Gresham House plc (LON:GHE) Chief Executive Officer Tony Dalwood caught up with DirectorsTalk for an exclusive interview to discuss their proposed acquisition of FIM Services, the synergies this will create, the benefits of investing in this type of asset class, the financial & strategic benefits to shareholders and fundraising plans over the next 12 months.
Q1: The proposed FIM acquisition announced earlier this month means that Gresham House is now a significant forestry manager in the UK. Tony, can you talk us through the deal?
A1: Forestry Investment Management Services Limited has been around for nearly 40 years and we already have an existing and successful forestry business that continues to grow which we’re very pleased with.
The deal has very much been in discussion between us and them for quite a while, so we understand each other’s businesses very well and we are acquiring 100% of Forestry Investment Management (FIM) for cash and shares.
So, it’s very pleasing that some of the shareholders are rolling into Gresham House shares for the longer term which is always an important alignment issue. We are raising some new money off some new shareholders as well as existing so, again, it’s pleasing that existing shareholder was broadly and largely stood their corner and wanted to maintain their position in GHE. Meanwhile, we’re bringing in some new shareholders and that will be completed on May 21st at the General Meeting in order to approve the bill.
It will lead to Gresham House being the number one forestry asset management in the UK and it also enhances our renewables proposition as well. We believe it will be very good for clients, importantly, as well as shareholders and the service provision as well as the management of forest is something we believe will be positive for all stakeholders within the forestry environment.
Q2: So, what synergies will this create?
A2: We’ve done extensive diligence on FIM over the last period and we have put together quite a detailed integration plan. We have a number of people working on that, communicating both with our existing business and the new target acquisition of FIM in order to bring them together so that we can have opportunities for efficiencies particularly around process and use of technology.
There’s minimum people overlap which is great, so we hopefully won’t have too much disruption there, but we see opportunities over the longer term to enhance those synergies.
Q3: What are the benefits of investing in type of asset class?
A3: Forestry is regarded as the real asset and real assets have come up on the asset allocation agenda quite considerably over the last few years. Typically, some of the characteristics that are sited for forestry are a lower correlation than traditional asset classes such as bonds and equities, there’s also an element of inflation linkage if you look back through history.
It is very much a long-term asset class for those people that want to capture a liquidity discount, this is an opportunity to do so through forestry. For some UK investors, there are BPR, or Business Property Relief, opportunities for inheritance tax purposes.
Q4: How has the deal been beneficial to shareholders on a strategic and a financial level?
A4: From a shareholder point of view, there’s both a financial opportunity for returns from EPS enhancements, earnings per share enhancements, and we believe our return on investor capital hurdle will be exceed within the short to medium term.
On the strategic side, again, clear, there are synergies that I’ve alluded to earlier, we’ll become the UK’s number one forestry asset manager and the opportunity within renewables is also enhanced, we have a platform there and we believe we can accelerate growth in that area. As a result of that, we think the clients within the forestry area will also benefit, I mentioned that earlier.
Gresham House itself, post the acquisition, will be increasingly diversified business of scale with critical mass with five platforms, niche assets classes and over £1.5 billion of assets under management.
Q5: What can you tell me about fundraising plans over the next 12 months?
A5: From a Gresham House point of view, there aren’t any plans to raise further equity or capital at this stage, we’re always looking at a strategic or acquisition opportunity that meets our financial criteria so that may change in due course but at the moment there are no plans to increase the capital base.
From an underlying investment management teams and our sales and distribution, there are a number of initiatives, particularly in our British Strategic Investment Fund, or BSIF, in infrastructure and housing in the UK.
We’re focussing very much on energy storage systems or battery storage in the UK and that’s growing as a sub-asset class of interest.
Finally, we have a developing co-investment platform with all sides of the various things that we do within Gresham House so there are fundraising plans constantly within the group for the underlying asset classes that we manage.