The following segment was excerpted from this fund letter.
P10, Inc. (NYSE:PX)
Alluvial’s largest holding remains P10 Inc. (PX), owner of a diversified set of alternative assets managers. Second quarter earnings were strong and saw continued organic growth in assets under management. Shortly following the earnings report, P10 announced an acquisition that will grow assets under management and be accretive to free cash flow per share, in a deal that closed just days ago in mid-October.
P10 has purchased Western Technology Investment, a manager of venture debt funds. Founded in 1980, WTI has provided nearly $8 billion in debt commitments to venture companies largely in the technology and life sciences sectors. Building on this track record, WTI is expected to launch a new fund in 2024. P10 purchased Western Technology Investment for $97 million in cash plus the equivalent of $40 million in P10 stock, representing a multiple of 11x WTI’s pre-tax cash flow. The deal also includes an earn-out provision if WTI’s earnings achieve certain thresholds.
This transaction will benefit P10 by growing fee-paying assets under management to at least $19.9 billion, as well as increasing both the average fee rate on and average duration of assets under management, resulting in annualized revenues climbing to $200 million. Given these improvements, adjusted for the additional debt and higher interest rates, I now estimate P10’s annualized free cash flow at 84 cents per share. If WTI hits the high end of its earn-out range, that free cash flow would increase to 91 cents per share.
Currently priced around $10.30, P10 shares change hands for just 12.3x forward-looking free cash flow, less if the WTI investment works out well. Increases in AUM from P10’s existing strategies will further depress that multiple.
Meanwhile, P10 shares are just plain depressed. It’s not hard to see why. The economic picture is rocky. There are concerns about the ability of alternatives managers to raise capital amidst jittery equity and debt markets. It may seem like an inopportune environment in which to own a small, little-known alternatives manager. But nothing about the P10 story has changed. The company still enjoys supremely predictable, high- margin revenues looking out several years.
Management is still as sharp as they come and well- incentivized to grow the value of the company, not least because they own most of it. Free cash flow per share will continue to grow and the market will come around in the end.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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