The Pacific Current Group Ltd (ASX: PAC) share price is rising after making a US acquisition.
Pacific is an investment business that applies it strategic resources, including capital, institutional distribution capabilities and operational expertise to help the investment managers it owns stakes of to grow.
Pacific Current invests in Banner Oak Capital Partners
The ASX share is buying a 35% stake in Banner Oak, which is a private equity real estate outfit based in Dallas. The initial investment is US$35 million, or A$48.2 million.
Banner Oak is focused on the creation and growth of fully integrated private real estate operating companies. Currently, Banner Oak manages approximately $5.7 billion in assets across its platform.
The US business has been engaged with a prominent US pension fund to provide investment capital into numerous real estate operating companies and the real estate projects these operating companies are developing.
The transaction agreement also includes an “earn out” provision that could result in Banner Oak receiving an additional consideration of up to US$5 million.
Pacific will receive 35% of the management company’s profit, excluding performance fees. The agreement also includes provision that will provide the ASX share with more than its 35% pro-rata share of Banner Oak earnings in the initial years of the investments.
This investment is being classified as a ‘tier 1’ investment, which means it’s one of the managers expected to be a material contributor to earnings.
The estimated contribution to Pacific Current over the next 12 months is estimated to be approximately 25% of the ASX’s FY21 underlying net profit before tax.
Management comments
Pacific Current Managing Director and CEO Paul Greenwood said: “We believe the manner in which institutional private real estate investing is evolving bodes very well for Banner Oak’s approach of partnering with real estate operators.”
My thoughts on this deal and the Pacific Current share price
This seems like a smart move by Pacific. The fact that it adds around a quarter to underlying profit before tax seems like a substantial amount. If Banner Oak can keep growing then it seems like a great opportunity for Pacific to diversify and grow its earnings.
If I were an income-focused investor, I’d say the current Pacific Current share price of $7.38 looks attractive for dividends over the next few years, at least. The investment in GQG Partners Inc (ASX: GQG) looks like it will pay attractive dividends to Pacific.
