Will a $4.1B-AUM Fund Firm Sell?
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Tuesday, June 28, 2022

Will a $4.1B-AUM Fund Firm Sell?

A pair of hedge funds are trying to take a $4.1-billion-AUM (as of March 31) asset manager private.

Frank Edward Holmes
U.S. Global Investors, Inc.
CEO, Chief Investment Officer
Yesterday, Ephraim Fields, founder of Echo Lake Capital, and Glenn Tongue, of Deerhaven Capital, publicly offered for their two firms to buy San Antonio-based U.S. Global Investors for $5.30 a share (which works out to about $79 million in total). Tongue and Fields made the offer via an open letter to U.S. Global Investors' four board members: Tom Lydon, Jerold Rubinstein, Roy Terracina, and Frank Holmes. (Holmes is CEO and chief investment officer of U.S. Global Investors.)

According to Fields and Tongue, they think they can go through the due diligence and going private process within 60 days. And their deadline for hearing back is July 8; if the board doesn't respond by then, then Echo Lake and Deerhaven will rescind their offer.

The $79-million offer (for the company's A shares; there's separate consideration for its C shares) is half cash, half stock in what would become a privately held U.S. Global Investors. That price translates into about 1.9 percent of the fund firm's AUM and a P/E ratio of about 8.

The fund firm started as an investment club in the 1960s, then transformed into an RIA in 1968. After launching a half dozen mutual funds in the 1970s and early 1980s, the firm (then called United Services Advisors), IPOed in 1984. Holmes took over and bought a controlling stake in 1989, and he rebranded the company as U.S. Global Investors in 1996. Since then, the commodity and emerging markets fund firm has also entered the blockchain space with a strategic deal. The firm now offers eight no-load mutual funds and two ETFs.

As for the fate of the proposed deal, there's no official word yet, but there are some hints. U.S. Global Investors' shares (GROW on the Nasdaq) closed at $4.47 yesterday, up only 1.4 percent from Friday and nearly 16 percent below the offer price from Deerhaven and Echo Lake. And Tongue and Fields' open letter notes that this is not their first attempt.

"We would have preferred to engage with you in private but our efforts to discuss our proposal were rebuffed by one of the Company's board directors," Fields and Tongue write.

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