“Not material”: that’s how the sellers of Sprott Asset Management described its 2016 earnings, relative to Sprott Inc.’s bottom line.
But John Wilson, who is remaining CEO of the spun-off Sprott Asset Management, says that, accounting aside, his business was “very profitable” last year—and that’s why he and his colleagues are comfortable purchasing the mutual fund arm for $46 million from Sprott Inc. A suite of 38 funds representing $3 billion in AUM will be sold to a management group led by Wilson and James Fox, currently president of Sprott AM.
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Wilson says he isn’t buying a lemon.
“Our revenue’s grown every year, and it will grow again this year,” he says. He explains that Sprott Inc. looks at EBITDA “differently than the way we would look at it,” and that the CFO’s comments—that the mutual funds were “not material” to Sprott Inc.’s 2016 EBITDA—accounted for both costs and revenues.
“I don’t have visibility as to what costs they’re keeping, I only know what business we’re taking out,” says Wilson. “That business is profitable, and probably going to be more so as an independent entity.”
Echoing Sprott Inc.’s executives, Wilson says the decision to separate was mutual.
“We both had gotten bigger and we both had great years last year,” he says. “As we were becoming more profitable and larger, we wanted to invest more in growing our business plan, and they wanted to keep investing on the precious metals path, and those were starting to become not consistent with each other.”
With the new private corporation structure, Wilson predicts “it will be much simpler and quicker to make a decision to invest in a business as a separate, independent entity.” The business expects to debut its new name after the transaction closes, which is slated for summer 2017. Post-close, Wilson says the new company will launch products in its three focus areas: alternative income, real assets and liquid alternatives.
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He addressed comments about the seemingly low purchase price by saying, “There were a lot of concessions that we made as management that, if they’d sold the business to another buyer, would have been due to us. But we were willing to waive those to complete the transaction. That meant that the total value was substantially higher than what was announced.”
In an analyst call Monday, Sprott Inc. CEO Peter Grosskopf broke out some of that value. “There are some transaction benefits, including transition costs, severances (if any), working capital and also some [profit-sharing] bonus amounts, that could all reasonably be added to the transaction proceeds to arrive at what would normally be a gross number,” he said.
Wilson does not anticipate major layoffs, saying that “we’re not shutting down any part of our business.”
As for how the spinoff will affect advisors, he says unitholders will have to approve the eventual change in ownership. Otherwise, it’ll be business as usual: the portfolio managers, back-office staff and wholesalers will stay the same.
And staff won’t have to endure the inconveniences of moving offices, either. “We’re still going to be on the 27th floor of RBC Plaza,” says Wilson. “Nobody’s computer is changing; nobody’s office is changing.”