Kerr/Darby sale of EPAM (Equity Partners Asset Management) to PGC

The story goes that, in 2009, Kerr sold EPAM to PGC for $18m. However, as with most things surrounding Kerr it's always the tiki tour instead of the straight and narrow. EPAM was originally owned by Lambton Partners Ltd, a vehicle of which the directors are both Darby and Kerr. Before EPAM was sold to Perpetual Asset Management (PAM), it was first sold to Equity Partners Asset Management Holdings Limited (EPAMH), which was renamed Claymore Financial Services Limited one month after the deal and Claymore is owned by Lambton Partners (yes that is correct), which is again owned by Budfin Nominees Limited. The latter is a vehicle of Kerr’s favorite law firm, Buddle Findlay. As you might expect all inquiries will end here with a, “Sorry mate, we cannot talk about that. Attorney-client privilege thingie you know”. So to simplify, Lambton sold EPAM to EPAMH, which sold it to PAM, subsequent to which EPAMH was renamed Claymore, which is owned by Lambton. Our take is that the spoils did not fall to Kerr alone, but to Kerr and Darby, via Lambton.

We cannot figure out what Kerr & Darby paid for EPAM, but we can tell whether they got a good price or not.

We know from the official announcement that they got paid $18m and that EPAM only managed EPIC at the time, which had a £61.96m/$158m of investments (point 59).  So if you use the numbers used by Baobab in its valuation of PGC then the industry rule of thumb of 2 pct to 3 pct of AUM should apply and on $158m Kerr and Darby should have been paid $3m to $5m. So they made out like bandits at 11.4 pct of AUM ($18m/$158m) and we would assume that they at least doubled their money and probably even more than that. We have to wonder out loud though. Where were the independent directors Bruce Irvine, Bryan Mogridge and George Gould??? Oh that's right, they approved the deal!

As an interesting side note. If the independent directors, Bruce Irvine and Bryan Mogridge, were as willing to value the Van Eyk, Perpetual and Torchlight management contracts on the same basis as they were willing to value the management contract (EPAM) of EPIC when they bought it off their fellow director and company shareholder Kerr and his friend Darby, instead of using the multiples that Baobab and Grant Samuel used in their valuations then you will end up with the following.

	AUM	Value at 11.4% of AUM
Van Eyk AUM of $1.9 billion times 38%	$722m	$82m
Perpetual	$600m	$68m
Torchlight	$141m	$16m

The $166m is more than double the current market cap of the entire PGC and 4-5 times the value put on it by Baobab and Grant Samuel. The deal worked out great for Darby and Kerr, but is a stinker for PGC shareholders and we grade it an F on corporate governance. 

 

Now my dear Kiwis, let’s not get despondent. Find a wall, bang your head against it three times and repeat after me, NZ is the most transparent country in the world, NZ is the most transparent country in the world, NZ is the most transparent country in the world then bang your head three times and repeat after me…