Big SPAC Attack

Big SPAC Attack

FINANCE by Mark Gordon | Managing Editor

A Gulf Coast asset manager fancies an investment model popular overseas for quickly growing a business. His plan is backed by more than $100 million.

A lot of people in the asset management industry are likely lining up to be John Sauickie's friend these days. That's because the Sarasota-based executive's firm has about $80 million marked especially for buying firms covering all angles of the industry.

And Sauickie plans to spend a bulk of that money by the middle of 2008.

"We want to buy asset managers for all the asset groups," says Sauickie, chief executive of Titanium Asset Management Corp., a recently formed Sarasota-based company designed for the sole purpose of building an asset management conglomerate through acquisitions.

Sauickie, who previously worked for investment firms in the New York area and for Merrill Lynch in Sarasota, formed the company with a former Merrill colleague, John Kuzan. "We think that's a strong way to build a business."

Titanium's strength, as well its financial ability to buy these firms, comes from $120 million it raised in June through a public offering of its shares on the London Stock Exchange. The company went overseas, Sauickie says, partially because onerous American stock exchange rules and regulations would have restricted the firm's business model.

That model revolves around what's known as SPACs, or a Special Purpose Acquisitions Company, which essentially allows private companies to go public faster, as well as fostering a quick way for private-equity firms to get out of a public investment. "Most of them are being done overseas," Sauickie says, "in London specifically."

In practice, SPACs serve as a back door way of buying a company and are sometimes referred to as a blind pool, as the core investors are putting their trust into the principles of the SPAC without initially knowing where the money will go.

To start a SPAC, a sponsor registers a company on a stock exchange for the purpose of raising money specifically to buy other companies. The sponsors, serving as officers of the SPAC, have up to 24 months to find a company to buy. Otherwise, they have to return the money to their investors.

The practice of using SPACs is relatively rare in the U.S. and even more so in Florida. Several Gulf Coast money managers and financial planners have heard of SPACs, but due to the sophisticated nature of the investment tool not many have used it, either internally or for clients. Federal regulations also limit how and when SPACs are used.

What's more, using SPACs as the basis of building an entire company is even more rare, money mangers say. "I believe we are the first company in the U.S. to do it this way," Sauickie says. "It's a giant step ahead."

Star power

In addition to forging new investment ground, Titanium comes with some international star power, past simply trading on the London Stock Exchange. Two of its biggest investors are based outside the U.S., including the biggest: Israel-based Clal Financial, which owns just under 44% of the firm. Clal is a publicly traded mortgage and insurance company and one the largest financial institutions in Israel outside of banks. A British investment group has a large stake in Titanium, too.

This doesn't mean Sauickie, a north New Jersey native, doesn't plan to be active in the U.S. The company is registered in the U.S. in Delaware, both of its first deals were for domestic asset firms and Sauickie has had conversations with several other American firms on possible deals.

He also plans on applying for membership on a U.S based stock exchange, hopefully the Nasdaq, early next year. Currently, there are more than 20 SPACs listed on U.S. stock exchanges, with the bulk of those on the American Stock Exchange.

In terms of deals, Titanium bought Sarasota-based Wood Asset Management in October for $31.5 million, $27.5 million of which was in cash, with the remaining $4 million in Titanium shares. Wood Asset specializes in mid- and large-cap stocks, with clients made up mostly of high net worth individuals, foundations and pension plans.

The firm, which was founded in 1994 by Sarasota money manger Gary Wood, has about $1.45 billion in assets. Through September, its 2007 investment returns were running 3.3% ahead of the Russell 1000 Value Index, according to Titanium financial documents. Wood Asset Management had $6.2 million in 2006 revenues and $950,000 in net income.

Titanium also recently closed on a deal to buy Charlotte, N.C.-based Sovereign Advisers, which concentrates on risk-controlled fixed income portfolios. Titanium paid $5.5 million for Sovereign, which has $1.82 billion in assets.

High flyers

Those deals leave about $80 million for Sauickie to spend on other asset management firms. He says there are a few deals coming together, although he declines to elaborate on the company or what type of asset management it specializes in. The company could announce the deals as soon as early next year.

In general, Sauickie, 43, has a few must-haves when searching for a firm to buy. First, cost is relative. While he's not seeking to buy companies on the cheap, he also knows he can't afford "the high-flying managers" out there. His ideal purchase price for an asset management business is six to eight times a firm's earnings before interest, taxes, depreciation and amoritzation (EBITDA).

He's also looking for a stable, yet growing, asset base as well as a stable, yet growing client base. And most importantly, he's looking for the right people to grow the business.

"When you buy an asset management firm, there's not a lot of hard assets," he says. "The assets are its people."

Besides finding companies to buy, Sauickie's biggest challenges aren't necessarily in what the market does - he seeks asset management firms that outperform the market under any conditions. One challenge, one that's mostly out of his control, is in what happens to the fledging domestic market for SPACs.

He hopes the investment tools grow into something more mainstream, although he doesn't see that happening in the near future, thanks to some bureaucratic and archaic rules.

"The laws and regulations in the U.S. are so out of date," he says, "that the politicians who made them have no clue how it negatively affects this market."

REVIEW SUMMARY

Business: Titanium Asset Management Corp., Sarasota

Industry: Finance, money management

Key: The firm is looking to build up a portfolio of asset management firms nationwide through acquisitions.