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Associated Capital Group, Inc. Reports Increased First Quarter Book Value

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Associated Capital Group, Inc. reported an increased first quarter book value with assets under management at $1.55 billion compared to $1.59 billion at the end of 2023. Book value per share ended the quarter at $42.80 per share, an increase from $42.11 at the end of 2023. The company's financial results for the first quarter of 2024 showed an operating loss before management fee, but positive investment and other non-operating income. Total revenues increased to $3.0 million from $2.5 million in the previous year. AC's alternative investment management strategy focuses on merger arbitrage, with a positive gross return of 1.33% in the first quarter of 2024. Global M&A activity saw a significant increase in the first quarter of 2024, with the US dominating deal making. AC plans to accelerate the use of capital through acquisitions and alliances, including launching a private equity business.

Positive
  • Increased first quarter book value with assets under management at $1.55 billion compared to $1.59 billion at the end of 2023.

  • Book value per share ended the quarter at $42.80 per share, an increase from $42.11 at the end of 2023.

  • Total revenues increased to $3.0 million from $2.5 million in the previous year.

  • Positive gross return of 1.33% in the first quarter of 2024 from the merger arbitrage strategy.

  • Significant increase in global M&A activity in the first quarter of 2024, with the US dominating deal making.

Negative
  • Operating loss before management fee was reported in the first quarter of 2024.

  • Net income and net income per share decreased compared to the previous year.

  • Total operating expenses, excluding management fee, increased from $5.1 million in the first quarter of 2023 to $6.0 million in the first quarter of 2024.

  • Net investment and other non-operating income decreased from $24.7 million in the first quarter of 2023 to $22.6 million in the first quarter of 2024.

  • Effective tax rate increased to 21.5% in the first quarter of 2024 from 8.1% in the same period in 2023.

The recent asset under management (AUM) decrease from $1.59 billion to $1.55 billion at Associated Capital Group could be a point of concern for investors due to the potential implications it might have on revenue streams and management fees. Notably, the outflows are partially mitigated by market appreciation, suggesting some resilience in investment performance. The shift in book value per share from $42.11 to $42.80 is a modest improvement, reflecting a slight enhancement in the firm's intrinsic value.

On the expense front, there is a discernible increase in operating expenses, mainly driven by marketing and compensation, which could be seen as necessary investments for future growth but may also erode profit margins in the short term. The reported decline in net investment income year-over-year could signal a changing market environment that investors should keep an eye on, especially as it pertains to the company's significant holdings in GAMCO assets.

Furthermore, the semi-annual dividend declaration and share repurchases reflect a shareholder-friendly capital allocation policy. However, investors might want to consider whether these actions are sustainable in the long run, particularly if AUM continues to decrease.

Associated Capital Group's performance in the merger arbitrage space, exhibiting a gross return of 1.33%, is notable for its potential to offer absolute returns irrespective of market directions—a feature that might attract risk-averse investors. Moreover, the increase in global M&A activity, particularly in the US, could position the company favorably should they capitalize on this trend through their alternative investment strategy.

However, the growth in private equity's share of M&A activity may also signal increased competition for such deals, which could affect future performance. The strategic plans to pursue acquisitions and alliances to broaden product offerings and distribution channels suggest a forward-thinking approach, but investors would benefit from monitoring how these strategies materialize and impact financials.

The alignment of financial arrangements with services rendered, as AC now covers the marketing expenses previously paid by Gabelli Funds, displays a strategic restructuring that could lead to more efficient operations. Potential investors should evaluate how these changes in internal cost management might impact profitability and the overall financial health of the company.

Furthermore, the firm's approach to alternative investment management, focusing on merger arbitrage, fundamental, active, event-driven and special situations investments, illustrates a diverse product offering. This diversity may serve as a risk management tool, but it is imperative to assess the performance of these strategies relative to industry benchmarks.

 

  • AUM: $1.55 billion at March 31, 2024 compared to $1.59 billion at December 31, 2023
  • Book Value per share ended the quarter at $42.80 per share vs $42.11 at December 31, 2023

GREENWICH, Conn., May 09, 2024 (GLOBE NEWSWIRE) -- Associated Capital Group, Inc. (“AC” or the “Company”), a diversified financial services company, today reported its financial results for the first quarter ended March 31, 2024.

Financial Highlights
($ in 000's except AUM and per share data)

(Unaudited) Three Months Ended
March 31,
 
  2024  2023 
AUM - end of period (in millions) $1,549  $1,799 
AUM - average (in millions)  1,556   1,841 
         
Revenues  3,011   2,465 
Operating loss before management fee (Non-GAAP)  (2,988)  (2,590)
Investment and other non-operating income/(loss), net  22,625   24,735 
Income/(loss) before income taxes  17,655   19,602 
         
Net income/(loss)  13,821   17,754 
Net income/(loss) per share-diluted  0.64   0.81 
         
Class A shares outstanding (000's)  2,469   2,975 
Class B "                 "  18,951   18,963 
Total      "                 "  21,420   21,938 
         
Book value per share $42.80  $41.30 
         


First Quarter Financial Data

  • Assets under management ended the quarter at $1.55 billion versus $1.80 billion at March 31, 2023.
  • Book value was $42.80 per share compared to $41.30 per share at March 31, 2023. 

First Quarter Results

Total revenues in the first quarter were $3.0 million compared to $2.5 million in the first quarter of 2023. Revenues generated by the GAMCO International SICAV – GAMCO Merger Arbitrage (the “SICAV”) were $1.7 million versus $1.1 million in the prior year period. All other revenues were $1.3 million compared to $1.4 million in the year-ago quarter.

Starting in December 2023, the SICAV revenue recognized by the Company for its services increased to 100% of the revenues received by Gabelli Funds, LLC. In turn, AC now pays the marketing expenses of the SICAV that were previously paid by Gabelli Funds and remits an admin fee to GAMCO for administrative services provided to the SICAV. This change better aligns the financial arrangements with the services rendered by each party. The net effect of this change did not have a material impact on our operating results.

Total operating expenses, excluding management fee, were $6.0 million in the first quarter of 2024 and $5.1 million in the first quarter of 2023. The increase is driven primarily by $0.7 million of marketing expenses on the newly realigned SICAV and higher mark to market stock-based compensation expense of $0.2 million.

Net investment and other non-operating income was $22.6 million for the first quarter of 2024 compared to $24.7 million in the first quarter of 2023. The primary drivers of this quarter's results included mark to market increases from our GAMCO holdings and merger arbitrage partnerships. Higher interest rates in the 2024 quarter as compared to 2023 contributed to higher interest income.

For the quarter ending March 31, 2024, the management fee was $2.0 million versus $2.5 million for the three months ended March 31, 2023.

The effective tax rate applied to our pre-tax income for the quarter ended March 31, 2024 was 21.5%. In the year ago quarter, the effective tax rate was 8.1%; 2023’s lower rate is primarily driven by deferred tax benefits from a foreign investment.

Assets Under Management (AUM)

Assets under management at March 31, 2024 were $1.55 billion, $42 million less than year-end 2023 primarily due to net outflows of $43 million and the impact of currency fluctuations in non-US dollar denominated classes of investment funds ($11 million). These were offset partially by market appreciation of $12 million

  March 31,  December 31,  March 31,
($ in millions) 2024  2023  2023
Merger Arbitrage(a) $1,262  $1,312  $1,537
Long/Short Value(b)  251   244   229
Other  36   35   33
Total AUM $1,549  $1,591  $1,799
 

(a) Includes $580, $621, and $812 of sub-advisory AUM related to GAMCO International SICAV - GAMCO Merger Arbitrage, $66, $69, and $68 of sub-advisory AUM related to Gabelli Merger Plus+ Trust Plc and $196, $240 and $187 of 100% U.S. Treasury Fund managed by GAMCO at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.
(b) Includes $243, $237 and $222 where Associated Capital receives only performance fees, less expenses of $26, $25 and $24, respectively.

Alternative Investment Management

The alternative investment strategy offerings center around our merger arbitrage strategy which has an absolute return focus of generating returns independent of the broad equity and fixed income markets. We also offer strategies utilizing fundamental, active, event-driven and special situations investments.

Merger Arbitrage

Risk Arbitrage - The Announcement of a Merger is the Beginning of an Opportunity
Arbitraje de Riesgo - El anuncio de una fusión es el comienzo de una oportunidad
Tales of Arbitrage
Tales of Arbitrage
 

For the first quarter of 2024, the longest continuously offered fund in the merger arbitrage strategy generated gross returns of 1.33% (0.87% net of fees). A summary of the performance is as follows:

          Full Year        
Performance%(a) 1Q '24  1Q '23  2023  2022  2021  2020  5 Year(b)  Since
1985
(b)(c)
Merger Arbitrage                               
Gross  1.33   -0.23   5.49   4.47   10.81   9.45   7.42   10.05
Net  0.87   -0.63   3.56   2.75   7.78   6.70   5.09   7.11
 

(a) Net performance is net of fees and expenses, unless otherwise noted. Performance shown for an actual fund in this strategy. The performance of other funds in this strategy may vary. Past performance is no guarantee of future results.
(b) Represents annualized returns through March 31, 2024
(c) Inception Date: February 1985

Global M&A activity totaled $798 billion in the first quarter of 2024, an increase of 38% compared to 2023, an encouraging sign for deal making. The US remained the dominant geography for dealmaking with $485 billion of new deals, which increased to 61% of global activity from 47% a year ago, making it the largest percentage for US deal activity since the first quarter of 1989. Private Equity accounted for 19% of M&A activity in the first quarter as total value reached $154 billion, an increase of 13% compared to 2023. Energy & Power was the most active sector in the first quarter with total volume of $146 billion and accounting for 18% of overall value, followed by Technology at $125 billion (16%) and Financials at $105 billion (13%). 

The Merger Arbitrage strategy is offered by mandate and client type through partnerships and offshore corporations serving accredited as well as institutional investors. The strategy is also offered in separately managed accounts, a Luxembourg UCITS (an entity organized as an Undertaking for Collective Investment in Transferrable Securities) and a London Stock Exchange listed investment company, Gabelli Merger Plus+ Trust Plc (GMP-LN).

Acquisitions

Associated Capital Group's plan is to accelerate the use of its capital. We intend to leverage our research and investment capabilities by pursuing acquisitions and alliances that will broaden our product offerings and add new sources of distribution. In addition, we may make direct investments in operating businesses using a variety of techniques and structures to accomplish our objectives.

Gabelli Private Equity Partners was created to launch a private equity business, somewhat akin to the success our predecessor PE firm had in the 1980s. We will continue our outreach initiatives with business owners, corporate management, and various financial sponsors. We are activating our program of buying privately owned, family started businesses, controlled and operated by the founding family.

Shareholder Compensation

On May 8, 2024, the Board of Directors declared a semi-annual dividend of $0.10 per share, which is payable on June 27, 2024 to shareholders of record on June 14, 2024.

During the first quarter, AC repurchased 117,354 Class A shares, for $3.9 million, at an average price of $33.63 per share.

Since our spin-off from GAMCO on November 30, 2015, AC has returned $176.3 million to shareholders through share repurchases, exchange offers and dividends of $36.4 million.

At March 31, 2024, there were 21.420 million shares outstanding, consisting of 2.469 million Class A shares and 18.951 million Class B shares outstanding.

About Associated Capital Group, Inc.

Associated Capital Group, Inc. (NYSE:AC), based in Greenwich, Connecticut, is a diversified global financial services company that provides alternative investment management through Gabelli & Company Investment Advisers, Inc. (“GCIA”). We have also earmarked proprietary capital for our direct investment business that invests in new and existing businesses. The direct investment business is developing along several core pillars including Gabelli Private Equity Partners, LLC (“GPEP”), formed in August 2017 with $150 million of authorized capital as a “fund-less” sponsor. We also created Gabelli Principal Strategies Group, LLC (“GPS”) in December 2015 to pursue strategic operating initiatives.

Operating Loss Before Management Fee

Operating loss before management fee expense represents a non-GAAP financial measure used by management to evaluate its business operations. We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense.

  Three months ended
March 31,
 
($ in 000's) 2024  2023 
         
Operating loss - GAAP $(4,970) $(5,133)
         
Add: management fee expense (1)  1,982   2,543 
         
Operating loss before management fee - Non-GAAP $(2,988) $(2,590)
 

(1) Management fee expense is incentive-based and is equal to 10% of Income before management fee and income taxes and excludes the impact of consolidating entities. For the three months ended March 31, 2024 and 2023, Income before management fee, income taxes and excluding consolidated entities was $19,822 and $25,429, respectively. As a result, $1,982 and $2,543 was accrued for the 10% management fee expense in the first quarters 2024 and 2023, respectively. 

Table I

ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands)
 
  March 31, December 31, March 31,
  2024 2023 2023
ASSETS         
          
Cash, cash equivalents and US Treasury Bills $395,386 $406,642 $401,776
Investments in securities and partnerships  442,458  420,706  450,238
Investment in GAMCO stock  51,026  45,602  45,613
Receivable from brokers  32,966  30,268  11,023
Income taxes receivable, including deferred tax assets, net  6,444  8,474  8,825
Other receivables  2,126  5,587  1,460
Other assets  23,776  26,518  23,951
Total assets $954,182 $943,797 $942,886
          
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY 
          
Payable to brokers $6,332 $4,459 $15,208
Income taxes payable  1,723  -  -
Compensation payable  11,545  15,169  8,894
Securities sold short, not yet purchased  9,439  5,918  3,569
Accrued expenses and other liabilities  2,514  5,173  1,981
Total liabilities  31,553  30,719  29,652
          
Redeemable noncontrolling interests  5,779  6,103  7,233
          
Total equity  916,850  906,975  906,001
          
Total liabilities, redeemable noncontrolling interests and equity $954,182 $943,797 $942,886
 

(1) Certain captions include amounts related to a consolidated variable interest entity ("VIE") and voting interest entity ("VOE"); refer to footnote 4 of the Condensed Consolidated Financial Statements included in the 10-Q report to be filed for the quarter ended March 31, 2024 for more details on the impact of consolidating these entities.

(2) Investment in GAMCO stock: 2,382,170, 2,386,295 and 2,407,000 shares, respectively.

Table II

ASSOCIATED CAPITAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
 
  Three Months Ended
March 31,
 
  2024  2023 
         
Investment advisory and incentive fees $2,907  $2,411 
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FAQ

What was AC's book value per share at the end of the first quarter of 2024?

AC's book value per share ended the quarter at $42.80 per share.

What was the total revenue in the first quarter of 2024 compared to the previous year?

Total revenues increased to $3.0 million from $2.5 million in the first quarter of 2023.

What was the gross return from the merger arbitrage strategy in the first quarter of 2024?

The merger arbitrage strategy generated a gross return of 1.33% in the first quarter of 2024.

What was the global M&A activity like in the first quarter of 2024?

Global M&A activity totaled $798 billion in the first quarter of 2024, with the US dominating deal making.

What was the effective tax rate for AC in the first quarter of 2024?

The effective tax rate applied to AC's pre-tax income for the quarter ended March 31, 2024, was 21.5%.

Associated Capital Group, Inc.

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