Tikehau Capital (TKO) Earnings Call Transcript & Summary

Hello, and welcome to the Tikehau Capital conference call. Let me now give the call over to Mr. Antoine Flamarion, Co-Founder. You may begin.

Thank you very much. Good evening, ladies and gentlemen. Thank you very much for attending today's call. I am Antoine Flamarion, Co-Founder of TKO. I am with Mathieu Chabran, Co-Founder, live from our New York office; and Henri Marcoux, the Deputy Group CEO. We are very pleased to be here today to, first, give you an update on our AuM development during Q1 2021 but also to detail an exciting news. You may have read in our press release that Tikehau Capital is establishing a simpler, future-facing organization by regrouping its expertise and aligning with the best industry standard, with a view to unlock value for shareholder. The team and I have the pleasure to explain what we intend to do and answer any questions you may have. I'm now moving to the Slide 6. Starting with our AuM at end of March 2021. Group AuM amount to EUR 29.4 billion, up 15% year-on-year and 2.9% in Q1. On the asset management side, AuM reached EUR 27.7 billion, which is an 18% growth over the last 18 months. Since March 2020, Tikehau Capital has raised EUR 4.2 billion, a significant amount, reflecting the solid sales momentum for our group strategies. During Q1, net new money for our asset management business amounted to EUR 500 million, which is broadly in line with previous years. No surprise there, there is nothing more than the usual seasonality that you have seen historically when looking at how our fundraising evolved during a given year. During Q1, we have also strengthened our balance sheet with, in particular, the success of the inaugural group sustainable bond issuance for a total amount of EUR 500 million maturing in March 2029. This issue of senior unsecured sustainable bond is associated with a fixed coupon of 1.625%, the lowest ever achieved by the group, and is the first-ever public sustainable benchmark bond issued by an alternative asset management in Europe. Reflecting our unique DNA and innovation prone mindset, Tikehau is proud to have pioneered the alternative asset manager scene through this landmark transaction, once again, the first-ever euro-denominated public sustainable benchmark bond among the industry. I'm moving to Slide 7. Since end of March, we have been very active, and we wanted to briefly highlight some key announcement that we have made since Q1 ended. I will not go into details for each line but maybe 2 examples. First, leveraging on the successful fundraising for our private equity fund dedicated to energy transition, we announced the launch of a North American private equity strategy dedicated to transforming -- sorry, to transitioning to a low-carbon economy with $300 million of capital already committed by our balance sheet and our partner, Total. Second, we also announced the sequential launch of 2 initiative (sic) [ innovative ] strategies designed for retail investor through unit-linked product, one in private debt with MACSF Group, the leading insurer for health professional, and the other in private equity with CNP Assurances, leading player in the French personal insurance market. This initiative demonstrate our strong positioning in tackling the increasing demand from retail client to access alternative asset classes. Now I would like to address the other topic we are here to discuss, a very important event for the group and which set the scene for our future development. I'm moving to Slide 9. First of all, to understand where we are, let's take a quick look in the mirror to understand where we come from. We founded Tikehau Capital in 2004 with Mathieu as a private company with just EUR 4 million of equity, our own savings and money from friends and family with an entrepreneurial mindset and stronger mission to build a leading player in the alternative management space. 17 years later, our ambitions have materialized through a successful, profitable organic growth and targeted accretive acquisition. Having reached a milestone in scale, we are now a global, diversified, listed alternative asset manager with shy of EUR 30 billion of AuM. Our organization has provided strong support along this growth journey. But given our scale, our size and our ever-growing ambitions, we believe it's the right time to adapt our organization to prepare for the next phase of profitable growth. Moving to the Slide 10. So today, we are happy to announce a new organization for Tikehau Capital which will not only simplify our profile but will also bring material financial benefits to the group, with in particular a new dividend policy going forward. Slide 11. In a nutshell, the current structure, which reflects the entrepreneurial rules of the group, would be replaced by a new leaner and simpler structure, which will lead to: one, regrouping all group employees within the listed entity; two, significantly improving TC operating costs; and three, significantly reducing preferred dividend. To sum up, we will simplify the organization and the financial ties between TC and TCA. As part of this reorganization, TCA contribution will be compensated with newly issued shares. Be assured that what makes our strengths and differentiation will prevail in the new organization, the high-level skin in the game, one of a kind in our industry, our strong entrepreneurial corporate culture and creative and compete mindsetwhich drive innovation will continue. Moving to Slide 12. The transaction we are contemplating will reinforce Tikehau Capital KPIs and bring significant benefit to shareholders: A simplified organization, easier to understand with all staff of the group; a cash flow improvement of EUR 40 million in 2021 and much more over time; a return of equity enhanced by 140 bps as early as 2021; a high single-digit accretion of 2021 adjusted earnings per share; and last but not least, as mentioned, a new dividend policy which would, from now on, be based on the performance of our fast-growing and increasingly profitable asset management platform with a proportion to distribute going forward more than 80% of the sum of our FRE and PRE. I would add that, that would set the floor at EUR 0.50 per share in 2021. Finally, I am pleased to share with you that the reorganization has already received the support from many shareholder representing a total of 85% of the share capital of Tikehau Capital, a very strong support from largest existing shareholder. I am now handing over to Mathieu.

Thank you, Antoine, and good evening, everyone. Thanks for joining our quarterly call in the context of those important announcements. As Antoine alluded to, this simplification aims at paving the way for future Tikehau success through a leaner organization structure, an improved financial profile and a revised dividend policy. I will come back first on our track record and past success of this collective entrepreneurial journey. We will then look into details of this proposed transaction articulated around 2 pillars: regroup and reset. Finally, we will highlight how this transaction strengthens our foundation going forward, while preserving our defining values and unique DNA. So moving on to Page 14. As discussed earlier and over the past 17 years, Tikehau Capital has transformed from a modest, externally managed investment company at inception in 2004 into a global, listed, diversified alternative asset manager with a strong and profitable growth. Let's have a look at a few figures on the next slide. Looking back at the journey, Tikehau has gone through an incredible growth story, combining a strong financial performance, talent addition, geographical expansion and investment strategies innovation. At the end of March, we were managing EUR 29.4 billion of assets, which is more than twice what we managed at the end of 2017, the year of our IPO. And as a data point, that is 10x what we managed in 2013. Our partners and staff evolution has followed that trend, and we have been tripling our positions between 2017 and March 2021. This very positive momentum is a reflection of a strong organic growth and a targeted accretive M&A strategy. Such achievements have positioned us today as a leading, diversified, global multi-asset manager with extensive presence in major financial hubs. From 5 Rue Royale, Paris-based company, we are now a cross-border player with offices in 12 countries across Europe, Asia and North America. Looking now at the key drivers and numbers for our asset management activity, Page 16, I think this slide is actually quite self-explanatory. Tikehau has been delivering CAGR above 40% for both our international AuM and our fee paying AuM, which are both key drivers to the business model; a very solid trend in management fee rate with no fee pressure, which is a quite unique trend in our industry; and actually with additional room for improvement, thanks to the rebalancing of our business mix. More than 50% CAGR in asset management revenues largely driven by recurring management fees; a growth in FRE, the fee-related earnings, which is the asset management profitability based solely on management fees of 126% between 2016 and 2020. This is clearly outperforming industry average. Our NOPAM, which could be defined as our asset management EBITDA, and our NOPAM margin are trending clearly upwards with the scalability of our platform, its very significant operating leverage and future carried interests, which are not yet fully contributing to profit. So once again, this track record demonstrates our ability to deliver a controlled but fast and profitable growth in the alternative asset management space. Let's dive now a bit deeper, Slide 17, into the reorganization itself. What we are proposing here today is articulated around 2 pillars: regroup and reset. Regroup all central corporate functions and expertise under the listed company to make things more simple to understand and reset all related parties' fund flows accordingly for the benefit of Tikehau Capital, which results in improving significantly the firm's financial profile. Let's now have a closer look, Page 18, at the various aspects of this simplification and the financial benefits for Tikehau Capital. First, the evolution towards an internally managed organization leading to all central corporate functions and expertise being regrouped within the listed entity. Simplicity is the key word here. Second, we are looking at significant cost benefits ahead for Tikehau. Indeed, the management fee associated until then to the external management by Tikehau Capital Advisors, which was based on a 2% of the equity of the group, will be removed and replaced by a fixed annual compensation of EUR 2.5 million. If we look at 2020 as a reference point for the reset of this economics, it is compelling, decreasing from a cost of almost EUR 71 million to around EUR 21 million pro forma for this new organization. Finally, the preferred dividend will also be drastically reduced from 12.5% to just 1% of Tikehau net income, generating a significant benefit for Tikehau Capital. So this transaction is clearly materially improving Tikehau Capital's financial profile. Moving on to Page 19. I think we made it pretty clear that we're implementing this reorganization with the unique objective to strengthen Tikehau Capital. So practically, this reset in the fee stream I just described are contribution made by Tikehau Capital Advisors, the group's largest shareholder, was actually the main beneficiary of these flows. So as part of this transaction, this contribution from TCA will be compensated through the issuance of approximately 39 million new Tikehau capital shares. The terms of this transaction have been based on a multi-criteria approach and validated by independent experts, which landed on a value of this contribution of approximately EUR 1.1 billion and a reference value of Tikehau Capital shares of EUR 29.50. This price corresponds to a 19% premium to yesterday's closing price and certainly does not cap the upside and the value we see in the firm valuation. It is quite the contrary actually. We expect this contemplated simplification of the structure to meaningfully broaden our investor base and make it easier to invest in Tikehau shares. Similarly to what happened in the U.S., when some alternative asset managers opted for the C-Corp conversion, we believe that making our stock more easily investable will create a rerating over time and improve the daily liquidity. I would almost like to call it for our research analyst friends on the line tonight the Tikehau C-Corp moment. Incidentally and consequently to these transactions, founders and management stake in Tikehau Capital will reach 56% versus 44% today. Obviously, this alignment of interest between Tikehau management and Tikehau shareholders cannot get better than that. So to summarize the key financial improvements, Page 20. First, this new organization will lead to a post-tax cash flow improvement of EUR 40 million in 2021 and much more over time. Second, this will translate into 140 basis points incremental increase in Tikehau return on equity. Finally, we are looking at a high single-digit accretion on 2021 adjusted EPS, taking into account the anticipated financial benefits and the share issuance. So clearly and as targeted, that makes this reorganization highly compelling for Tikehau shareholders. So looking forward now on Slide 21. This evolution is getting Tikehau ready for its next phase of growth with a future-facing setup fueled by our core drivers. First, a simplified organization easier to understand. We believe this simplification, together with the continued strong performance, will increase our ability to generate significant long-term equity value for all our shareholders. Our intention with all the changes we're announcing today is to make Tikehau easier to understand, buy and own, so that, over time, our stock reflects that. Second, a strong profitable growth with a model relying on the sound governance. And finally, the best-in-class alignment of interest reinforced by an increased management ownership, once again, second to none in this industry and the implementation of a very shareholder-friendly revised dividend policy. Moving on now to Slide 22. We are definitely on track to deliver on our targets, putting us in a comfortable position to confirm our main guidance for 2022: assets under management of more than EUR 35 billion, being today at EUR 29.4 billion at the end of March; FRE, the fee-related earnings, to reach more than EUR 100 million; the portfolio already in the range of our guidance with 66% of our portfolio investments made up of investment in Tikehau funds; and portfolio return from Tikehau fund investment aiming to reach between 10% to 15% on a run rate basis in the midterm. The group has been delivering and is on the right track. Finally, on Slide 23, a few words on our capital allocation. Our capital allocation priorities going forward, organic and external growth will remain unchanged. We will keep investing in Tikehau's funds and vehicles to leverage third-party AuM growth. Regarding M&A, we will selectively allocate capital to seize opportunity in acquiring new clients, expanding market shares across existing and new geographies and expanding into new asset class to fuel growth. Having said that, this year onwards -- from this year onwards, we will also adapt our shareholder return policy based on the asset management business with a new shareholder-friendly dividend strategy set at a minimum of 80% of FRE and PRE with a floor at EUR 0.50 for 2021. As such, shareholders' interest will be fully aligned with the performance of the profitability and the scalability of the asset management platform. And with that, I hand over back to Antoine to conclude this presentation.

Thanks, Mathieu. Looking at the next step, I will be brief. After today's announcement, the next step will be the publication of the documentation relating to the transaction, including reports from an independent expert and external appraiser. This is subject to TCA obtaining from the French market regulator, AMF, an exemption to the obligation to file a mandatory tender offer. And then the reorganization will be submitted to an Extraordinary General Meeting to take place on July 15, clearing the way to complete the reorganization. At this stage, we are very pleased to share with you that this reorganization has already gathered the support from shareholders owning a total of 85% of the Tikehau Capital share capital. One last important thing. If approved by the Extraordinary General Meeting to take place on July 15, this transaction will be retroactively effective as of January 1. Moving to Slide 26, a simple message as a key takeaway to wrap up this call. We are looking at simplifying, financially compelling, value-unlocking evolution, which materially strengthens Tikehau Capital. Thank you for your time. Happy to start taking any question now.

[Operator Instructions] Our question comes from the line of Arnaud Giblat of Exane.

Congratulations on the transaction. I've got a few questions, please. Firstly, you mentioned Tikehau valued at EUR 1.1 billion, 39 million shares, implying a value of EUR 29.5 shares for TCA. So -- but the reference price in terms of the issuance of new secured capital shares is going to be that 1.15 divided by the share price at the time the transaction closes. Is that correct?

Arnaud, thanks for the question. Yes, actually, the numbers of TC shares to be issued in the context of that transaction is resulting from a parity identified between the value of the contribution from TCA and TCGP, EUR 1.1 billion, and a reference price of Tikehau Capital share in remuneration, which has been assessed at EUR 29.50 per share. So this ratio, which actually takes you to EUR 39 million of new recreated shares, is actually fixed, and it will not depend on the share price in June or July of Tikehau Capital. Maybe a few other words on that. These elements of parity have been assessed based on a multi-criteria valuation approach comparable for each part of the parity exchange. The company has been advised by Rothschild and BNP Paribas on the valuation works that have been presented actually to the independent expert and to the commissaires à la fusion à la scission and, as such, retail methodology for the valuation contribution have been mainly based on these shares.

Okay. But if I take 39 million Tikehau Capital shares multiplied by the current share price, I don't get to EUR 1.1 billion, right, because, of course, there's a different share price than your referenced price. But that's what's going to happen if actually 39 million new shares are going to be issued.

Sorry, once again, the 39 million newly issues share price is a ratio that's the result of a parity between the valuation of the contribution from TCA which has been assessed at EUR 1.1 billion divided by the reference price for Tikehau Capital share assessed at EUR 29.50. So this 39 million newly created shares is a ratio based on the work on the several of the 3 independent experts that have been working on the transaction. And all their reports will be published mid-June.

Okay. And can you share with us, since you're referencing a discounted cash flow, what cost of capital and turnover value were used?

Actually, at this stage, we cannot share such information. It will be included in the report from the 3 independent experts that will be published and finalized mid-June. These reports are not yet finalized, and they will be actually published by the 3 independent experts.

Okay. I've got a few more, if that's okay. EUR 40 million. I think you say -- you talk about -- on a pro forma 2020 basis you're talking about externally managed cost of EUR 70.6 million looking backwards. The 2% of energy we have in -- EUR 62.9 million, so I'm wondering specifically what elements I need to look at. Just trying to understand how to get to EUR 70.6 million.

Okay. Yes, I think the difference between the EUR 62 million and the EUR 70 million is VAT, which is nondeductible as far as Tikehau Capital is concerned.

Okay. Got it. And does this transaction affect carried interest and how it's split between the company and shareholders -- between the staff and the company, I suppose?

Well, actually, no. You know we have a very shareholder-friendly allocation of carried interest as more than 53% of carried interest are allocated to the listed perimeter. This is not at all modified. We remain with the biggest proportion among our peers of carried interest allocated to the listed perimeter.

Got it. And just final question. You're talking about a EUR 40 million improvement in cash flows going forward for 2021. Can you give the moving parts there from the transaction, please?

Well, to calculate this, this is actually quite simple. We've taken -- actually, we've been using the net income based on the sell-side analyst forecast for '21. We have restated an estimated preferred dividend using a thesis of 75% of the consolidated net income for statutory accounts. And from that basis, we have actually incorporated the savings linked to the termination of the 2% charge, on one hand. Then we've added up the new EUR 2.5 million compensation for the manager. Then we've added up the cost incurred by the integration of the corporate function transfer to the liability group coming from TCA and all that actually net of tax. And that -- all these sum actually gives you to a cash earnings benefit of a bit more than EUR 40 million.

[Operator Instructions] Our next question comes from the line of Christoph Greulich of Berenberg.

Yes. The first question would be for the -- this proposed new structure to be approved during the AGM. What type of majority is needed for that? I assume the 85% that you have secured so far, this should be sufficient?

Yes. Well, actually, yes, we have already obtained approval from just slightly more than 85% of our current shareholder. And this is fully sufficient effectively to move forward to obtain the full approval during the mid-July during the AGM that will take place. Yes.

And this is like a variable commitment? Or how should we understand that support.

It has been duly documented and totally firm commitment.

Okay. And then I was wondering, you're also talking about the accretion to the 2021 earnings per share. What kind of earnings per share are you having in mind to come to that number?

We are taking the EUR 116 million of -- which is the net group results coming actually from the sell-side analyst forecast updated after our 2020 financial year results.

Okay. That's clear. And then, lastly, what I'm wondering is, so we had the introduction of the 2 new managers and then the 1% preferred dividend and this EUR 2.5 million of fixed compensation. Yes, I'm just wondering like in the context of this restructuring, why did you not decide to kind of completely, yes, exclude such type of agreements? Why it's not just everything taken away, and we have basically just the listed entity left?

Well, Christoph, we think that the format of the commodity is fully adapted to our entrepreneurial history and profile. It corresponds to our entrepreneurial culture and structure that has actually allowed the group to grow significantly. And so as you know, the founders and management are, by far, the largest shareholder of the group, which is a strong factor of alignment of interest, which is why we've been actually keeping such structure.

And just so that I fully understand that. So for Antoine and Mathieu, you will become now employees of the listed entity or you will basically be represented by those managers?

No, Antoine and Mathieu will be directly the manager of the listed entity. And as such, they will have this compensation of EUR 2.5 million per year for both Antoine and Mathieu directly.

Okay. That's very clear. And then just lastly, I remember back when you announced the 2020 AuM, you were mentioning that you're currently working or thinking about targets for 2025. So just wondering how far you've come in that exercise and when we could expect to hear more about that.

Well, Christoph, the current target we have provided was done in 2019. So that was prior to the COVID, I would say. We have been keeping our guidance ahead. So more than EUR 100 million of fee-related earnings and over EUR 35 billion of AuM. So we have been keeping those guidance. We stick to that guidance. And hopefully, before end of 2020, we will issue a new guidance, and we will provide more outlook before end of 2022. First, let us complete this reorganization, and then we will move to next steps.

Okay. Then -- yes?

Sorry, Christoph, go ahead.

No, that was all from my side. That was all very clear.

Thanks, Christoph. I just wanted to add to this conclusion for -- from Henri, and it's a general comment I'd like to add, is that effectively, it's a first step, but it's a defining step. I mean, with all of you, I mean, Arnaud earlier on, with you and other of your colleagues or peers on the line, I mean, we all know that we've been on the road with you. We heard many feedback from investors. And very often, this structural aspect was coming back. So we're really seeing that as at the beginning of a new chapter together. And back to your question, yes, Antoine and I will still very much be there, and we look forward to being back on the road with you.

[Operator Instructions] Our next caller is Jens Ehrenberg of Citi.

I don't think I have much left. Just on the operating costs, to get that sort of clear. First, obviously, if we see the big decrease from the EUR 70.6 million or if you can say the 2%, which I think Arnaud mentioned was EUR 62 million from 2020 to the pro forma EUR 20.8 million, I mean that seems like quite a significant step. Can you just give more color on the moving parts there? And then secondly, operating costs going forward. So we have the EUR 2.5 million of fixed annual compensation and then the EUR 20 million, which I think, yes, you state as from 2021 onwards. So 2 questions around them. One is do you expect any significant growth in that cost position? And then secondly, given that the EUR 2.5 million is a fixed annual compensation, what are the other sort of incentive schemes in place just to make sure that interests are aligned? They really seem to be -- yes, sorry, there was a handful of questions, but any color would be appreciated.

Jens, thanks for your question. Maybe I start the first question on Mathieu and myself compensation, the EUR 2.5 million annually. As you all know, we are a big advocate of skin in the game, and our incentive is to be the largest shareholder of the firm, similarly to the senior management and the employee. So we see ourselves as fully incentivized. And alignment of interest has been really the key driver of this firm since inception and has been -- has enabled us to be the fastest-growing alternative asset manager in Europe. That's part of the DNA. We want to continue this path, so that's how we see compensation on our side.

To come back on your previous question, and I mean you have the figures on Page 18 of the presentation. But effectively, you had previously this 2% of consolidated equity for the year 2020, which was representing EUR 70 million including VAT. I remind you that during the year 2019, we've done a significant capital increase, which has therefore increased this figure for the year 2020. For the previous year, it was a bit lower. And then the corporate cost that were allocated within TCA that we are pushing down, bringing down into the listed entity are representing effectively around EUR 20 million. All these costs are representing all the central function of the group, would that be IT, legal, HR, internal audit, compliance and finance. And so this -- all these teams have been -- have strongly increased over the past year to actually be in line with the expectation growth for the group, and so they should not grow drastically in the coming years.

Okay. Can I just quickly follow up on that? Firstly, Antoine, your point is very well taken. Clearly, you guys are among the largest shareholders in the group, so there's clearly incentivization. I was just wondering if there's any other variable components more related to the direct employment. Clearly, the shareholding does a lot there. Just on the operating cost. I mean, the services totally change, right, other than being transferred from outside the listed entity into the listed entity and yes, you see this decrease from the EUR 70 million to the just about EUR 20 million. Yes, it's just I'm having a few question marks there as to how the same services become so much cheaper all of a sudden, if that makes sense. I might be having the wrong end of the stick there, but yes.

Sorry, Jens. Would you mind rephrasing or -- because I'm not sure we get 100% of the question.

Yes. So just on the operating costs in the 2020 figure, which was the 2% of consolidated shareholders' equity, what you stated as that EUR 70 million, right? You -- then based on this transaction, you speak about the pro forma figure of just about EUR 20 million, which again is very much lower than the EUR 70 million. But yet, the services don't really change, right? You transfer those corporate functions into the listed entity. I'm just trying to understand as to why they are all of a sudden so much cheaper, if that makes sense.

If you remember, and I think that's been part of the discussion with some of you, this company, Tikehau Capital, was externally managed, and it's been since 2004 the case. And this company was externally managed. Tikehau Capital was externally managed by TCA and, for that, has been receiving 2 components: 2% of the equity and 12.5% of the net income of the listed entity. If you take 2020 figures, EUR 2.8 billion of equity, let's call it EUR 56 million plus VAT plus part of the 12%, it came to EUR 70 million. Part of this transaction, we transfer the entire staff, which, as you can calculate, costed less than EUR 70 million. We transfer the compensation of the management, i.e., EUR 2 million, so you've got plus EUR 70 million minus the cost of the staff, minus our compensation, that leads to a minimum of EUR 40 million. So that's why we said the cash flow increased by EUR 40 million.

But during many years and since the inception of Tikehau, all the -- TCA has supported all these external costs since the inception of the group.

Yes. Yes. No, that's fair enough. And I appreciate where the group comes from and the sort of structure that was in place so far, so that all makes sense. Yes, and I think that is helpful color.

Moving on to our next question, we have Geoffroy Michalet of ODDO BHF.

So we understand that basically you transfer the compensation from management fees of consolidated -- 2% of consolidated equities to a much more shareholder-friendly dividend policy for everyone to -- above 80% of FRE and PRE. But don't you think in the end that, at some point, it will not let you be able to invest enough in new strategies, in M&As? I mean since also the fact -- with the fact that your balance sheet will be much more locked into long-term funds, which is, to me, a good strategy but which is also a problem when it comes to the liquidity if you have 75% of your funds into locked funds. Will you still be able to be active or pushing new strategies with M&A or launching new funds with this new dividend policy?

Thanks, Geoffroy, for your questions. If you have all the figures in mind, we ended up the year -- or we started the year, sorry, with EUR 845 million of cash. We issued this inaugural sustainable bond for EUR 500 million. So let's call it close to EUR 1.5 billion. And on top of that, we've got a EUR 500 million RCF. So our liquidity position is fairly unique for the industry. And part of the business model has been really to see it sponsor our initiative and our fund. If you -- I like taking this example, but when we launched our energy transition initiative back in 2018, if you remember, we invested EUR 100 million. Total invested EUR 100 million. And on the back of that, we raised EUR 1.1 billion. So seeding, sponsoring has been part of the DNA. We just announced earlier today that we launched North America decarbonization fund with EUR 300 million, EUR 200 million coming from our balance sheet and EUR 100 million from Total. So we will continue to seed sponsor new initiative. The culture of the firm has been fairly innovative. Not nuclear science, but it's like launching our cybersecurity initiative, like launching direct lending back in 2009. So yes, we will continue to seed sponsor our fund initiative, and we've got enough cash, as just explained. Number two, you've got cash coming back from existing fund and existing investor. So we can consider that we've got a fairly large amount of capacity to launch these funds. Number two on acquisition, as you know, we've been fairly selective on acquisition. For the time being, we've been focusing on small acquisition in terms of price and try to put some Tikehau inside in this acquisition. Latest acquisition is ACE focusing on aerospace. When you remember, we bought this small company managing EUR 300 million two years ago. This company is now managing EUR 1 billion. So I think we will continue to look at acquisition around the world. Star America is a good example last year for infrastructure in the U.S. at a time whereby the Biden administration is just focusing a large amount of money on infrastructure. So 1 and 2, i.e., acquisition and sponsoring seeding new fund, we have the capacity, and we'll continue to do that in a fairly selective manner.

And I would add, Geoffroy, if I may on this point is here again, I mean, 4 years into our listing and our models that you know extremely well is asset management fee and balance sheet. And sometimes the market has been kind of pushing back on this model, why the asset manager will need the balance sheet. I mean your question illustrates the merit of the balance sheet. And by setting up this new structure, what we intend to do is that the market will be rewarded out of the FRE and effectively the multiple that the FRE will be benefited from, as you know, constantly growing and dividend being. But by the same token, having the balance sheet, to your point, which is a key differentiating factor that can help fuel the growth, potentially look at some acquisition. And you know this industry much better than anyone else here. And when you look at the rerating of some of our peers, competitors, ICG in Europe, KKR here in the U.S., who've been balance sheet heavy asset manager but who have demonstrated effective the merits of this balance sheet. We think that we are now in the right position to address this new chapter of the Tikehau development, hopefully, bringing along and dragging with us the support of shareholders with this new structure. Because the models of alternative asset management should no longer be divided between, on the one hand, the asset-light asset management business; and on the other hand, the balance sheet heavy investment company, old-style investment company. I mean today, the merger of Dyal and the Owl Rock here in the U.S., the Blue Owl, seems to be going ahead. It's a great precedent, a great data point. So in this ever-changing landscape of the alternative asset management globally now, I mean we've tried to look, to listen, to effectively factor that in back. And your question is actually a great one because, actually, it seems that now the market starts to realize that having a balance sheet shouldn't be effectively -- shouldn't be a handicap but much more a differentiating factor.

We'll move on to our next caller. Our next question comes from the line of Joren Van Aken of Degroof Petercam.

I have more of a clarification question, actually. So you mentioned the EUR 1.1 billion for 39 million shares, so EUR 29.50 per share. And if I understand correctly, this deal will actually add value for TC shareholders because if at closing, the TC share price is, for example, EUR 25, TC will give shares worth EUR 25 and will receive assets worth EUR 29.50. Is that correct? Or did I understand wrong?

No, it's the other way around, actually. It's -- let me rephrase it. So on one hand, independent experts and banks have valued the EUR 1.1 billion for the contribution. But the French regulator and usually in this transaction are asking for a multi-criteria valuation of the listed company, and it could have been EUR 20. It could have been EUR 25. It could have been EUR 30. But they came to the EUR 29.5. And -- so because it's higher than the share price, the current share price, because you divide EUR 1.1 billion by EUR 29. If you divide by the current share price, you will get to 42 million new shares. So now you've got 39 million, so it's better actually to have a higher multi-criteria. Does that answer your question, Joren?

Yes.

We now have a follow-up question from Christoph Greulich of Berenberg.

Yes. Just 2 quick follow-ups from my side. The first one was coming back to the EPS accretion. So my thinking is in 2021, there's obviously a drag on the net income that comes from the macro hedge that was still in place at the beginning of the year. So I think the argument of EPS accretion might be a lot more difficult to uphold when we look into the next year. So I'm just wondering if you have looked at that and done that exercise.

Thanks, Christoph. Well, we've taken effectively the consensus of the analyst for this year. If you restate the effect -- these effects you are mentioning, it is slightly flat positive, depending on how you calculate effectively the preferred dividend.

Okay. And then the other question -- and apologies if that was already answered. I had some technical issues before. But just if you can give us any color on the valuation methodologies used in the key assumptions in order to come up with those valuations for the 2 entities.

Okay. I would try. We can have -- all this valuation methodology will be described end of June in the report of these experts. But once again, these elements of parity, I remind you, I recall you how this has been calculated. The numbers of new TC shares to be issued is resulting from a parity identified between, on one side, the value of the contribution from TCA and TCGP, which has been assessed at EUR 1.1 billion; and on the other side, the reference price for Tikehau Capital share in remuneration, which have been assessed at EUR 29.5 per share. Both elements of parity have been assessed based on multi-criteria valuation approach comparable for each parity, okay? As such, so the retail methodology for the valuation of TCA and TCGP contribution have been mainly based on discounted cash flow. Secondary valuation has been done based on multiples of net results, so price/earning ratio, or multiples of fee-related earnings and performance-related earnings. That's for the valuation of TCA and TCGP contribution. For the valuation of TC share at EUR 29.5 per share, the same methodology has been retained with a sum of the parts approach, on one side, the asset management activities, which have been appraised based on a multi-criteria approach, BCF, multiples of FRE and PRE, and the investment management activity which has been valued based on the 2020 fair value account. Once again, all this methodology will be disclosed in the report of the 3 experts, which will be made available at end of June, okay? And so this EUR 29.5 per share that has been used is actually not a cap. It's a value that's being used to fix the EUR 39 million (sic) [ 39 million ] of share.

We now have a follow-up question from Arnaud Giblat of Exane.

Yes. Just a very quick follow-on. Very clear now the methodology -- the valuation methodology. It's just that is it the regulator that requires an external valuation from Tikehau Capital? Or is it your own choice? I'm wondering because, obviously, you could have chosen to use the share price, which would have been more advantageous for your conversion.

Yes. So let me -- just on the process, which is a legal and regulatory process is, first of all, the Board of Tikehau Capital appointed an ad-hoc committee, only independent Board member. This ad-hoc committee had to choose an independent expert, number one. Number two, the French Paris Corps appointed 2 independent expert on top of that. The Board of TC -- of Tikehau Capital decided to appoint banks, namely Rothschild, BNP and Natixis. And TCA decided also -- the TCA Board decided to appoint also a bank, which was Credit Suisse.

Just one point on that. I remind effectively that to be very clear on that, Finexsi, which is the independent expert, has been appointed by the Supervisory Board with the Head of Committee of Tikehau Capital as an independent expert. This expert is issuing a fairness opinion on the term of the transaction. Beneath, meanwhile, you do have actually some statutory appraisers, which have been nominated, appointed by the President of the Commercial Court of Paris, in that case, that was Sonia Bonnet-Bernard and Alain Abergel, which are in regards to term of the merger and the contribution giving as well their opinion on the transaction.

And at this time, it looks like we have no further questions. [Operator Instructions] We have no further questions. I'll now return the conference over to your hosts.

Thank you very much for your time and patience. We look forward to continue the discussion, and we think it's been a new step for us, and we look forward to see and talk to you. Mathieu, I'll let you conclude.

Thank you. Thank you all. No, I mean just as Antoine said, we see that as the beginning of a new chapter for Tikehau Capital with this increased alignment of interest across the board. And more importantly, for those of you who have been asking questions, and thanks for that over the past few minutes, us factoring all the feedback that collectively we heard on the road together over the past 4 years, and we're ready to take the company to the next phase. So thanks, everyone. Looking forward to seeing you soon.

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