Pzena Investment Management Inc
Pzena Investment Management — Merger or Acquisition (October 2022)
23 slides from Pzena Investment Management's merger presentation, Oct 11, 2022
Slide 1: Pzena Take-Private Transaction
OCTOBER 2022 stment PZAANEN Management PZENA TAKE-PRIVATE TRANSACTION
Slide 2: Business Overview
2 Business Overview • Traditional long only asset management firm • Managing separate accounts, third-party distributed mutual funds for which we as sub-investment adviser, and funds for which we act as investment adviser • Headquarters in New York City, and offices in Melbourne, London, and Dublin
Slide 3: Transaction Overview
3 Transaction Overview On July 26, 2022, Pzena Investment Management, LLC (NYSE: PZN; “PIM LLC” or the “Company”) announced a management buyout of the outstanding public float of the Company (100% of Class A units, representing ~20% economic ownership in Pzena Investment Management, Inc.) in an all-
Slide 4: Reasons for Transaction
4 Reasons for Transaction • Originally went public in October 2007 to facilitate liquidity of seed capital providers and provide market price and liquidity for new and existing employee partners • Shares have low liquidity, and no street coverage • Very few publicly listed asset management companies
Slide 5: Reasons for Transaction (Continued): Trading liquidity vs peers
5 Reasons for Transaction (Continued) We stand out from a size and liquidity standpoint versus our public peers and provide limited liquidity to shareholders. 1-Month ADTV ($mm) $38.4 $31.4 $26.6 Peer median excluding PZN: $13.9 $13.9mm $9.8 $5.0 $4.0 $0.7 JHG AMG FHI APAM VRTS VCTR BSIG PZN Source:
Slide 6: Reasons for Transaction (Continued): Share price volatility
6 Reasons for Transaction (Continued) Pzena’s share price has demonstrated greater daily trading volatility relative to public asset managers and the broader market. 5-Year Daily Share Price Volatility – Standard Deviation, Annualized (%) 50.7% 49.7% 45.0% 44.8% 43.9% 41.9% 39.6% 39.4% 38.2% 38.2% 3
Slide 7: Reasons for Transaction (Continued): Client survey results
7 Reasons for Transaction (Continued) Being public has an adverse impact on our business. Client Survey Results: o Our team strongly prefers privately-held boutique managers. As a public company Pzena cannot be on that list. o We favor managers who are fully employee-owned; public ownership is a neg
Slide 8: Special Committee Process
8 Special Committee Process . • The Board of Directors of PZN formed a committee (the “Special Committee”) consisting solely of independent, non-management members of the Board, who are not affiliated with PIM LLC. • The Transaction was conditioned on the approval by the Special Committee and a majo
Slide 9: Special Committee Process (Continued)
9 Special Committee Process (Continued) The Special Committee considered a number of factors in determining to approve and recommend the merger as detailed in the merger proxy, including the following: 26, 2022, the last trading day prior to announcement of the transaction and (2) 46% above the 90-c
Slide 10: Calendar of Certain Events (1/2)
10 Calendar of Certain Events (1/2) April 13th, 2022 Special Committee was formed Mr. Pzena and Jessica Doran, Chief Financial Officer of the Company, presented management’s long-range forecast to the Board, including the members serving on the Special Committee, and updated the Board on industry co
Slide 11: Calendar of Certain Events (2/2)
11 Calendar of Certain Events (2/2) The Special Committee held a meeting with representatives of Wachtell, Ardea and CastleOak to receive an update on the status of the negotiations. Following that update, the Special Committee and its advisors met with Mr. Pzena and a July 1st, 2022 representative
Slide 12: Special Committee Members
12 Special Committee Members Steven M. Galbraith—Chairman of the Special Committee Member of the Board since October 2007. Managing member of Kindred Capital, a registered investment advisor managing private investment funds exclusively for qualified investors. Previously, Mr. Galbraith was a managi
Slide 13: Special Committee Members (Continued)
13 Special Committee Members (Continued) Charles D. Johnston Member of the Board since February 2014. Mr. Johnston most recently served as vice chairman of Morgan Stanley Smith Barney from 2011 to 2012. From 2009 to 2011, he was President of Morgan Stanley Smith Barney. Mr. Johnston was President an
Slide 14: Valuation Consideration – Industry Conditions
14 Valuation Consideration – Industry Conditions Asset flows continue to shift AUM away from active equity funds toward passive. Active managers experienced approximately 3% in net outflows over 13 of the last 15 years. Annual Net Flows as a % of Total Net Assets (US + International Equity Funds) 30
Slide 15: Valuation Consideration – Industry Conditions (Continued)
15 Valuation Consideration – Industry Conditions (Continued) Expense ratios of actively managed mutual funds have fallen. Historical expense ratio (%) Actively managed equity mutual funds 1.20 1.09 1.10 1.10 1.08 1.08 1.05 1.06 1.05 1.04 1.02 1.01 0.98 0.99 1.00 0.96 0.95 0.94 0.92 0.92 0.89 0.90 0.
Slide 16: Valuation Consideration – Industry Conditions (Continued)
16 Valuation Consideration – Industry Conditions (Continued) Net revenues as a percentage of AUM also signify fee pressure in the asset management industry. Net Revenues as a Percentage of AUM (in bps) 29.1 29.1 2003–2020 CAGR: 28.3 27.8 (1.2%) 26.9 26.8 26.2 25.3 23.7 2003 2009 2014 2015 2016 2017
Slide 17: Overview of Financial Model
17 Overview of Financial Model Assets Under Management • Starting from AUM of $47.3bn as of May 12 • Flows assumptions assume from new clients in 2022E and first half of 2023E reflect known new account flows and 12-month 2022 pipeline remainder; subsequent forecast years reflect historical average p
Slide 18: Pzena Forecast Items
18 Pzena Forecast Items Fiscal Year-Ended December 31 $mm, unless otherwise noted 2022E 2023E 2024E 2025E 2026E 2027E Beginning AUM $52,521 $52,163 $55,734 $58,222 $60,612 $62,886 New Sales 4,800 3,307 2,400 2,500 2,600 2,700 Net Flows from Existing Clients (1,733) (2,330) (2,685) (3,008) (3,343) (3
Slide 19: Valuation Considerations
19 Valuation Considerations Implied Enterprise Value/EBITDA Substantially Above Competitors Pzena Enterprise Value FV / 2022E EBITDA 9.4x 8.3x 6.9x 6.9x 6.6x 6.4x Peer median 5.5x excluding PZN: 4.2x 6.6x FHI PZN APAM JHG VCTR AMG BSIG VRTS Source: Management forecast; FactSet as of 9/27/2022 Financ
Slide 20: Fairness Opinion Details (1/2)
20 Fairness Opinion Details (1/2) Our Special Committee employed two separate firms to prepare fairness opinions. Their analyses and implied value ranges are shown below. Ardea Methodology Terminal P / E Multiple 8.0x – 12.0x Discounted Cash Flow Analysis1 $7.51 $9.85 Discount Rate 11.0% – 9.5% P /
Slide 21: Fairness Opinion Details (2/2)
21 Fairness Opinion Details (2/2) Our Special Committee employed two separate firms to prepare fairness opinions. Their analyses and implied value ranges are shown below. CastleOak Pzena Investment Management
Slide 22: Recent Performance of Peers
22 Recent Performance of Peers % Change in % Change in Price from AUM from 52-Week High 52-Week High PZN -14% -10% AMG -41% -15% JHG -56% -31% APAM -46% -26% FHI -18% -13% VCTR -45% -13% VRTS -51% -17% BSIG -51% -23% Avg Peers Excluding PZN -44% -20% Source: Public Pricing Data and SEC filed documen
Slide 23: Disclosures
23 Disclosures Forward-looking Statements Certain statements and information contained in this communication may be considered “forward-looking statements,” such as statements relating to management’s views with respect to future events and financial performance. Words or phrases such as “anticipate
Pzena Investment Management — Merger or Acquisition (October 2022) on 6ix