Magellan Financial Group could have achieved even greater gains from a sale of its interest in Guzman & Gomez if the financial group had retained the asset for about five years.
That’s according to analysts from Jarden, who also say that while the sale was premature, it was still a move in the right direction.
Magellan sold its 11.6 per cent interest in Guzman & Gomez to a Barrenjoey fund for $140m or $146m if certain earnings hurdles are achieved, as announced on Monday.
This was only 16 months after Magellan bought the stake under the leadership of its co-founder and former chief investment officer Hamish Douglass.
The sale generated a 36 per cent return on the entry price or 26 per cent least compound annual growth rate, Jarden said.
But Jarden said that typical private asset returns of at least CAGR over five years could have seen Magellan generate additional gains of about $115m or 18 per cent from here.
Guzman & Gomez has experienced rampant earnings growth after a successful roll out in the US market of the Mexican fast food chain, say market experts.
The plan of investment bank Barrenjoey is to use the investment to seed an investment trust comprising high net worth investors.
No clarity was provided on whether the investors were related to Magellan or Barrenjoey or whether they were independent, the analysts said.
The Barrenjoey entity directly approached Magellan with an offer, though no competitive bid was conducted.
Jarden said a potential use of the proceeds could be to fund the on-market buyback of 10m shares worth between $150m and $160m based on the average share price post the buyback announcement, rather than Magellan selling down its direct investments within its own funds direct investments within its own funds.
“While the sale of Guzman y Gomez is a quick turnabout in strategy from just over a year ago and some questions on the sale process itself remain outstanding, we think this is a step in the right direction,” Jarden analysts said.
“This is with Magellan’s ability to manage successfully a portfolio of private assets as a public asset manager limited, in our view.”
The sale comes after Magellan has suffered from high investor outflows after the departure of its chief executive Brett Cairns and Mr Douglass and currently has retail funds under management of $24.8bn.
Institutional funds under management have gained and the outflows have not been as severe as expected.
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