Broadmeadow Capital plans to pay $5 million for the intellectual property, investment strategies and investment management contracts of F-Squared Investments Management LLC, an investment management firm that filed for Chapter 11 bankruptcy on Wednesday, July 8.
Broadmeadow, which provides investment strategies to individuals, investment offices and institutional investors, says the deal helps expand its product portfolio. The company is a subsidiary of investment services firm Cedar Capital, which is backed by Philadelphia private equity firm LLR Partners.
"It was our business plan prior to becoming aware of this opportunity to find other asset management firms where we could leverage our infrastructure and distribution capabilities," says Paul Ingersoll, CEO of Cedar Capital. "We continue to look for attractive partners."
"Broadmeadow's approach to investing is similar in structure to F-Squared," Ingersoll says.
Wellesley, Massachusetts-based F-Squared filed a sale motion with the bankruptcy court on July 8 naming them as the stalking-horse, or lead bidder.
The debtor's bankruptcy filing comes after a legal proceeding with the U.S. Securities and Exchange Commission related to inflating its track record in advertisements drained it of funds, F-Squared says in bankruptcy documents.
The company was founded in May 2006 as an investment management firm that provides services, including indexes that track exchange-traded funds, to institutional, retail and retirement advisers. The company had more than $16 billion in assets under advisement as of March 31, but has lost clients since then.
F-Squared got in trouble with the U.S. Securities and Exchange Commission for violating federal securities laws essentially for inflating the company's track record in advertisements, according to court papers. The business settled its case with the SEC with a $5 million fine and $30 million payment for disgorced profits, but F-Squared's former CEO, Howard Present, is still involved in a proceeding with the regulatory body.
The legal costs of that case cost $17.2 million, and only $10 million was covered by insurance. F-Squared is also responsible for funding Present's ongoing legal fees.
F-Squared hired PL Advisors as investment banker in March to explore a sale. Cedar emerged as the highest bidder, but the firm's $5 million offer could be reduced if F-Squared's assets under advisement drop below $2 billion. The company filed for bankruptcy to go through with the deal.
The debtor filed a motion under which a sale would close by Sept. 25, with competing bids due by Aug. 18 and an auction Aug. 19.
F-Squared filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, with about $15 million in liabilities, it says in court papers. Judge Laurie Selber Silverstein is assigned to the case.