Silvercrest Asset Management Group Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated July 1, 2019, details two material events for Silvercrest Asset Management Group Inc. (SAMG): the completion of an asset acquisition and the amendment of an existing credit facility. The report covers events occurring on July 1, 2019, with the filing signed on July 2, 2019.
Key Financial Metrics and Transactions
- Acquisition Consideration: Total initial consideration for the acquisition of Cortina Asset Management, LLC was $42,529,333, comprised of $33,577,395 in cash and $8,951,933 in equity (662,713 Class B Units of Silvercrest L.P.).
- Potential Earn-Out: Up to an additional $26,209,243 may be paid over four years (80% cash, 20% equity) based on performance.
- Debt Facility Amendment: The $15.0 million credit facility with City National Bank was amended to increase total capacity.
- Term Loan: Increased from $7.5 million to $25.5 million; maturity extended to July 1, 2026.
- Revolving Credit: Increased from $7.5 million to $10.0 million; maturity extended to July 1, 2020.
- Interest Rates: Base Rate Margin decreased to 0.25%; LIBOR Rate Margin decreased to 2.75%.
Material Changes
The primary material change is the expansion of the company's debt capacity to fund the Cortina acquisition. The delayed draw term loan capacity increased by $18 million, and the revolving facility increased by $2.5 million. Additionally, the company issued unregistered securities (Class B Units) to certain principals of the acquired entity as part of the purchase price. The filing notes that cash payments for the acquisition were funded by cash on hand and borrowings under the amended Credit Facility.
Outlook, Risks, and Contingencies
- Covenants: The amended credit facility includes a minimum discretionary assets under management (AUM) covenant tied to the outstanding loan balance:
- Less than $5 million outstanding: Covenant not applicable.
- $5 million to $10 million outstanding: Minimum average AUM of $8 billion.
- $10 million or more outstanding: Minimum average AUM of $11 billion.
- Debt Incurrence: The debt incurrence covenant was adjusted to permit earn-out payments related to the Cortina acquisition.
- Financial Statements: Pro forma financial information and financial statements of the acquired business are not included in this filing and will be submitted via amendment within 71 days.
Investor Verification Checklist
- Verify the final amount of the earn-out payments over the next four years, as this could significantly impact future cash flow and equity dilution.
- Confirm the company's current discretionary assets under management to ensure compliance with the new $8 billion or $11 billion covenants depending on drawdown levels.
- Review the upcoming amendment (due within 71 days) for pro forma financial data to assess the immediate impact of the Cortina acquisition on earnings and margins.
- Monitor the utilization of the new $25.5 million term loan and $10 million revolving facility to understand the company's leverage trajectory.