressive at the time. I did accumulate a decent position, including a chunk at the post-announcement low of C$2.51 but around that level this was really the opportunity of the year and I should probably have bought more there. Always easy to say in hindsight though. Proxy wasn't available, got a bit scared of the selling pressure, etc.
Title: Re: IAM.TO - Integrated Asset Management
Post by: hillfronter83 on July 12, 2019, 07:16:45 AM
Deal has closed. Average buy price was ~C$2.62. Cash, net dividend, tax credits and FSZ consideration worked out to be ~$2.645 or something per share. Still left with a CVR that should, if things stay the way they are, should pay out $0.25 over the next few years. Large position for me (10%+), good to have some margin space again. I've been buying all the way sinds March. Very happy with how things turned out and content with being confident enough to make this a huge position.

The one thing that bothers me a bit is that I should perhaps have been buying more shares around March 22 - March 27. Basically if I had done my homework with a bit more urgency and had bigger balls I could have been more aggressive at the time. I did accumulate a decent position, including a chunk at the post-announcement low of C$2.51 but around that level this was really the opportunity of the year and I should probably have bought more there. Always easy to say in hindsight though. Proxy wasn't available, got a bit scared of the selling pressure, etc.

Congrats!!
Title: Re: IAM.TO - Integrated Asset Management
Post by: writser on November 08, 2019, 07:03:35 AM
Fiera Capital Q3 financials are out today. I was thinking maybe there would be an updated CVR valuation based on a H1 2020 fund valuation but no such thing. CVR's still on the book for C$5m in total, ~28.7m CVR's outstanding makes for about C$0.17 per CVR.