June 6, 2024

FEATURED IN THE AUSTRALIAN FINANCIAL REVIEW: Regal Partners goes big on private debt after buying Merricks Capital


By Jonathan Shapiro, Senior reporter
First published a

Regal Partners, the ASX-listed alternative asset manager, has made a big bet on private credit with the $235 million acquisition of Melbourne lender Merricks Capital.

The transaction will lift assets under management by almost a quarter to $15.1 billion and increases Regal’s exposure to one of the industry’s fastest-growing sectors – private credit. Merricks is a prominent private lender with $2.9 billion of assets.

Merricks Capital founder Adrian Redlich said private credit was showing no signs of slowing as banks scale back their lending activity leaving a void to be filled.

“We’ve got over a billion dollars of unsatisfied borrower demand,” said Mr Redlich, a former hedge fund trader who will join Regal as chief investment officer of income strategies. “The risk-adjusted returns really continue to be in favour of investors. The bottom up says this is a great time to keep deploying money.”

The fund initially engaged in commodities trading strategies but has rapidly expanded into commercial real estate lending with the backing from wealthy investors.

Regal’s deal follows another high-profile acquisition of a private lender, with David Di Pilla’s HMC Capital buying Payton Capital, which manages about $1.5 billion in commercial real estate credit, for $127.5 million last month.

Regal will acquire the business for $235 million, made up of $40 million in up-front cash, and about 64 million shares issued at $3.05. However, the acquisition is subject to shareholder approval with an extraordinary general meeting scheduled for July.

The deal, when finalised, will mark a windfall for the Liberman and Abeles families, who own the 49.5 per cent of Merricks Capital not controlled by Mr Redlich.

Source: Regal Partners

Regal chief executive Brendan O’Connor said while private lending was a fast-growing area, it was important to have sufficient scale to source the best deals and credit underwriting experience to avoid bad deals. Around $6 billion, or just shy of one-third of Regal’s group assets, are assigned to credit and royalties.

“That’s exactly what Adrian and the team had built up [at] Merricks,” he said.

Merricks Capital recorded revenue of $59.7 million and earnings before interest, tax, depreciation and amortisation of $35.9 million in the past year, the announcement said.

The $235 million consideration implies a 6.5 times multiple paid by Regal, which Mr O’Connor said would immediately be accretive to its earnings.

The multiple is higher than the six times earnings paid by HMC Capital to buy private lender Payton Capital, and below Regal’s historic earnings multiple of about 9.8 times.

“The transaction multiple … appears attractive, assuming that Merricks can continue to grow its funds under management,” E&P Financial analyst Olivier Coulon told clients.

“We would expect this deal should be well received by investors,” he added.

Mr O’Connor told investors that the transaction was “attractively priced” relative to other deals both domestically and offshore, pointing to a multiple of net profit after tax of 10 times. Regal has been growing through acquisitions in the past year. It has already acquired Paul Moore’s PM Capital and Taurus Funds Management.

The manager also launched its own private lending capacity that pledged to steer clear of commercial real estate, which has dominated the exposure of local funds.

The majority of Merricks’ fund’s assets are deployed to private credit, with 70 per cent of its loan book in commercial real estate. Those funds have generated returns of about 10 per cent since their inception dates.

The fund spearheaded one of the largest private credit loans in Australia, a $465 million syndicated loan facility for an office development on Pitt and Hunter streets in Sydney’s commercial business district.

Mr Redlich said that the fourth quarter of last year was the quietest ever for real estate transactions in Australia, but activity had picked up. “What we’re seeing in the first half of this year are a lot of requests for finance from people who feel like we’re at the bottom and are looking for value in commercial real estate.”

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