Sprott is returning to its role as a gold, silver and mining investor.LISI NIESNER/Reuters
Money manager Sprott Inc. is going back to its roots as an investor in gold, silver and mining plays by selling its $3-billion mutual fund arm to its executives for $46-million.
Toronto-based Sprott, founded in 2000 by veteran gold bug Eric Sprott, announced Monday that it is vending a stable of 38 funds to a team led by John Wilson and James Fox, the CEO and president, respectively of mutual fund unit Sprott Asset Management. The decision to sell comes after several years of poor performance from Sprott stock and recent offers for the business from rival money managers in a consolidating industry.
Sprott went public in 2008 at $10 a share. The share price slipped in recent years as gold lost its lustre and the firm turned in relatively weak performance. Sprott shares traded for the last four years in the $2- to $3-range.
"Everyone is talking to everyone these days," said Peter Grosskopf, CEO of Sprott, who said his company considered a number of options for its fund business before deciding to sell to management. He said: "We have entered into this transaction to refocus on our core competencies as a globally recognized manager of precious metal and resource industry investments."
Sprott will go forward with $7.5-billion of assets under management and will remain a sub-adviser on 10 funds it is selling. These funds invest in gold, silver and natural resource stocks and have $865-million in assets. Mr. Sprott, aged 72, recently announced plans to step down as chairman of the company in May, but will remain chairman emeritus and a major shareholder. Separately, Sprott launched a $3.1-billion hostile takeover bid in March for rival Calgary-based bullion manager Central Fund of Canada Ltd.; that offer is playing out in Alberta courts.
The executives buying Sprott's management arm have experience in running asset management firms. Mr. Wilson joined Sprott in 2012 after leading two money managers, one of which was a hedge fund that he founded, and also had a successful run as an investment bank equity analyst.
"We love the alternative asset management business, and we have the size and scale needed to succeed as an independent entity," said Mr. Wilson. He said the fund plans to grow by introducing innovative alternative asset management strategies for institutional and individual investors, including products such as income funds and hedge funds. Priorities for the new owners include coming up with a new brand, as the existing firm will keep the Sprott name.
The transaction was widely anticipated, as analysts picked up on Sprott's talks with rival money managers, but the price the business fetched is below expectations. Last month, CIBC World Markets analyst Paul Holden said in report that a sale of the division was likely due to the importance of scale and the "challenge of competing in the mutual fund space" and he projected a $75-million to $125-million price tag. Mr. Grosskopf said Sprott is continuing to manage a number of funds that analysts assumed would be sold, including the 10 precious metals funds, and this helps account for the gap between the expected sale price and what the business fetched.
Following the transaction, which is expect to close by the end of the year, Sprott will see its head count of 200 reduced by half. Mr. Grosskopf said the company has approximately $5-million available under its employee profit-sharing plan that could be used to recruit talent for the precious metal business. Sprott also announced Monday that it will make a normal course issuer bid that could see the company repurchase up to 5 per cent of its outstanding shares.
Sprott looked to TD Securities Inc. at its financial adviser on the sale, along with law firms Baker McKenzie and Borden Ladner Gervais LLP. The buyers were advised by law firm Norton Rose Fulbright Canada LLP.