Magellan’s sale of Guzman y Gomez underscores its Barrenjoey conundrum: Chanticleer

Magellan has agreed to sell its 11.6 per cent stake in GYG to Barrenjoey Capital Partners, the investment banking business helmed by Matthew Grounds and Guy Fowler in which Magellan already owns a 40 per cent stake.

Barrenjoey in turn plans to use the stake to seed a new trust for high net worth investors.

The cash and the cake?

So, Magellan can potentially claim a double win here. It gets $140 million in cash for its GYG stake, plus potentially another $6 million if tacos sales do well in the future. But theoretically, at least, it also gets a share in any profits Barrenjoey might generate from managing the new trust the GYG stake now sits in.

But selling to Barrenjoey also raises an obvious question. If Magellan is better off selling GYG to focus on its core funds management business, is it better off exiting Barrenjoey too?

Investment banking is not exactly core to delivering top quartile funds management returns. Nor is FinClear, the trade clearing fintech that Magellan also owns a stake in. There would seem to be a contradiction in the willingness of Magellan to offload the stake in GYG while sticking with its other outside investments.

McLennan is clearly sensitive to this view and the announcement of the GYG sale notably included a reconfirmation that Magellan wants to hang on to its Barrenjoey interest and FinClear, which are housed in a division called Magellan Capital Partners.

“Magellan is pleased with the performance of its Magellan Capital Partners investments. The outcome we have achieved with this transaction reinforces the strength of our partnership with Barrenjoey,” McLennan said. “We remain committed to the long-term success of Barrenjoey as a major shareholder.”

The view inside the Magellan camp is that GYG was the odd one out inside Magellan Capital Partners – at least Barrenjoey and FinClear are financial businesses.

Practically, selling a growing business such as GYG – now valued by this sale at a staggering $1.2 billion – might be easier than selling a 40 per cent stake in an investment bank or a fintech in the current environment. That’s even if Barrenjoey has already claimed top spot on the M&A league table, courtesy of its role advising KKR on its $20 billion bid for Ramsay Health.

The Magellan board also appears to be true believers in Barrenjoey, which has clearly had a strong first year in business. And after Barrenjoey engineered the GYG exit, that faith has probably been reaffirmed.

Although Magellan’s returns struggle and its funds under management remain under pressure, the question of whether it should continue to hold stakes in outside businesses will bubble away in the background.

Douglass did well on the stake in GYG. But it was a good-time deal, struck when Magellan was a high-flying market darling that believed it could spread its wings beyond funds management into venture capital.

Those days are gone. And now one of Douglass’ three start-up punts is too.

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