Credit Suisse announced the signing of a contract for the sale of its real estate fund operation in Brazil, Credit Suisse Hedging-Griffo Real Estate, to Pátria Investimentos,
for an amount that could reach R$650 million, the equivalent of US$130 million. The transaction covers the company's real estate funds listed on B3 , totaling approximately US$2.4 billion in assets, or R$12 billion.
Was this transaction a good deal for Pátria?
To assess the quality of the acquisition made by Pátria, we first need to understand what revenue it expects to obtain from managing the acquired funds. To do this, I will use a simplification so that this article does not become too long: we will evaluate the income obtained from management fees in a fund, the most famous and with the largest number of shareholders, HGLG11, and by extrapolating variables, we will estimate income obtained from managed funds.
The ideal would be to do a Sum of Parts Valuation , but this article does not claim to be excessively technical .
Checking the accounting documents, I was able to verify that the accumulated amount over the last 12 months in terms of receipt of administration fees is R$24 million.
Image 1: accounting document for the HGLG11 Fund. Source: CVM
Now, we need to estimate a profit margin on revenue using some market information such as the average profit margin for the asset management industry.
Image: Average Net Margin of 88%. Image WG and GF.
As a result, we find that on average, Asset Management has an 88% profit margin. Resulting in a Net Profit , which in my point of view is very similar to cash flow , is R$21 million.
With a Net Equity of R$5.2 billion, the fund leaves, according to our estimates, R$21 million in net profit for the administrator . Consequently, as an approximation, we can estimate that the R$12 billion managed can generate an annual net profit for the administrator of R$48 million.
Evaluating the deal between Credit Swiss and Pátria
Pátria, according to the Valor Econômico report, will disburse up to R$650 million in this transaction. If we use a Price to Earnings multiple , we see that we have a PE multiple of 13.
Would you as an investor pay R$650 million to obtain a net profit of R$48 million annually?
For the vast majority of us in the Private area, this multiple close to 13 would be a bit steep.
However, for Pátria Investimentos , which has been trading its shareholding on Nasdaq and has its own earnings multiples above 17, a transaction with multiples of 13 was a good deal. The reason is simple: you buy for 13 in a private negotiation and later sell for 17 on the open market. This is the advantage of having a listed company: access to capital.
Additionally, this acquisition allows access to a broader customer base, allowing the generation of extra revenue from new business that may arise, for example, from follow-ons and follow-ups .