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American Capital spinoff idea?

  • Noting American Capital Asset Management seems to be rather conservatively valued on American Capital's (ACAS -6.8%) balance sheet, FSI Group's Eric Stein - on the company's earnings call (transcript) - asks management if it would consider spinning the business off.
  • CEO Malon Wilkus responds that his team is keeping close track of the public market valuations of asset managers. " That possibly presents an opportunity for us. It's extremely -- it's safe. It's something that we're extremely interested in and paying a great deal of attention to."
  • Wells' Jonathan Bock follows up, noting there is a recent comp in the form of NorthStar Realty (NRF) which has soared following the plan to spinoff its asset management unit.
  • Earlier earnings coverage
Comments (2)
  • agorbounov
    , contributor
    Comments (7) | Send Message
     
    About damn time someone asked that question and about time they answered the way they did! Recent mREIT troubles notwithstanding, ACAM is a great asset that is currently hidden in the rather messy BDC-cum-conglomerate structure. I just hope they actually follow through here - I know people have nagged them to spin off the senior debt portfolio into a separate BDC when those were trading at 1.5x book but that is yet to happen (and the train may have left the station). ASF is a step in that direction but too little too late.

     

    There was another thing John Erickson said on the call which I think is even more important:

     

    "I would say that the better way to think of it would be that you would spin out the BDC and leave the asset manager at ACAS. And ACAS really transforms itself to ACAM."

     

    I've long thought that makes all the sense in the world - you spin out everything, retain management contracts and have yourself a mini-Brookfield with tons of diversified (i.e. not just mREIT) permanent capital. I think that kind of business deserves a pretty high multiple - the last time I did SOTP on this thing, that kind of scenario got me close to a $20-23 price. And I think that assumed that ECAS remains at a big discount...

     

    If only the mgmt bought some damn stock, I would be a very happy person now.
    11 Feb 2014, 03:44 PM Reply Like
  • leviticus1935
    , contributor
    Comments (68) | Send Message
     
    Another candidate for this kind of split up might be W.P. Carey (WPC). Bill Carey would never want to see his Carey Management Co. spun out of WPC. However, two years have passed since Bill died and WPC's new management may have a different viewpoint. If not, an activist fund could take a position and push for a spinoff. I am not sure what a spinoff would mean for the SOTP. Perhaps a 15-20 percent increase in the total market cap? Just a guess. In the meantime WPC pays a safe dividend of almost six percent. One question: does REIT status preclude a spinoff?
    11 Feb 2014, 05:49 PM Reply Like
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