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Thursday, October 21, 2021

A $4.1B-AUM Shop's Chief Builds a $54MM War Chest

Reported by Neil Anderson, Managing Editor

The chief of $4.1-billion-AUM, 31-year-old mutual fund firm has built up a $54-million war chest for M&A.

Neil Joseph Hennessy
Hennessy Advisors, Inc. / Hennessy Funds
Chairman, CEO / Chairman, President, Chief Market Strategist, Portfolio Manager
Yesterday, Neil Hennessy, chairman and CEO of Hennessy Advisors, Inc. [profile], revealed that the Novato, California-based has issued $40.25 million in "baby bonds" with help from Oppenheimer & Co. and Janney Montgomery Scott LLC. The unsecured notes, which trade on the Nasdaq, are due in 2026.

Hennessy confirms that his eponymous shop already had $14 million in cash before the offering, so now he has $54 million on hand to hopefully fund some acquisitions. He likens the process to shopping for a house, only now he doesn't have to wait until finding a deal to go to the bank for financing.

"This way people know I have the money. It's sitting there. I can bid and close quickly," Hennessy tells MFWire. "It's interesting the amount of activity I'm getting ever since I did this."

"A lot of companies just don't have the money for an investment banker," Hennessy adds. "They can actually just phone me and pick my brain to figure out what they want to do."

The offering also comes with fewer covenants than a bank loan would, Hennessy says; he could even issue up to $150 million or more in debt without breaking the offering's sole covenant, a debt to equity ratio. (Publicly traded Hennessy, HNNA on the Nasdaq, has a market cap of $80.202 million.) And he's also free to use the cash for non-M&A purposes, like buying back stock.

In terms of M&A targets, Hennessy remains mainly interested in equity shops, "unless it's a very large fixed income manager, because the fixed income arena's just going to be tough." He's looking for firms with $200 million or more in AUM. And he's open to active, passive, and quantitative shops.

"It's all a possibility," Hennessy says, adding he's even looking at the ETF space. "We'll see what happens."

Hennessy also remains open to a variety of deal structures, including: merging outside funds into existing Hennessy funds; adopting outside funds; and adopting outside funds while hiring the old fund firm as subadvisor. (Hennessy Advisors currently offers 16 no-load mutual funds, some quant-based and some traditional active strategies, some managed in-house and some subadvised.)

"We've done 10 acquisitions and 30 different mutual funds," Hennessy says. "Every manager's different ... There's a lot of different options."

"This is a great opportunity for Hennessy Advisors not only to acquire mutual fund companies but at the same time subadvise it back to the managers," Hennessy adds. "They get our back office, they get our distribution system, they get the cash ... and they're still managing the money."

"This is good for the end user, and it's good for the company, and it's good for the shareholder." 

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