Altamir SA (ISIN FR0000053837) – French PE at an attractive discount or CEO “self-service” vehicle ?
Altamir is a French holding company whose main purpose is to invest into private equity funds. Such a structure is called in general “listed private equity”.
To be more specific, this is what they state as the company strategy:
Altamir invests exclusively with Apax Partners, in three ways:
In the funds managed by Apax Partners France:
€200m to €280m committed to Apax France VIII;
In the funds advised by Apax Partners LLP: €60m in Apax VIII LP;
Occasionally, in direct co-investment with the funds managed and/or advised by Apax Partners France and Apax Partners LLP
As investing in only one Private Equity fund company is a quite special arrangement, one asks oneself only one question: Why ? Well, this is explained in the annual report:
Apax Partners was founded in 1972 by Maurice Tchenio in France and Ronald Cohen in the UK. In 1976, they teamed up with Alan Patricof in the United States, bringing the independent entities together under a single banner, Apax Partners, with a single investment strategy and similar corporate cultures, and applying the rigorous standards of international best practices. In 1999, Apax Partners began to merge its various domestic entities into a single structure (Apax Partners LLP), with the exception of the French entity, and reoriented its mid-market investment strategy towards larger transactions (enterprise values between €1bn and €5bn). Apax Partners France opted to remain independent and conserve its mid-market positioning, targeting companies between €100m and €1bn. There are currently no cross-shareholdings or legal relationships between Altamir on the one hand and Apax Partners MidMarket and Apax Partners LLP on the other, nor between Apax Partners Midmarket and Apax Partners LLP
This closes the circle: Maurice Tchenio is the CEO of Altamir and was the founder of Apax Partners in France.
Tchenio retired from Apax only in 2010, so for quite some time he was running Altamir in parallel to being actually part of Apax himself. Maybe to provide stable funding to APAX France ? i don’t know.
So why could this be interesting ?
Looking at Altamir, there were some very positive aspects to be found:
+ CEO owns 26%, is buying (2009: 22%)
+ transparent documentation, reporting. Quarterly NAVs, detailed asset lists
+ French Midcap PE is attractive
+ discount vs. NAV (~30%, 11,20 EUR vs. ~16 EUR NAV). The discount is relatively high compared to other listed P/E stocks (currently on average ~10-15%)
+ no double leverage, net cash
+ paying dividends
+ valuation of unlisted assets relatively conservative, sales prices always higher than last valuation
+ the legal structure seems to be tax efficient for long-term holders (no tax on dividends for French shareholders if one commits to hold > 5 years)
+ track record is pretty OK as we can see in the chart: They did manage to outperform the CAC Mid& Samll cap index since inception based on their stock price, although only at a relatively small margin:
Actually, those points, especially the “juicy discount” in connection with the large CEO share holding makes this quite interesting
However, the most important thing in looking at such vehicles is the question: How much cost do they add and how much aligned are the interests of management and shareholders ?
And this is where things get a little bit messy. According to the annual report, direct fees are around 17 mn EUR or 2,9% of NAV. This includes in my understanding also the underlying APAX funds. This is not cheap but most likely “in line” with other “fund of fund” PE structures. But the real “fun” starts with the following issue:
The Company has issued Class B shares that entitle their holders to carried interest equal to 18% of adjusted net statutory income, as defined in §25.2 of the Articles of Association. In addition, a sum equal to 2% calculated on the same basis is due to the general partner. Remuneration of the Class B shareholders and the general partner is considered to be payable as soon as an adjusted net income has been earned. Remuneration of these shares and the shares themselves are considered a debt under the analysis criteria of IAS 32.
The remuneration payable to the Class B shareholders and the general partner is calculated taking unrealised capital gains and losses into account and is recognised in the income statement. The debt is recognised as a liability on the balance sheet. Under the Articles of Association, unrealised capital gains are not taken into account in the amounts paid to Class B shareholders and the general partner.
So this is in fact a 18% “carried interest” of the general partner (i.e. the CEO) on any realized profits of the company. So for 2014 for instance, 87 mn EUR of realzed income “shrink” to 57 mn EUR shareholder income as first the management fee gets deducted and then further 18% profit share.
So the “privilege” of a shareholder to invest into APX via Altamir is purchased quite expensively. This also puts the CEO investment a little bit in perspective. Yes, he has invested around 100 mn of his own money into Altamir, but in 2014, the management fees and profit share netted him close to 30 mn EUR direct, whereas the proportional profit of his share position was “only” 15 mn EUR.
Ok, maybe being the Ex Founder of APAX France opens the door to invest into APAX, but charging “3% and 18%” for this privilege (all in) looks quite expensive and explains some of the discount.
They seemed to have pushed for a run-off of the company but so far only succeeded in pressuring to pay a higher dividend than before (increase from 0,10 EUR 2012 to currently 0,50 EUR).
According to Moneta’s homage, they are still active. To me it looks like that the increase in the CEO’s share position has much more to do with control than with actually believing that the shares are undervalued, but of course this could be wrong.
In principle, a listed PE vehicle specializing in French mid-market Private Equity could be interesting if the discount is significant. At Altamir however, as I have described above, the structure takes out a lot of money and one needs significant Alpha over time to break even compared to a “do it yourself” portfolio of French small and midcaps.
Tha activist involvement is interesting, but I don’t know enough about French Governance rules to assess the chances of a fundamental change.
So for the time being no investment, however if for some reason (market stress), the discount becomes really large I might be revisiting the case.