EventOn April 9, 2008 Sprott Inc. filed a preliminary prospectus for an initial public offering of shares in Sprott Asset Management. The share offering to the public is to be underwritten by a syndicate including the capital-markets divisions of all the big Canadian banks along with Cormark Securities, GMP Securities, Canaccord Capital, Jennings Capital , Paradigm Capital and Clarus Securities.
Details Extracted From IPO ProspectusSuperior Mutual Fund and Alternative Asset Class Performance
Sprott Canadian Equity Fund - Globefund.com’s #1 ranked fund in Canada for its ten-year return of 28.1% (Series A, December 31, 2007)
Sprott’s flagship hedge fund, Sprott Hedge Fund LP, has recorded a 29.23% net annualized return since its November 2000 inception (as at December 31,2007)
Sprott Growth Fund - #1 ranked fund in Globefund’s “Canadian Focused Small/Mid Cap Equity” category
Sprott Opportunities Hedge Fund LP - the top-performing fund in the Canadian-Based Manager category at HFMWeek’s US Performance Awards
Innovative and Diversified Products and Services
21 funds including Canadian public mutual funds, offshore funds and domestic hedge funds
Wealth management for high net worth individuals
Management and administration for public companies
Talented and Aligned Management
Management has $276 million invested in Sprott Funds
No portfolio manager departures since inception
About Sprott Asset Management
“Sprott Asset Management Inc. is an independent asset management company dedicated to achieving superior returns for our clients over the long term. We have a history of offering investment management services to high net worth individuals and institutions for over 26 years. As at February 29, 2008, we managed approximately $6.9 billion in assets among our investment funds and discretionary managed accounts and management of the investments of certain public companies. We derive our revenue principally from management fees earned from the management of our Funds and Managed Accounts and from performance fees earned from the investment performance of the Assets under Management (AUM) of our Funds and Managed Accounts. As of December 31, 2007, we had over 80,000 client accounts with no single client representing more than 2% of AUM. Approximately 95% of our client accounts hold less than $1 million in assets.As at February 29, 2008, of the approximately $6.9 billion in AUM we managed, 99.2% was subject to a Performance Fee component. We have 71 employees and our Adjusted EBITDA grew from $23.4 million in 2003 to $145.8 million in 2007 representing a 58.0% CAGR during that period. We have developed a multi-channel distribution coverage with three distinct efforts: (i) private client network; (ii) financial advisor and dealer channel; and (iii) the offshore fund market. We have an experienced internal sales and marketing department which directly manages our client acquisition and relationship efforts. Our private client base, representing approximately $2.0 billion of AUM, has been developed through direct relationships. Historically, we have had low distribution and selling expenses relative to our revenue in comparison to other Canadian public fund managers.”
Growth Strategies“We are among the fastest growing investment managers in Canada as we recently experienced net inflows of assets averaging approximately $340 million per quarter over the 12-month period ended December 31, 2007. Our group of Funds has achieved 15 consecutive months of positive net sales to February 29, 2008. Our strategy will continue to include the opportunistic hiring of additional portfolio management talent. During 2007 we established our ‘‘wholesaler’’ sales effort in order to further support our Fund sales to the retail financial advisor and dealer industry. We currently have ten sales representatives (six retail and four wholesale) and expect to continue to expand this team. We believe that our track record and reputation as an innovator provide a unique base for the launch of new investment products. These new products may feature sector-specific themes and will be sold either through the investment dealer channel or globally using our existing direct sales force. Global funds, large cap funds, all cap funds and new specialty funds are just a few examples of products that we could add to our existing offerings. Through our management of Sprott Molybdenum Participation Corporation (‘‘Sprott Moly’’) and the management of Sprott Resource Corp. (‘‘Sprott Resource’’) by Sprott Consulting L.P. (‘‘Sprott Consulting’’), we have introduced into our business operations the concept of providing management and administrative services to public companies. Sprott Consulting provides management personnel and services to these companies in exchange for fees very similar to our traditional Fund Management Fees and Performance Fees. Sprott Moly and Sprott Resource combined currently represent approximately $295 million of AUM and we expect that both companies will acquire more assets in the future. We believe Sprott Consulting offers us the opportunity to manage corporate assets on a ‘‘permanent’’ basis and to enter into the marketplace for private equity style investments as well as participate as manager in corporate transactions. We believe that becoming a public company will assist us in maintaining and expanding our position as a leading asset manager in several ways. Becoming a public company should result in an increase in public awareness of our business and assist us with our goals of reaching new potential Fund investors and continuing to increase our AUM. We believe that a public listing will also increase our ability to provide attractive financial incentives to our existing and future employees through the use of share-based compensation arrangements. In the highly competitive market for investment professional talent, having a public listing will provide us with a valuable additional compensation tool. Finally, a public listing will provide us with greater flexibility in using our share capital to finance future strategic acquisitions should attractive opportunities arise.”
The Offering
There will be 150,000,000 Common Shares (after giving effect to the Reorganization). The Offering is comprised solely of a secondary offering by the Selling Shareholders. The Company will not receive any proceeds from the sale of the Common Shares by the Selling Shareholders pursuant to the Offering, including the Over-Allotment Option. (No specifics provided on the number of additional shares or the price). Prior to the closing of the Offering, each director and executive officer of the Company as well as each of our Portfolio Managers, Market Strategists and Investment Strategists will enter into an escrow agreement with the Company and Equity Transfer & Trust Company, and will deposit into escrow all of their Common Shares of the Company which are not sold in the Offering to demonstrate their continuing commitment to the Company. One-third of the Common Shares held by each of the Management Shareholders shall be released on each of the first three anniversaries of closing. Notwithstanding the foregoing, all Common Shares belonging to a Management Shareholder will be released from escrow upon the death, permanent disability, voluntary retirement (except in the case of Eric Sprott), or involuntary termination (other than for cause) of that holder or upon a change of control of the Company.
Allocation of Management and Performance Fees“Net Operating Income’’ is the measure that we use to determine the Management and discretionary base bonus amount for our employee bonus pool and is equal to the difference between (i) Management Fees and (ii) operating expenses (consisting of trailer fees, salaries and benefits (other than discretionary bonuses), occupancy, general and administrative and business development expenses). Net Operating Income for the period ending on the last day of the month prior to the Closing Date (the ‘‘Pre-IPO Period’’) will be allocated to the SAM Shareholders and other employees of SAM and will be allocated and paid to such shareholders and employees by way of bonus and/or dividend subject to maintaining not less than $50 million of shareholders equity in the Company as at the closing of the Offering. All Net Operating Income for the balance of 2008 and until the end of 2010 will be subject to an annual allocation of 25% to the Employee Bonus Pool.
Dividend Policy“The Company expects that the Board of Directors will declare, and the Company will pay, quarterly dividends on its Common Shares (no specifics on the amount) per Common Share (being 1% of the Offering Price per annum) with the first such dividend expected to be declared and paid in respect of the quarter ending 2008 In addition, the Company expects that the Board of Directors will annually declare a special dividend on each of its Common Shares following receipt of Performance Fees, if any.”
Financial Information“In 2006, we established a credit facility in the amount of $25 million with a Canadian chartered bank. The facility was amended in June 2007 to increase the amount to $35 million and further amended in April 2008 to amend certain covenants such that the facility requires a minimum Tangible Net Worth (as defined in the facility) of $40 million and no longer requires that our net income exceed a specified amount (see notes 8 and 15 to the Consolidated Financial Statements of SAM elsewhere in this prospectus). The facility was established to create a readily available resource of funds if daily operations required short term financing and will remain in place after the Offering. To date, the use of the facility has been minimal. As at the date hereof, no amount is outstanding under this facility.”
Fiscal Year Ended December 31, 2007 Compared to Fiscal Year Ended December 31, 2006
“As a result of an increase in AUM coupled with strong relative performance in certain of our Funds, both Performance Fees and Management Fees increased during the year. Management Fees increased from $79.3 million to $108.0 million, or approximately 36%, due to the increase in our AUM from approximately $4.2 billion as at December 31, 2006 to approximately $6.2 billion as at December 31, 2007. Performance fees increased from $86.5 million to $129.2 million, an increase of approximately 49.4%. Income before income taxes increased from $42.3 million for the year ended December 31, 2006 to $52.4 million for the year ended December 31, 2007 as total expenses increased by $18.9 million while revenues rose by $29 million. Net income increased from $34.8 million in 2006 to $42.3 million in 2007, with income tax expense equal to approximately 18% to 19% of pre-tax income in both years. The effective tax rate of 18% to 19% is lower than the statutory tax rate of 36% primarily because a portion of the Performance Fees we earned was in the form of limited partnership income. EBITDA for the year ended December 31, 2007 was $54.3 million, an increase of $11.2 million or 26.1% over the year ended December 31, 2006. Adjusted Base EBITDA increased by 25.0% from $39.2 million in 2006 to $48.9 million in 2007. Adjusted Base EBITDA demonstrates growth in AUM and the related growth in Management Fees. Adjusted EBITDA for the year ended December 31, 2007 was $145.8 million, an increase of $41.8 million or 40.2% over the year ended December 31, 2006. The increase in Adjusted EBITDA resulted from an increase in both Management Fees and Performance Fees.
Proprietary investments generated a loss (realized and unrealized) of $4.2 million in 2007, as compared to a gain of $31.1 million in 2006. The decrease was a combination of market value declines as well as, for investments denominated in U.S. dollars, the effect of the strengthening Canadian dollar relative to the
U.S. dollar throughout 2007.
An unrealized loss of $7.5 million resulted from a write down in the value of oil and gas properties held by one of our wholly-owned subsidiaries. The subsidiary will be disposed of prior to the closing of the Offering, thereby eliminating the risk of future declines in the value of these properties.
Other income earned in 2007 amounted to $2.1 million, as compared to $1.7 million in 2006, and consisted primarily of interest revenues and early redemption fees.
Trailer fees increased by $6.9 million or 39.4% from $17.5 million in 2006 to $24.4 million in 2007. Trailer fees as a percentage of Management Fees remained consistent at approximately 22% to 23%.
Total expenses increased by $18.9 million or 12% from $156.3 million in 2006 to $175.2 million in 2007. There were several key contributing factors. Of the increase, $7.2 million or 38% was due to higher base payroll costs driven by an increase in the number of employees, from 41 at the end of 2006 to 62 at the end of 2007 as well as severance paid to certain departing employees during the year. Trailer fees accounted for 37% of the increase. The balance of the change was primarily related to costs associated with the growth in the size of our business, including higher marketing, rent, general and administration costs, charitable donations and interest expense.”
Management of the Company
Jack C. Lee
“Mr. Lee has over 35 years experience in the oil and gas industry. He is currently Vice Chairman of Penn West Energy Trust the largest conventional oil and gas trust in Canada with current production of approximately 200,000 boepd. Prior thereto Mr. Lee was Chairman of Canetic Resources Trust and President and Chief Executive Officer of Acclaim Energy Inc., a predecessor of Canetic, and prior thereto President and Chief Executive Officer of Danoil Energy Ltd, a predecessor of Acclaim. He participated in the start up of Gane Energy Ltd, a predecessor to Northstar Energy Ltd, and was President and CEO. In 1994, he co-founded Independent Energy Inc. Mr. Lee is also a director of Ithaca Energy Inc., a public oil and gas company, and Darian Resources Ltd. and Gryphon Petroleum Corp., private oil and gas companies.
Mark McCain
Mr. McCain has been a private investor through Bulawayo Holdings Inc. since September 2006. Prior to that Mr. McCain was a Business Analyst with McCain Foods Ltd. since March 1998. Mr. McCain has been a director of McCain Foods Ltd. for the past eight years and a director of the McCain Foods Group Inc. for over ten years.
James T. Roddy
Mr. Roddy has held a number of senior positions and directorships with companies in various industries. He served as President and CEO and Director of Ontario Bus Industries Inc. in 1994, and from 1989 to 1993 was President and Chief Operating Officer and Director of Slater Industries Inc. From 1985 to 1989 he held various positions with Campeau Corporation, including President, Chief Financial Officer and Chief Operating Officer and Director, and served in the roles of Chief Financial Officer, Executive Vice President and Chief Operating Officer and Director of Peoples Jewellers Limited between 1967 and 1984. Mr. Roddy has also held directorships with numerous public and not-for-profit corporations including Sprott Molybdenum Participation Corporation. He received his Chartered Accountant designation in 1967.
Ian W. Telfer
Mr. Telfer is currently Chairman of Goldcorp Inc., and was Chief Executive Officer and President of Goldcorp Inc. prior to November 2006 and Chairman and Chief Executive Officer of Wheaton River Minerals Ltd. prior to its merger with Goldcorp in February/March 2005. Mr. Telfer is also the Chairman of Uranium One Inc. and has over 25 years experience as an executive in the mining industry.
Steven Rostowsky
Mr. Rostowsky joined the Company in March 2008 as the Chief Financial Officer. Prior to that, he was Senior Vice-President, Finance & Administration at the IDA. As a member of the IDA’s senior management team, Mr. Rostowsky had responsibility for non-regulatory functional areas including Finance, Human Resources, Information Technology and the Association Secretary. Prior to joining the IDA in January 2005, Mr. Rostowsky was Chief Financial Officer and Chief Compliance Officer of Guardian Group of Funds (‘‘GGOF’’) since July 2001 when GGOF was acquired by Bank of Montreal. At that time he was Vice-President, Finance for Guardian Capital Group, GGOF’s former parent company. Mr. Rostowsky is a Chartered Accountant and a Chartered Financial Analyst, and holds a Bachelor of Business Science (Finance) and a post-graduate accounting degree, both from the University of Cape Town, South Africa.
Kirstin McTaggart
Ms. McTaggart joined SAM in April 2003 as a compliance officer and is currently the Chief Compliance Officer of SAM. Prior to April 2003, Ms. McTaggart spent five years as a Senior Manager at Trimark Investment Management Inc., where her focus was the development of formal compliance and internal control policies and procedures. Ms. McTaggart has accumulated over 21 years of experience in the financial and investment industry.
James Fox
Mr. Fox joined SAM as an Associate in June 1999 and became the Head of Sales in September 2004. Mr. Fox is involved in the research, sales and business development activities of SAM. Mr. Fox graduated with a Bachelor of Arts in Finance and Economics from the University of Western Ontario in 1996 and a Master of Business Administration from the Rotman School of Management at the University of Toronto in 1999.
Scott Dexter
Mr. Dexter joined SAM as a Senior Equity Trader in April 2005. Mr. Dexter has over 12years of experience in equities trading. Mr. Dexter who, prior to April 2005, was a proprietary Trader at Acker Finley Inc. and, prior to November 2000, was an Institutional Equities Trader covering hedge funds, pension funds and mutual funds at Sprott Securities Inc. Mr. Dexter graduated with a Bachelor of Arts in Economics from Hamilton College in 1992.”
Remuneration of Directors
“Each independent member of the Board of Directors will be paid such remuneration for their services as the Board of Directors may, from time to time, determine. Until otherwise determined, such compensation will be $50,000 per year for each independent director plus $1,500 per attended meeting of the Board of Directors and committees of the Board of Directors. The Company will also reimburse all members of the Board of Directors for out-of-pocket expenses for attending such meetings. In addition, the Chair of the Audit Committee is entitled to an annual retainer fee of $20,000 and the Chair of each of the Compensation Committee and the Corporate Governance and Nominating Committee are entitled to an annual retainer fee of $5,000. The Lead Director is entitled to an annual retainer fee of $30,000. The Company intends to purchase liability insurance for the directors and officers of the Company prior to the closing of the Offering.”
More Details To Follow ...
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