The BT Pension Scheme will retain a 29.5 percent share in the group it first established in 1983, but which has since grown to manage investments for over 500 clients. Senior Hermes management staff will hold a 10.5 percent stake under the new structure.
The deal represents a £410 million valuation for the group and a multiple of 12.8 times Hermes’s 2017 EBITDA. A put/call agreement has been established by Federated and BT, allowing for the respective duo to purchase or sell the remainder of the interest three years after the transaction and every year afterwards through to the sixth anniversary.
J. Christopher Donahue, chief executive of Federated, said the deal would “significantly broaden Federated’s distribution capabilities”, where 96 percent of its $132 billion in assets under management – excluding money market assets – is based in the US, with a 51:49 split between equities and fixed income.
The acquisition of Hermes adds a weighty alternatives division to the portfolio, with 22 percent of Hermes’s $45 billion under management in real estate, 9 percent in infrastructure and 8 percent in private equity.
The impact on Hermes’s fundraising activities is as yet unclear. Hermes is currently raising its second infrastructure fund with a target of £1 billion and a hard-cap of £2 billion, according to pension fund documents. Infrastructure Investor understands the fund reached commitments of about £130 million at the end of Q1, with a number of commitments still being considered. The Aberdeen City Council pension fund approved an additional investment of £100 million at a meeting last month.
Hermes Infrastructure Fund II targets returns between 6 and 14 percent, depending on the strategy committed to by LPs, be it core, value-added or “standard mix”. It principally intends to invest in the UK, although it recently agreed its first deal with a 14.9 percent stake in Danish ferry operator Scandlines.
Hermes’s first infrastructure fund, which closed on £1.16 billion in 2015, is generating a net IRR of 12.1 percent and a 6.7 percent cash yield as at June last year, according to Federated.