The BT Pension Scheme will retain a 29.5 percent share in the group it first established in 1983, but which has since grown to manage investments for over 500 clients. Senior Hermes management staff will hold a 10.5 percent stake under the new structure.
The deal represents a £410 million valuation for the group and a multiple of 12.8 times Hermes’s 2017 EBITDA. A put/call agreement has been established by Federated and BT, allowing for the respective duo to purchase or sell the remainder of the interest three years after the transaction and every year afterwards through to the sixth anniversary.
J. Christopher Donahue, chief executive of Federated, said the deal would “significantly broaden Federated’s distribution capabilities”, where 96 percent of its $132 billion in assets under management – excluding money market assets – is based in the US, with a 51:49 split between equities and fixed income.
The acquisition of Hermes adds a weighty alternatives division to the portfolio, with 22 percent of Hermes’s $45 billion under management in real estate, 9 percent in infrastructure and 8 percent in private equity.
The impact on Hermes’s fundraising activities is as yet unclear. Hermes manages around $5 billion in private equity assets. Last year Private Equity International reported that Hermes was tilting towards more separately manged accounts through its co-investment programmes due to demand from several LPs. The firm had held the final close on its third pooled co-investment fund, Hermes GPE PEC III Co-Investment Fund, above its $300 million target on $389 million in September 2017.
Hermes is also currently raising its second infrastructure fund with a target of £1 billion and a hard-cap of £2 billion, according to pension fund documents. Infrastructure Investor understands the fund reached commitments of about £130 million at the end of Q1, with a number of commitments still being considered.