Fifth Street Asset Management Inc. (Nasdaq: FSAM), which went public Oct. 30, has increased revenue and is looking to expand business lines and open an office in Japan, CEO Leonard Tannenbaum said while announcing earnings for the third quarter, which ended Sept. 30.
FSAM earned $25.4 million in the third quarter, an increase of $7.8 million or, 44 percent, from the second quarter, according to a Dec. 15 filing with the U.S. Securities and Exchange Commission. The firm's pro forma adjusted net income also increased to $11.8 million, or $0.24 per share, from $9.7 million or $0.19 per share in the second quarter. The company is expected to issue a $0.30 dividend for the fourth quarter.
Going public has had a positive impact on FSAM’s business, Tannenbaum said on the earnings call. FSAM listed 6 million shares in its IPO, bringing in $102 million -- $95.88 million after fees.
"We're using the money to continue expanding our existing business lines while also working on diversifying the asset management platform through new products," FSAM chief financial officer Alex Frank told Mergers & Acquisitions in an interview. The IPO has enabled FSAM to obtain a credit facility with good terms, attract talent and grow existing business lines, Frank said.
But the road to IPO contained some bumps. At one point, the company scrapped plans to go public, citing market volatility. "We ran into a very difficult market environment," says Frank. "Our timing was unfortunate. There are some things you can control, and this wasn't one of them."
FSAM filed an S-1 with the SEC on Sept. 8. Originally, the firm intended to offer 8 million shares for as much as $26 each. But on Oct. 22, the asset manager informed the SEC it would pull the IPO, citing volatile market conditions. Within days, investor feedback caused FSAM to change course again.
"After announcing we were going to pull the IPO, we immediately heard from investors on a reverse-inquiry basis that they were disappointed," Frank says. "We thought about it, and decided that, although the price wasn't what we had hoped for, there were some very good reasons for us to continue with an FSAM public offering."
The Greenwich, Connecticut-based asset manager’s shares opened at $16 during the first day of trading on the first day of trading. On Dec. 18, the stock closed at $12.80.
Operating as a publicly-traded entity, FSAM was able to secure a new loan, which should help when it comes to expanding business lines.
The company closed on a $176 million, five-year syndicated senior unsecured revolving credit facility on Nov. 6. The facility was jointly led by Morgan Stanley Senior Funding Inc. and Sumitomo Mitsui Banking Corp., and also included J.P. Morgan Chase Bank NA, Royal Bank of Canada, Credit Suisse AG, Cayman Islands Branch and East West Bank. The loan will initially accrue interest at Libor plus 200 basis points.
"We wouldn't have gotten access to credit at that attractive level without becoming a public company," Frank says.
The facility was also extending to Fifth Street Holdings LP to help facilitates growth of FSAM's business lines, provide seed capital to expand into businesses and funds, pay expenses and cover working capital needs.
FSAM is planning to launch an aircraft leasing fund, which will be seeded with $20 million in capital from Tannenbaum and other FSAM executives, in the form of a general partner investment.
The asset manager is also expecting an increase in hiring opportunities and acquisition flow, Tannenbaum said on the earnings call. FSAM hired Renee Noto as a managing director recently. Noto will work on developing institutional client relationships and serve on the group's hedge fund investment committee.
FSAM is planning to open an office in Tokyo, and is hoping to develop a product for the Japanese market by the end of 2015, Tannenbaum said on the call.
Fifth Street has been on a roll in recent years, which is why Mergers & Acquisitions named it the 2013 winner of the M&A Mid-Market Award for Lender of the Year. In 2013, the lender doubled deal value, took a second business development company (BDC) public, bought another lender, started a venture lending operation and an aircraft leasing operation, and added new offices.
Tannenbaum, 43, founded Fifth Street in 1998. He holds an undergraduate degree in economics and a masters in finance from the Wharton School at the University of Pennsylvania. In recent years, he has taken a keen interest in politics, founding in 2012 a political action committee called "Keeping America Competitive," which he describes as “pro-business and bi-partisan.”
Editor’s Note: The December issue of Mergers & Acquisitions, which went to press after Fifth Street Asset Management withdrew its original public offering but before it announced the amended offering, contains an article stating FSAM did not go public. FSAM went public with the amended offering on Oct. 30.