In a trading update on Tuesday (3 September), ASX-listed Moelis Australia Limited revealed that it has entered into a binding buyback agreement with US-based Moelis & Company (M&C) to purchase eight million Moelis Australia shares from M&C via a selective buyback at a price of $3.40 per share, or $27.2 million.
This represents approximately 5.1 per cent of Moelis Australia’s issued share capital and will be subject to shareholder approval at an EGM to be held in the coming months.
In conjunction with the buyback, M&C has sold 12.5 million Moelis Australia shares at $3.40 per share to public market investors and the Moelis Australia Employee Share Trust. The Employee Trust acquired two million shares from M&C to satisfy prior and future period share grants to Moelis Australia employees under the terms of its equity incentive plan.
M&C’s share sale represents approximately 8.0 per cent of Moelis Australia’s issued capital prior to the buyback.
Following implementation of the buyback, M&C’s share ownership in Moelis Australia will be 19.98 per cent. By reducing M&C’s ownership below 20 per cent, Moelis Australia will now be free to make acquisitions without applying for Foreign Investment Review Board (FIRB) approval.
“Moelis Australia will cease to be regarded as a foreign corporation under Australian law which provides benefits of reduced costs, administrative burden and improved corporate flexibility,” the company said in a statement.
“The buyback and share sales will provide significant benefits to Moelis Australia and its shareholders, including an approximate 26.7 per cent increase in free-float which should benefit market liquidity on the ASX.”
At 30 June 2019 Moelis Australia had approximately $106 million of cash holdings in addition to approximately $75 million worth of securities in ASX-listed companies. Together this represents approximately $1.19 per share.
“Having such a large cash balance gives us capacity to invest strategically,” Moelis Australia CEO Andrew Pridham said following the group’s 1H19 results announcement last week.
“We are constantly evaluating ways to deploy this capital. We will remain patient and disciplined when deploying balance sheet and client capital but remain mindful that having such significant cash holdings dilutes what earnings may otherwise be.”
Over the half year to 30 June 2019 the group increased assets under management (AUM) by 22 per cent to $3.9 billion.
The company’s asset management division produced over 70 per cent of group underlying revenue in 1H19. This comprised underlying revenue of $49.2 million, up 49 per cent from $33.0 million pcp, of which $32.7 million (66 per cent) was recurring in nature and consisted of base asset management fees and recurring principal investments income.
The remaining $16.5 million (34 per cent) consisted of transaction fees, performance fees and mark-to-market movement in the value of investments.
“We are increasingly refining our focus to managing fewer but larger, more scalable individual funds and investment strategies. Today we have approximately $1.7 billion in foreign high-net-worth (HNW) AUM in both SIV and non-SIV funds,” Mr Pridham said.
“Growing any business requires hard work and carefully considered investment. In the first half of 2019 we continued to balance the desire for growth with a focus on shareholder returns and management of risk.
“I believe that our overall financial performance was strong, particularly given our defensive bias, as demonstrated by our large cash holdings. I remain confident about the future and believe that Moelis Australia becomes a stronger and more diversified business as each day passes.”