‘Blank cheque’ entity acquires hedge fund Halcyon for $974m

A SPAC chaired by Hicks Muse alum Michael Levitt will take the $11.5 billion New York hedge fund public, a confluence of trends.

Following in the footsteps of hedge fund GLG Partners, New York-based hedge fund Halcyon Asset Management has announced that it will go public via a $974 million (€624 million) acquisition by “blank cheque” company Alternative Asset Management Acquisition (AAMA).  

Under the terms of the agreement, Halcyon will receive $505 million in cash and a 44 percent stake in the new firm. Halcyon has also pledged to reinvest 75 percent of after-tax cash proceeds into Halcyon funds.

“Going public is something we wanted to do, even though we knew we weren’t going to be at the top of the market,” Halcyon COO Tom Hirschfeld told PEI. Hirschfeld will assume the role of president of the publicly listed Halcyon Management when the reformed entity debuts in the third quarter of this year.

Halcyon co-chairman John Bader will become CEO of the public company, while Halcyon vice chairs Kevah Konner and Steven Mandis will work under the same title.

AAMAC is chaired by Michael Levitt, former head of the New York office of Hicks Muse Tate & Furst (now HM Capital). The Dallas buyout firm shut its New York office in 2001 and Levitt resigned. He later founded Stone Tower Capital, a leveraged loan specialist firm.

AAMAC approached Halcyon in September about a possible deal, but Halcyon declined.  However, after reevaluating the offer a few months later and noting the potential impact an IPO might have in attracting new investors and new professional talent, the hedge fund reconsidered.

Bader has known AAMAC director Brad Peck for more than 40 years from various relationships within the industry, Hirschfeld said.

SPACs like AAMAC are publicly held investment vehicles created with the sole purpose of acquiring another company. Some market participants view them as a rival structure to traditional private equity funds. SPACs are usually structured such that their managers retain a significant ownership of the company acquired, often 20 percent.

Last summer, blank cheque company Freedom Acquisition took acquired hedge fund GLG Partners. GLG closed trading today at $13.40, down 10 percent from its ten-week high. Other notable SPACS include two separate ventures from Thomas Hicks, the retired founder of Hicks Muse.

“We have respect for the GLG guys, we know them, we talk to them,” said Hirschfeld. “We’re looking to learn from the experience of everyone that’s gone before us.”

The Halcyon deal represents the third largest such SPAC acquisition. AAMAC was incorporated in August of last year and has a market capitalisation of $554 million.
 
Halcyon has enjoyed a net annualized return of 13.5 percent since its creation in 1991. However, its announcement comes as many asset managers, both traditional private equity firms and hedge funds, see their stock values flailing. Halcyon was valued at 8.5 percent of its assets under management.
 
In a statement, Levitt said: “We believe this transaction benefits all parties involved as it allows Halcyon to access the public market and further achieve its strategic objectives at an attractive valuation for AAMAC public shareholders. Based on average historical net returns of Halcyon funds, historical Halcyon hedge fund AUM growth and Halcyon's management fee run-rate as of December 31, 2007, the multiple of earnings power at the trust value of $9.76 per share is approximately 9.5 times.”