The planned merger between Honeycomb Investment Trust plc (LSE:HONY) and unlisted asset manager Pollen Street Capital "will create a differentiated asset manager with significant growth potential", said broker Liberum.
After the all-share merger was announced on Tuesday, the broker said the combined entity will benefit from a resilient income stream from recurring fees and investment returns, with substantial upside as assets under management grow from the current £3bn.
Under the proposals, the combined group will switch from being an investment trust to become a commercial company, though it will continue to invest primarily in asset-backed direct lending as well as adding the recurring fees from the asset management business.
The parties said they expect the transaction to be accretive to earnings per share from year two.
The deal should also help to address share liquidity, Liberum said, "the key issue" that has hampered the investment trust despite its strong underlying performance.
Lindsey McMurray, managing director of Pollen Street, will become chief executive of the enlarged company.
The transaction implies circa a 21 times multiple of EBITDA for the business, said Liberum, noting that larger listed European alternative asset managers are trading on a forward multiple of circa 30 times.
Honeycomb’s shareholders will own 54.5% of the combined entity and Pollen Street’s shareholders will own 45.5%. The transaction is subject to shareholder and regulatory approval.