Investec Property Fund gets shareholders’ nod

JSE-listed Investec Property Fund (IPF), which has assets in SA and Europe, says it has strong shareholder backing to internalise its asset management function, and to this end it has revised the deal with the introduction of an earn-out mechanism.

An earn-out is a pricing structure in mergers and acquisitions enabling sellers to earn part of the purchase price based on the performance of the business after the acquisition.

About 27.4% of shareholders representing 36.2% of the voting share, excluding IPF shares held by Investec, have confirmed their intention to vote in favour of the transaction.

The transaction requires a 50% IPF shareholder approval, excluding the votes of Investec and its associates. IPF will post a circular of the proposal on or about April 17 with a general meeting scheduled for May 17.

On March 1, IPF said it will internalise its entire asset management function in SA and Europe currently undertaken by Investec for a purchase price R975m.

In a statement on Monday, IPF said the R975m has been reduced by R125m to R850m via the introduction of an earn-out.

Earn-outs typically occur over a three- to five-year period after the acquisition has been finalised with about a 10%-50% price deference.

Investec Property Fund, which listed in 2011, has a portfolio valued at R22.5bn of direct and indirect investments in SA and Europe that includes a 65% stake in a pan-European logistics portfolio.

On March 1, IPF said the acquisition will be funded by R390m from disposals set off against an equivalent portion of aggregate consideration owing by IPF, a cash payment of R260m and deferred cash payment R325m.

The deferred cash payment was to be paid through R125m on the first anniversary of the acquisition’s closing date, and R200m on the second anniversary.

REVISED

With the revised terms, Investec will put R125m — representing a 12.8% discount to the original purchase price of the deferred consideration — at risk in terms of an earn-out linked to the growth in the exiting assets under management (AUM) as at March 31.

The earn-out of R125m will be payable annually over three years if IPF achieves an increase in AUM of more than R1bn annually.

The amount will be prorated, depending on the increase in AUM achieved during the period under measurement, and there would also be a clawback mechanism at the end of the three-year period.

The deferred cash payment of R325m has been revised to R200m, which is payable in 12 and 24 months.

“The deferred element allows shareholders to benefit from the immediate earnings accretion, enabling management to continue to grow the revenues from both the expanded asset base and the capital light, funds management strategy.”

Additionally, Investec will contribute about R45m to the ongoing sustainability of the business, including contributions to management retention, IT systems and rebranding. This contribution was not included in the original proposal in March.

THE DEFERRED ELEMENT ALLOWS SHAREHOLDERS TO BENEFIT FROM THE IMMEDIATE EARNINGS ACCRETION